Talking indexes

Q. What main stock indexes are there? — D.M., Scottsdale, Arizona

A.

The Dow Jones Industrial Average, launched in

1896, is one of the oldest and most widely referenced, but it contains only 30 companies — such as Apple, McDonald’s, Microsoft, Nike, Walmart and Walt Disney.

The Standard & Poor’s

500 is much broader, featuring 500 of America’s biggest companies; examples include Amazon.com, Best Buy, Clorox, Dollar General, Hasbro, Hershey, Home

Depot, Johnson & Johnson and Tesla. Together, the 500 companies make up about

80% of the total market value of U.S. stocks, so the S&P 500 is often referenced as a proxy for the entire stock market.

Another key index, the Wilshire 5000, includes almost every publicly traded U.S. company. The Russell 3000 index contains roughly 3,000 U.S. companies (including small, medium and large ones), which together represent close to 98% of the U.S. market. The Russell 1000 is composed of the 1,000 largest companies in the Russell 3000, while the Russell 2000 comprises the 2,000 smaller companies in it.

There are many other major indexes, such as the FTSE Global All Cap, which aims to represent the entire world’s stock market; it encompasses more than 10,000 companies of varying sizes from dozens of countries, some with developing economies.

Various other indexes represent different countries, geographical regions, sectors or industries. And some focus on assets other than stocks, such as bonds.

Q. What’s a “real” return? — A.B., Troy, Michigan

A.

It’s a gain that has been adjusted by subtracting the effect of inflation. For example, if an investment has averaged annual gains of 10% over a period when inflation averaged 3%, the real average return would be about 7%.

Increase your Social Security benefit

The average monthly Social Security retirement benefit was only $1,840 as of August, or about $22,000 over the course of a year. Those who have earned more than average over their working lives will receive above-average benefits, but Social Security will still provide only a fraction of preretirement income. Still, there are things most of us can do to increase our future benefits.

For starters, aim to work for at least 35 years because the formula the Social Security Administration uses to determine your benefit is based on your (inflation-adjusted) earnings in the 35 years in which you earned the most. If you work for only 30 years, there will be five zeros factored into the calculation, shrinking your benefit. If you work for 38 years, the SSA will kick out the three years in which you earned the least.

This next tip is probably obvious: Earn as much as you can before retiring. The more you earn, the bigger your future benefits will be — up to a point. (That limit increases in most years, and for 2023, it’s $160,200.) That’s easier said than done, of course, but you might try various strategies to increase your income for a few or many years. For example, ask for (and deserve) a raise every few years. Pursue a new certification, professional designation or degree in order to qualify you for higher-paying jobs.

Consider taking on a side gig or two — ideally something you enjoy, such as making and selling crafts, giving music or language lessons or driving for a ride-sharing service.

Consider waiting to start collecting your retirement benefits, too. You can begin collecting as early as age 62 or as late as age 70. Starting early means smaller checks, but many more of them. Delaying beyond your full retirement age (which is 66 or 67 for most of us) will make them bigger. Read up on this decision, because everyone’s situation is different, and there are good reasons to start early, on time or late.