This is the 18th edition of The Valor Brief, my weekly newsletter. This week covers two topics:
- The Major Stock Market Indexes: S&P 500, Nasdaq, and Dow Jones
- Why Your Cash May Be Earning Less Than You Think
The Major Stock Market Indexes: S&P 500, Nasdaq, and Dow Jones
Turn on financial news for a few minutes and you will probably hear some version of this: “The market was up today.” Usually that is followed by numbers for the Dow, S&P 500, and Nasdaq.
Those three indexes are often treated as interchangeable measures of the stock market, but they are built very differently. The companies they include, the sectors they emphasize, and the way they assign weight to each company can all produce very different results.
Understanding those differences helps make sense of what “the market” is actually doing and whether a particular index is even a useful benchmark for your portfolio.
I also fully recognize that there are a lot of industry-specific words present when talking about investing and indexes. I thought it would be helpful to include some quick definitions.
Quick definitions
- Index: A group of investments used to measure how a particular part of the market is performing. The S&P 500, Nasdaq Composite, and Dow are all indexes.
- Market-cap weighted: Companies with a larger total market value have a bigger impact on the index.
- Price weighted: Companies with a higher share price have more influence on the index, regardless of the company’s total market value.
- Sector: A group of companies that operate in similar parts of the economy, such as Technology, Financials, Health Care, or Industrials.
- Sector allocation: The percentage of a portfolio or index invested in each sector.
- Overweight: Having a larger percentage invested in something than the benchmark you are comparing against.
- Underweight: Having a smaller percentage invested in something than the benchmark.
- Benchmark: A standard used to compare investment performance. For example, the S&P 500 is often used as a benchmark for large U.S. stock portfolios.
- Concentration: When a relatively small number of companies or sectors make up a large percentage of an index or portfolio.
- Market capitalization: The total value of a company’s publicly traded shares. It is calculated by multiplying the share price by the number of shares outstanding.
The S&P 500
The S&P 500 is probably the most useful of the three as a broad measure of large U.S. companies. Despite the name, it currently includes 503 stocks because a few companies have more than one share class in the index.
The index is market-cap weighted, which means larger companies receive larger weights. As of August 31, 2026, NVIDIA, Apple, and Microsoft were the three largest holdings, and the ten biggest companies together made up about 37.8% of the index.
That concentration means the S&P 500 can have a strong year even when a large portion of the companies inside it are struggling. If a handful of mega-cap companies are performing especially well, they can pull the overall index higher.
The sector mix also reflects that concentration. Information Technology made up about 37.9% of the S&P 500 as of August 31, with Financials around 12.3%, Communication Services at 9.5%, Health Care at 9.3%, Consumer Discretionary at 9.1%, and Industrials at 8.3%.
It is still a diversified index, but diversified does not mean evenly distributed.
The Nasdaq
The Nasdaq gets a little more confusing because the name refers to both the stock exchange and several indexes. When financial news reports “the Nasdaq,” it is usually referring to the Nasdaq Composite.
The Nasdaq Composite includes more than 3,000 securities listed on the Nasdaq exchange, so it is much broader by company count than either the S&P 500 or the Dow. Like the S&P 500, though, its largest companies still carry a great deal of influence.
The bigger difference is sector exposure. Recent data for the Fidelity Nasdaq Composite ETF showed technology at roughly 55% of the index, with Communication Services around 14% and Consumer Cyclical companies around 11%.
That gives the Nasdaq a much heavier growth and technology tilt. When large technology companies are leading the market, the Nasdaq can rise quickly. When those same companies fall out of favor, it can also decline much more sharply.
Even with thousands of companies included, the index remains highly concentrated at the top. An official Nasdaq factsheet earlier this year showed the ten largest holdings making up roughly 58% of the index.
The Dow Jones Industrial Average
The Dow is the odd one of the group.
It contains only 30 companies, but the bigger difference is how those companies are weighted. Unlike the S&P 500 and Nasdaq, the Dow is price weighted.
That means a company with a $500 stock price has more influence on the Dow than a company trading at $200, even if the company with the lower share price is significantly larger by total market value.
As of late September, Goldman Sachs and Caterpillar were two of the largest positions in the Dow because their share prices were relatively high. Microsoft and Apple, despite being much larger companies by market capitalization, had smaller weights.
The Dow also has a very different sector mix. Financials represented roughly 26.6% of the index, followed by Information Technology at 18.9%, Industrials at 16.0%, and Health Care at 13.9%.
That helps explain why the Dow can move very differently from the Nasdaq on the same day. A rally in banks, industrial companies, and health care stocks may help the Dow while a selloff in technology weighs heavily on the Nasdaq.
Both indexes can be telling the truth at the same time.
What does “overweight” actually mean?
This comes up constantly in investment conversations.
THE MATH
If technology makes up 37.9% of the S&P 500 and your portfolio has 50% in technology, you are overweight technology relative to the S&P 500. If you only have 25%, you are underweight.
Someone can say a portfolio is overweight financials, but that statement means very little until you know what it is being compared against. A portfolio could be overweight financials relative to the Nasdaq and underweight financials relative to the Dow at the same time.
Choosing the right benchmark
Benchmarking is useful when the comparison actually makes sense.
If you own a large-cap U.S. stock portfolio, the S&P 500 may be a reasonable benchmark. If your portfolio is heavily concentrated in growth and technology companies, the Nasdaq may be more relevant.
If your portfolio holds international stocks, small companies, bonds, or cash, comparing the entire account against the S&P 500 can become misleading.
