Understanding Index Divisors and Their Impact on ETFs

When you see the S&P 500 trading at 6,000 points or the Dow Jones at 40,000, these aren’t dollar amounts – they’re index levels calculated using divisors. While ETFs don’t have their own divisors, understanding how index divisors work is crucial for grasping how ETFs track their benchmarks and why they maintain price stability through corporate actions.

This lesson will show you exactly why index divisors need adjustments (even when it seems unnecessary), how different types of indices handle these adjustments, and why ETFs can sidestep this complexity entirely.