Stock market index — what is it? WIG20, S&P 500 and others

What is a stock market index?

A stock market index is an indicator tracking the value of a selected group of stocks. It shows how a given market or sector is performing — rising, falling, or standing still.

Imagine a thermometer: it doesn't measure the temperature of every air molecule, but gives an overall picture. Similarly, a stock market index measures market "temperature."

Quick Answer

A stock market index is an indicator tracking the value of a selected group of stocks, showing whether a market or sector is rising, falling, or flat — like a thermometer for market "temperature." Major examples include WIG20 (20 largest Warsaw-listed firms), S&P 500 (500 large US companies), and MSCI World (~1,500 developed-market firms). Most indices are capitalization-weighted, so larger companies move them more. Investors use indices as a benchmark, as the basis for low-cost index ETFs, and as a market-sentiment pulse. A price index counts only price changes, while a total return index (e.g., WIG20TR) also includes dividends. This is educational information, not investment advice.

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Most important indices

Polish

• WIG — broadest WSE (Warsaw Stock Exchange) index, includes all companies
• WIG20 — 20 largest and most liquid companies (PKO BP, Orlen, KGHM...)
• mWIG40 — 40 medium-sized companies
• sWIG80 — 80 small companies

Global

• S&P 500 — 500 largest American companies (Apple, Microsoft, Amazon...)
• MSCI World — ~1,500 companies from developed markets worldwide
• MSCI Emerging Markets — emerging markets (China, India, Brazil...)
• FTSE All-World — practically the entire global stock market
• DAX — 40 largest German companies
• Nikkei 225 — Japanese stock market

How is it calculated?

Most indices are capitalization-weighted — the larger the company, the greater its impact on the index. That's why Apple (~7% of S&P 500) affects the index much more than smaller companies at the bottom of the list.

Why do investors need indices?

1. Benchmark

The index is a reference point. If your portfolio earned 8% and WIG20 earned 12% — the market beat you. Maybe better to buy an index ETF?

2. ETFs and index funds

By buying an S&P 500 ETF (e.g., Vanguard S&P 500 — VOO), you automatically invest in 500 companies. You don't need to choose individual stocks.

3. Market sentiment pulse

S&P 500 falling 3% in one day = something's happening in the world. Indices are the fastest signal.

Price index vs total return index

• Price index (e.g., WIG20) — considers only stock price changes
• Total return index (e.g., WIG20TR) — also includes dividends. This is a better measure of real return

When comparing your results, use total return indices.

How Freenance can help

Freenance compares your portfolio performance with benchmarks — e.g., MSCI World or WIG20. You'll see if your investment decisions add value above market performance, or if you'd be better off just buying an index ETF.

👉 Compare your portfolio with the market — freenance.io

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FAQ

What is the difference between WIG20 and S&P 500?

WIG20 tracks the 20 largest and most liquid companies listed on the Warsaw Stock Exchange, so it reflects the Polish equity market. S&P 500 tracks 500 large US companies and is broadly considered a proxy for the American economy. The S&P 500 is far more diversified by company count and sector, while WIG20 is concentrated in banks, energy and commodities.

How is a stock market index calculated?

Most major indices use market-capitalisation weighting: each company's weight in the index is proportional to its free-float market value. That means a price move in a large company such as Apple or PKN Orlen affects the index much more than the same percentage move in a small constituent.

Can I invest directly in an index like WIG20 or S&P 500?

You cannot buy "the index" itself, but you can buy index ETFs or index funds that replicate it. Examples include ETFs tracking the S&P 500, MSCI World, or WIG20. This way you gain exposure to all constituents in a single instrument, with costs and tracking error disclosed in the fund's KID and prospectus.

What is the difference between a price index and a total-return index?

A price index, such as the standard WIG20, reflects only changes in share prices. A total-return index, such as WIG20TR, additionally reinvests dividends paid by constituents. When comparing your portfolio's performance to a benchmark, the total-return version is the more accurate reference.

Is following an index a good investment strategy?

Index investing is a widely studied passive strategy: instead of selecting individual stocks, you accept the market return at low cost. It does not guarantee profits and you can still lose money in market downturns. This is general educational information, not investment advice — your suitability depends on your goals, horizon and risk tolerance.