How finance folk use it
In finance, an index is a way to track how a group of assets perform in a way that is standardized. That means it can be easily repeated and compared to others of its type.
The Philippine Stock Exchange Index (PSEi) is probably the best-known of the indexes in the Philippines.
Is it good or bad?
An index provides a benchmark that you can use to see how well your portfolio (as a whole or certain products in it) is doing in relation to the index’s asset class. The way that an index is calculated can vary according to the specific index.
Looking at an index can be especially useful if you’ve invested in a fund that aims to match the benchmark’s performance by copying its composition (in other words, an index fund).
Other fund types can still use the index as a benchmark, even if they don’t contain exactly the same assets.
What it means for you
An index is useful as a benchmark to measure your portfolio’s performance against and to see how a particular fund is doing. Just remember that it isn’t advisable to use the index as your basis of comparison for a different asset class.