THE MATH
Imagine a portfolio returns 9% during a year when the S&P 500 returns 12%. At first glance, it looks like the portfolio underperformed by 3%. But if 30% of the portfolio was intentionally invested in bonds because the investor was approaching retirement, comparing it directly against a 100% large-cap stock index does not tell the whole story.
A benchmark should reflect what the portfolio is actually designed to do.
That is also why beating the S&P 500 every year is not a very useful goal for most investors. A portfolio can take more risk, concentrate heavily in the hottest sector, and outperform for a period of time, but that does not necessarily make it a better portfolio for the person who owns it.
So which one is “the market”?
There really is no single answer.
The S&P 500 tracks about 500 large U.S. companies and is weighted primarily by market capitalization. The Nasdaq Composite includes thousands of Nasdaq-listed companies but is heavily tilted toward technology and growth. The Dow contains only 30 large companies and weights them by share price.
All three can tell us something useful about what is happening in stocks.
None of them tells us everything.
The next time you are at the family gathering and you hear your uncle say the market has been up and down, you can ask: Which one? Then proceed to share which index you prefer to follow.
Why Your Cash May Be Earning Less Than You Think
Cash has become a little more interesting over the last few years.
For a long time, interest rates were so low that there was not much difference between leaving money in checking, savings, or another short-term account. Today, that is not necessarily the case. Two people can each have $50,000 sitting in cash and earn very different amounts depending on where they keep it.
That does not mean every dollar should be moved into the highest-yielding option available. It does mean cash deserves a little more attention than it used to.
Checking accounts
Checking accounts are built for convenience. They are where bills get paid, paychecks land, debit cards connect, and day-to-day spending happens.
The tradeoff is yield.
THE MATH
$50,000 × 0.07% ≈ $35 a year
The FDIC’s national average for interest-bearing checking accounts was recently only about 0.07%. On a $50,000 balance, that would amount to roughly $35 over a full year.
That may be perfectly fine for money you need to access constantly. It becomes harder to justify when a large balance sits there month after month simply because no one has moved it anywhere else.
Savings accounts
Traditional savings accounts generally pay a little more, although the national average is still fairly low. Recent FDIC data put the average savings rate around 0.39%.
THE MATH
$50,000 × 0.39% ≈ $195 a year
On $50,000, that works out to about $195 over a year.
Savings accounts do have real advantages. They are easy to understand, easy to access, and deposits are generally FDIC insured within applicable limits. The issue is often that these won’t pay a competitive interest rate.
High-yield savings accounts
High-yield savings accounts are usually offered by online banks and tend to pay rates much closer to prevailing short-term interest rates.
You still get the simplicity of a bank account, but the yield can be several times higher than what a traditional bank may be paying.
The main thing to remember is that the rate is variable. A bank offering an attractive rate today can lower it later, especially as broader interest rates change.
Still, for emergency funds or money needed within the next year or two, a high-yield savings account can be a very reasonable place to look.
Money market funds
This is where the terminology starts to get confusing.
A bank money market account and a money market mutual fund are not the same thing.
A bank money market account is a deposit account and may be FDIC insured. A money market mutual fund is an investment that typically holds very short-term government securities, Treasury bills, and similar instruments.
For example, Fidelity’s SPAXX government money market fund recently had a 7-day yield around 3.34%.
THE MATH
$50,000 × 3.34% ≈ $1,670 a year
If $50,000 earned 3.34% for a full year, that would be roughly $1,670 in interest. Compare that with the $195 you might earn at a 0.39% savings rate. That is a difference of nearly $1,500 on the same amount of cash.
The money market fund is not an FDIC-insured bank deposit, though.
Treasury bills
Treasury bills are another option for money that needs to stay relatively safe but does not need to be spent tomorrow.
Short-term Treasury yields have recently been in the upper-3% range, which puts them in the same general neighborhood as competitive money market funds and high-yield savings accounts.
Treasuries are backed by the U.S. government, and the interest is generally exempt from state and local income taxes.
The tradeoff is convenience. You may need to buy specific maturities and manage when the money comes due, so they are not as simple as leaving cash in a bank account.
For money you know you will not need for a few months, though, they can be worth considering.
Cash should have a job
The highest interest rate is not automatically the best place for every dollar.
Money for next month’s bills needs to be easy to reach. An emergency fund should prioritize liquidity and stability. Money set aside for a house down payment next year may have a little more flexibility. Cash that you do not expect to touch for ten years probably deserves an entirely different approach.
That is why I like to think about cash based on its job.
Some money needs to be immediately available. Some needs to stay safe for a future purchase. Some may simply be sitting somewhere because it has always been there.
I see a lot of cases where people hold too much cash in that last category, keeping it in the same place simply because it has always been there.
If you have $30,000, $50,000, or $100,000 sitting in cash, take a look at what it is actually earning.
Sometimes the easiest financial improvement has nothing to do with finding a better stock or making a complicated investment move. It could start with a plan for idle cash.
If there’s one financial decision you’re wrestling with (a mortgage, debt payoff strategy, investment question, budgeting challenge, or something else entirely), I’d be happy to help. I’ve set aside time for a complimentary 15-minute conversation focused on one topic that’s on your mind.
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This newsletter is for informational purposes only and is not intended to serve as specific financial advice. Valor Financial Planning does not provide tax, legal, or accounting advice. Consult with a qualified professional for personalized financial advice tailored to your unique circumstances. Investment decisions should be made based on your individual goals, risk tolerance, and financial situation. Past performance does not guarantee future results.