What is ASX 200 and why it is important

What is the S&P/ASX 200 Index?

The Australian Securities Exchange (ASX) features over 2,000 companies, yet the S&P/ASX 200 index, or ASX 200, is the main benchmark for accessing the Australian stock market, particularly among institutional investors.

Similar to the S&P 500 in the United States, this index tracks the 200 largest stocks on the ASX by market value, accounting for over 80% of the entire Australian stock market capitalization.

Launched in April 2000, the ASX 200 is rebalanced quarterly and has delivered an impressive annualized total return of 7.95% over the past 10 years. By investing in the ASX 200, you can achieve a diversified portfolio that captures the growth of the Australian economy.

As you can see, the total return of the ASX 200 is much greater than its price return. That’s because ASX 200 companies typically pay high dividends, with a dividend yield normally being around 4%.

What makes up the ASX 200?

The ASX 200 covers 11 sectors, including financials, materials, health care, consumer discretionary, industrials, real estate, energy, consumer staples, communication services, information technology, and utilities. It is dominated by financial and resource stocks, which account for more than half of its value.

Despite the inclusion of 200 stocks, the index is dominated by large companies. As of 29 February 2024, the top 10 constituents accounted for 47.8% of the index.

A familiar cadre of Australia’s most iconic and valuable companies are on the top of the index:

• The largest mining company in the world: BHP Group Ltd (BHP).

• The "big four" banks in Australia: Commonwealth Bank Australia (CBA), National Australia Bank Ltd (NAB), Westpac Banking Corp (WBC), and ANZ Group Holdings Ltd (ANZ).

• One of the largest global biotech companies: CSL Ltd (CSL).

Want to check out all constituent stocks in the ASX 200? You can keep an eye on the index (.XJO) on moomoo, and add stocks that interest you into your Watchlist.

How to invest in the ASX 200

Over the past decade, investing in the ASX 200 has generated annualized returns of approximately 8%. One way to gain exposure to the index is through an exchange-traded fund (ETF) that tracks its performance.

ETFs that track the ASX 200 can be bought and sold just like regular stocks.

However, deciding on the right timing to invest can be challenging. If you're unsure about when to invest in the index, dollar-cost averaging can be a helpful strategy.

This method involves distributing your investment across multiple time intervals, which helps mitigate the effects of market swings and lessens the risk associated with investing a large amount in one go. Over time, this technique can smooth out purchase prices, often resulting in more advantageous long-term returns by accumulating more shares when prices are low and fewer when prices are high.