The Dow Jones Industrial Average has represented trading in the leading companies that trade in the stock market since the index was created toward the end of the 19th century. The index has evolved from containing one dozen companies to 30 individual stocks, and the components have changed over the years. To capture some of the returns that the Dow is earning, you can invest in individual companies or funds that buy into the "Dow 30" as a strategy.
Decide where you'd like to open up a brokerage account. Whether you invest in individual Dow stocks or buy into a professionally managed fund with Dow-related strategies, you'll need to have a broker to facilitate your trade orders.
Consider using a discount broker. These accounts can be opened online, and while discount brokers don't offer the investment advice that their counterpart full-service brokers provide, they're cheaper. Considering you already know the stocks you want to buy, you probably won't need the advice of a more pricey full-service broker.
Understand that you can gain access to all 30 Dow stocks by investing in an exchange-traded fund, which is an index fund that copies performance in another index, such as the Dow. You'll need a broker to invest in ETFs.
Learn which companies are included in the Dow Jones Industrial Average. The index doesn't always have the same stocks, but it has had the same number of stocks -- 30 -- since 1928. These companies are known as Dow components.
Find the most current list of Dow components. The stocks don't change often. General Electric was one of the original Dow components in 1896 and was still included in the index in 2013.
Make sure you've got the most recent list of Dow components. Even though these stocks don't change often, companies can be replaced by the Dow Jones Averages Committee. Kraft, for example, replaced insurance company AIG in 2008, only to be removed four years later to make way for United Health.
Separate all of the stocks in the Dow that pay dividends, which are cash payments made from a company's extra cash. These companies make it clear if they're dividend payers on the investor relations pages of their websites. If you're not sure, call the company's investor relations department and ask.
Determine your timeline for investing. Dividends are paid quarterly and are appropriate for investors with a long-term investment horizon of many years. The benefit of dividends is that if a company's stock price drops, you may still earn income from the dividend payments, according to a 2013 ABC News article.
Decide if you want exposure to the entire group of Dow stocks. You don't have to buy each one individually, which is good because that could result in commission fees for each investment. By investing in an ETF that is modeled after the Dow, you're essentially buying into all 30 stocks for a single share of an ETF.
Determine the amount of money you want to invest. You can transfer money over from another investment account, such as a retirement account, to purchase numerous shares of a Dow ETF. You can also tap into the money in your savings account to buy fewer shares.
Research the various Dow ETFs available. Considering that all of these indexes are copying performance in the Dow, you don't have to worry about finding the most talented money manager. You can invest in the most affordable ETF without sacrificing returns.
Items you will need
- The higher the stock price, the more influence a Dow component influences the trading direction of the Dow Jones Industrial Average.
- Any investment carries a risk of possible financial loss. The stocks that trade in the Dow Jones Industrial Average represent no exception.
- Kiplinger: Should I Use a Discount Broker or a Full Service Broker?
- Forbes: The First 12 Dow Components -- Where Are They Now?
- Dow Jones Indexes: Dow Jones Industrial Average Fact Sheet
- CNN Money: What's Better -- ETFs or Mutual Funds?
- USA Today: No Bologna -- Dow Jones Index Boots Kraft, Adds UNH
- Bloomberg: UnitedHealth Replaces Kraft in Dow Jones Industrial Average
- Dow Jones Indexes: Five Questions About the Dow That You Always Wanted to Ask
- ETF Trends: How the Dow and S&P 500 ETFs Stack Up
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