The Dow is the first of many "Metrics" -- it measures the value of 30 large companies that Dow Jones & Company feels best represent American industry. The Dow is a subset of the "S&P 500," which stands for "Standard and Poor's Register of Corporations 500" where the "500" is the 500 largest companies in the United States. The Dow and the S&P 500 are two major metrics that money, portfolio, and mutual fund managers measure themselves against. It is quite intersting that 85 percent of mutual funds underperform the S&P 500.
So, how does this help you make money? It gives you a target for which to shoot. Some of the very large mutual funds charge you three, four, five, or even six percent to buy in and a large fraction of a percent each year to manage your money. After charging you all this, these funds underperform the S&P 500 Index, which you can own for as little as two-tenths of one percent per year!
How do these large funds get away with charging so much? The simple answer is most people don't know any better and get advice from someone who gets a commission to sell them a mutual fund.
I was one of those "innocents" many years ago. I was getting about 5% on $5,000 in a CD for my IRA. My "broker" called me and told me of a way to make a higher rate of return. He got me into a mutual fund his firm sold. Imagine my surprise when I got my first statement and found that my $5,000 investment was now worth $4,700 the day after I bought it because my broker got his six percent commission. Furthermore, imagine how I felt when I compared fund performance at the end of a year and found that there were MANY funds that didn't charge a six percent commission that also had much better performance than my fund.
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