The Dow Jones Industrial Average turned 130 years old on May 26, 2026. What his story shows above all: which major US index you choose as an investor has little influence on your long-term return.
• Dow Jones and S&P 500 have delivered almost identical returns since 1896
• Time diversification reduces portfolio risk more than holding many individual stocks at the same time
• Wrong decisions by the Dow Committee illustrate how difficult it is to select individual stocks
130 years of Dow Jones: What the index history really shows
On May 26, 1896, the Dow Jones Industrial Average started with twelve industrial companies. Today it includes 30 companies from sectors such as technology, health and finance and exceeded the 50,000 point mark for the first time in February 2026. However, the index is celebrating its birthday with a finding that may surprise investors.
According to data from Global Financial Data (Finaeon), the Dow Jones has achieved a dividend-adjusted annual return of 10.4 percent since its inception. The S&P 500 comes to 10.2 percent. Despite completely different construction methods, both indices have been virtually on par for 130 years, as MarketWatch columnist Mark Hulbert reports. What this number means can be read like this: If you stay invested for decades, you will end up at the same goal with both benchmarks. The discussion about which index is the better choice loses a lot of substance.
Temporal diversification
When it comes to diversification, most investors think broadly: many stocks, many sectors, many countries. That is correct, but incomplete. As Hulbert points out in his column for MarketWatch, holding a single stock for many months may provide a greater risk buffer than holding many stocks over a short period of time.
The concept of temporal diversification is behind this: the longer an investor stays in the market, the more short- and medium-term fluctuations balance out. This does not mean that long-term investors are protected from losses. However, it means that the risk-return ratio becomes more favorable for the investor as the holding period increases.
The 130-year price history of the Dow Jones provides the empirical framework for this thesis: despite stock market crashes, world wars, financial crises and structural upheavals, long-term returns remained stable and close to those of the S&P 500.
Price weighting versus market capitalization
If you look closely, you will see that Dow Jones and S&P 500 are built according to completely different principles. In the S&P 500, the weight of a stock depends on its market capitalization, i.e. the company’s total value on the stock market. The Dow, on the other hand, works with price weighting: a stock with a high price pulls the index more strongly than a cheaper one, regardless of how big the company actually is.
This leads to distortions that seem significant at first glance. When Apple completed its 1:4 stock split in 2020, its mathematical weight in the Dow Jones was reduced to a quarter. As Hulbert explains at MarketWatch, Apple’s impact on overall Dow Jones performance would have been four times greater had the company not split its 2020 stock price. A pure booking process can therefore have a real consequence for the index.
What is actually remarkable is that such design defects do not noticeably affect long-term returns. It suggests that temporal diversification largely neutralizes methodological weaknesses in index construction over decades.
When the Dow Jones Committee is wrong
The Dow Jones only contains 30 stocks. This makes the decisions of the so-called Averages Committee of S&P Dow Jones Indices, which decides on additions and deletions, particularly momentous. Two examples from the past illustrate how difficult this selection is and the consequences of wrong decisions.
In August 2020, Salesforce was included in the Dow Jones. Contemporary reports from Barron’s, which Hulbert references in his column, argued at the time that Meta Platforms (ex Facebook) would have been a more sensible choice. What has happened since then lends weight to this assessment: Salesforce lost a cumulative 33.9 percent in value through the end of May 2026, according to LSEG data, while Meta gained 118.3 percent over the same period.
The consequences of an earlier committee decision were even more drastic. In 1939, the board removed IBM from the Dow Jones. The stock significantly outperformed the index over the next four decades until IBM was reinstated in 1979. Both cases show that even experienced committees can make mistakes when selecting stocks.
And yet: Despite these mistakes, the long-term return of the Dow Jones remained close to that of the broader S&P 500. This is explained by the time factor. Short- and medium-term misallocations become less important the longer the observation horizon is.
What this means for index investors
The practical conclusion that Hulbert draws at MarketWatch is that investors who spend considerable time and resources identifying the supposedly better index or picking out high-yielding individual stocks do not achieve a systematic advantage if they hold these stocks for many years.
However, this explicitly applies to long time horizons. Anyone who trades in the short term cannot rely on time-based diversification. For investors with a horizon of ten, twenty or more years, however, based on the historical data, it makes little difference whether they choose the Dow Jones or the S&P 500 as a benchmark. The 130-year return history of both indices, documented in Global Financial Data (Finaeon), provides the empirical basis for this.
Paul Schütte, editorial team at finanzen.net
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