Investing wisely in the Internet economy

ByMatt Krantz, Usa Today
August 07, 2012, 7:44 PM

— -- Q: Is it possible to invest in the USA TODAY Internet 50 index? What if I put $2,000 into all 50 of the stocks?

A: The USA TODAY Internet 50 index measures the health of the Internet economy. And the Internet continues to be an increasingly important aspect of most people's personal and business lives.

The USA TODAY Internet 50 tracks and monitors the ups and downs of shares of 50 companies that are vital to different areas of the Internet economy.

Currently, the USA TODAY Internet index is just a benchmark to be used for market monitoring and not an investment vehicle. There are no mutual funds or exchange traded funds tied to the index that investors can buy.

Some investors may try to come up with ways to invest in the index. The way you're suggesting, though, isn't going to get you there. The USA TODAY Internet 50 index, as is the case with many large indexes, is market-cap weighted. In other words, the index gives more weight to the companies with the largest market values.

Using your technique, plunking $2,000 down on all 50 stocks, would give you an equal-weighted index. That means you would be skewed much differently than the actual USA TODAY Internet 50 is. You would have an equal weighting in many of the very small companies in the index, while the actual index gives an outsized weighting to the giants such as Apple aapl and Cisco Systems csco.

Additionally, the costs could be brutal. You'd need to pay a commission to buy each stock in the index. Even at a low-cost brokerage firm, the commissions could be $10 each, adding up to $500 to buy and $500 to sell them all. Additionally, you'd need to rebalance periodically as some stocks inevitably did better than others. All the while, your portfolio would drift further away from the strict market-cap weighted USA TODAY Internet 50.

Don't despair. While the USA TODAY Internet 50 is designed for monitoring the market, there are other options for those who want to invest in a diversified basket of Internet stocks. A few options to consider include the Internet HOLDRs hhh, Internet Architecture HOLDRS iah, First Trust Dow Jones Internet Index fdn, Internet Infrastructure HOLDRS iih and the PowerShares Nasdaq Internet pnqi. There are also Internet mutual funds you can locate using USA's .

As you can see, the USA TODAY Internet 50 is a great gauge to monitor the health of the Internet economy. But for making actual investments, you'll want to consider other alternatives.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at To submit a question, e-mail Matt at Follow Matt on Twitter at:

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