If you’re interested in investing in multiple companies at once, you might choose an investment product that tracks the Dow Jones average, giving you immediate diversification in your portfolio. If you’re looking for the best way to start investing in the Dow, here’s what you need to know.

How To Invest in the Dow Jones in 3 Steps

You can start investing in the Dow by following these three steps.

  1. Decide How to Invest There are a few different ways to invest in the Dow. One option is to simply buy shares in each of the 30 companies that make up the average. It is price-weighted, so buying one share in each will give you the right level of exposure to each business in the index. The other option is to buy shares in an exchange-traded fund (ETF) or mutual fund that tracks the Dow. This is easier because it means you only need to buy shares in a single security to get exposure to all 30 companies in the Dow.  However, mutual funds typically have minimum investment requirements in the hundreds or thousands of dollars, and both ETFs and mutual funds charge fees.
  2. Open an Account To start investing, you’ll need a brokerage account. That means finding a brokerage firm that you like and going through the account opening process. Typically, you’ll have to fill out some paperwork, provide identifying information, and link a bank account so that you can deposit funds. Some brokerages also operate their own mutual funds and ETFs and offer perks like discounted commissions when you buy their funds. If you have a specific fund you want to invest in, that can guide your choice of broker. If you’re just buying shares in each business, you’ll want to look at the brokers’ commissions charged for individual stock trades.
  3. Submit a Buy Order The last thing you need to do to start investing in the Dow is to start buying shares in the individual businesses or the tracking ETF or mutual fund of your choice. Decide how much you want to invest and submit a buy order to purchase some shares.

What You Need To Know Before You Invest in the Dow Jones

Before you invest in the DJIA, there are a few things that you should know. One is that the Dow Jones, as far as stock averages and indexes go, is relatively narrow. It only contains 30 businesses, while the aptly named S&P 500 has that number of companies. Additionally, the Dow focuses specifically on large, blue-chip stocks. It covers all industries but doesn’t contain transportation and utility stocks. Another thing to consider is that however you invest in the Dow, you’re likely to pay fees. Buying shares in each company individually may incur commissions, and it can be hard to invest precise amounts. If you use an ETF or mutual fund, it will be easier to invest but you’ll have to pay an expense ratio to help cover the fund’s total annual operating expenses. For example, if a fund charges a 0.25% expense ratio and you invest $20,000, you’ll pay $50 per year in fees.

Understand the Risks of Investing in the Dow Jones

Before investing in the Dow, it’s important to remember that it is an average of stocks and that stocks are relatively volatile.  Even established companies can experience large drops in their stock price during an economic downturn or when bad news occurs. If that happens, your investment could lose value. You might have to wait months or years for your stocks or funds to regain value so you can sell them to break even or earn a profit. In the worst case, you could lose all of the money you invest. This would require that every company in the Dow become worthless, which is unlikely, but it is still a theoretical possibility. That means that you should only invest money you can afford to lose.

Pros and Cons of Investing in the Dow Jones

Pros Explained

Diversified portfolio. Investing in the Dow or a fund that tracks the Dow means getting exposure to all 30 of the companies in the Dow at once.Exposure to major American companies. The Dow focuses only on blue-chip companies like 3M, Apple, and Coca-Cola. These companies have long histories and have been successful for years, which may mean they’ll continue their success.Low minimum investment to start. If you choose to invest by buying shares in a Dow ETF, you can usually get started with a small amount of money.

Cons Explained

Focus on one class of stock. The Dow focuses on blue-chip companies, so investing in the Dow means you’ll miss out on exposure to small and medium-sized companies.Limited number of ETF and mutual funds tracking it. Many fund providers choose to focus on broader indexes, like the S&P 500, instead of the Dow, so if you want to invest through a mutual fund or ETF, your options will be limited.

What To Watch Out for After You Invest in the Dow Jones

Investing in the Dow is like investing in any other security. The difference between investing in the Dow and investing in other things is that the Dow is a group of stocks, so you will end up buying shares in multiple businesses or an index fund, rather than a single company.

After you invest, it’s a good idea to keep an eye on your portfolio’s performance. With investments in general, but stock investments in particular, it’s important to plan for the long term. In the short term, prices can be volatile, so you have to be ready to hold your shares long enough that they’ll increase in value. However, that doesn’t mean you should ignore your portfolio. You should regularly reassess your investment strategy to make sure it aligns with your goals. If your goals change and necessitate an adjustment in your investment strategy, you should know how your portfolio is performing and be ready to change how you invest.

Should I Invest in the Dow Jones?

Investing in the Dow is often a good strategy for beginners because it gives you exposure to some of the largest, most important companies in the U.S.  If you don’t want to pick and choose the companies that you think will succeed, investing in multiple businesses with proven track records is an easier way to get exposure to more reliable stocks. Like all investing, putting your money on the Dow is subject to risk. If you don’t have the ability to hold your shares for the long term, you might want to opt for a less volatile investment that won’t potentially lose as much value. The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.