Many people commonly think of the Dow Jones Industrial Average (DJIA) or the S&P 500 when talking about indices. However, these aren’t necessarily the most accurate. They only track a limited number of large-cap stocks. For a more broad-based and float-adjusted representation of the U.S. equity market, you should look to the Wilshire 5000 Index.
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Table of Contents
What Is a Stock Market Index?
Reviewing a stock market index is essential before diving into the Wilshire 5000 Index. Firstly, a stock market index is a statistical gauge that reflects the performance of a particular set of stocks or the overall stock market. Its purpose is to assess the stock market’s performance, patterns, and fluctuations as a whole or a specific sector, industry, or segment.
Secondly, stock market indices provide investors and financial professionals with a benchmark to evaluate the performance of individual stocks or portfolios against the broader market or sector.
In summary, a stock market index serves as a benchmark that tracks the performance of a group of stocks. As a result, it gives investors insight into the overall market or specific sectors.
How Are Indices Constructed?
Indices are created by calculating a weighted average of selected stocks in a specific market or sector. Determine weights by market capitalization, price, or other criteria.
Calculate index value by monitoring changes in the prices or market capitalizations of the stocks it represents.
What can an Index tell us? Stock market indices track a specific group of stocks and provide insights into market trends, investor sentiment, and overall market health.
Investors often use indices as yardsticks to assess their investment performance and make informed investment decisions.
Can you directly buy stock market indices? In a nutshell, no. Stock market indices, like the Wilshire 5000 Index, are not direct investments that can be bought or sold. However, don’t despair—you can still buy them in a roundabout way.
How to Gain Exposure to Stock Market Indices
However, you can gain exposure to stock market indices, like the Wilshire 5000 Index, through index funds, exchange-traded funds (ETFs), and index futures and options.
Let’s take a peek at your buying options:
- Index Funds: Index funds seek to imitate the performance of a particular stock market index. The funds invest in the securities that make up the index based on their respective weightings. Buying shares of index funds directly through your brokerage account is simple.
- Exchange-Traded Funds (ETFs): ETFs are similar to index funds. However, they trade on stock exchanges like individual stocks. ETFs also seek to track the performance of a specific index. As a result, it gives you an easy way to gain exposure to a diversified portfolio of securities.
- Index Futures and Options: You can also buy futures and options contracts based on stock market indices to speculate on or hedge against movements in the index. What’s nice about futures and options is that they allow you to take a leveraged position on the index without owning the underlying stocks.
What Is the Wilshire 5000 Total Market Index?
The Wilshire 5000 Total Market Index is a market-capitalization-weighted index encompassing a broad view of the U.S. equity market. It comprises over 6,700 publicly traded companies. This index represents the entire U.S. stock market. How great is that?
The Wilshire 5000 was introduced in 1974 by Wilshire Associates to provide a complete overview of the U.S. stock market, encompassing large-cap, mid-cap, and small-cap stocks. The name “Wilshire 5000” signifies the approximate number of stocks it included at the outset.
Does the Wilshire 5000 Index contain stocks outside of the U.S.? No. The index focuses on American stocks actively traded in the United States.
The Purpose of the Wilshire 5000 Index
The Wilshire 5000 Total Market Index aims to provide a comprehensive view of the performance of the U.S. equity market by tracking the value of almost all publicly traded equities in the United States.
This index measures the combined market value of all U.S.-headquartered public companies, ranging from small-cap to large-cap.
The goal of the Wilshire 5000 Index is to represent the entire U.S. stock market accurately. Therefore, it offers investors a benchmark for overall market performance.
A Broad-Based Index
The FT Wilshire 5000 Index aims to be the most comprehensive market index. Its purpose is to mirror the performance of the entire market. While it doesn’t encompass every publicly traded company, it includes more than other commonly referred to indices such as the S&P 500 or the Dow Jones Industrial Average.
A broad-based index mirrors the market’s overall movement by including a wide range of stocks across multiple sectors. The FT Wilshire 5000 Index is a market capitalization-weighted index that seeks to represent 100% of the U.S. investible market.
Wilshire 5000 Index Accuracy vs S&P or DIJA
By including a vast array of stocks, the index can provide a more accurate portrayal of market trends than other narrower indices. For example, the S&P 500 or the Dow Jones Industrial Average only tracks a limited number of large-cap stocks.
The Wilshire 5000 is market-capitalization-
Wilshire 5000 Index Five Second Recap
- The Wilshire 5000 Index consists of more than 6,700 publicly traded companies in the U.S. and seeks to represent 100% of the U.S. investible market.
- Its purpose is to mirror the performance of the entire market.
- The FT Wilshire 5000 Series aims to provide a broad-based, float-adjusted representation of the U.S. equity market.
- The FT Wilshire 5000 Index is a market capitalization-weighted index.
The FT Wilshire 5000 Series
The index, previously known as the Wilshire 5000 Total Market Index, was rebranded on June 30, 2021, to reflect its extensive coverage and comprehensive inclusion of the U.S. stock market.
In collaboration with The Financial Times, Wilshire introduced six additional indexes as part of the FT Wilshire 5000 Series. These additional indexes consist of the following:
- FT Wilshire 2500 Index (FTW2500),
- FT Wilshire US Mega Cap Index (FTWUSG),
- FT Wilshire US Large Cap Index (FTWUSL),
- FT Wilshire US Mid Cap Index (FTWUSD),
- FT Wilshire US Small Cap Index (FTWUSS) and the
- FT Wilshire US Micro Cap Index (FTWUSO). This index series includes Size Indexes for mega-cap, mid-cap, small-cap, and micro-cap segments.
Gain Exposure to the Wilshire 5000 Index
One way to gain exposure to the Wilshire 5000 Total Market Index is through an index fund or an exchange-traded fund (ETF) that tracks this index. Below are some options of funds you can invest in:
- Investing in a Wilshire 5000 Index Fund: You can invest in either a mutual fund or an index fund that follows the performance of the Wilshire 5000 Index. These funds generally contain a diverse collection of stocks that imitate the makeup of the index. Investing in a Wilshire 5000 Index fund gives you access to a wide range of U.S. stocks across different market capitalizations.
- Investing in a Wilshire 5000 ETF: Another option is to invest in an exchange-traded fund (ETF) designed to replicate the performance of the Wilshire 5000 Index. ETFs trade on stock exchanges like individual stocks and provide investors with a cost-effective way to gain diversified exposure to the entire U.S. stock market.
What Are Some Other Broad-Based Indices?
Some popular stock market indices are the S&P 500, Dow Jones Industrial Average (DJIA), Nasdaq Composite, and FTSE 100. Each index has its way of choosing which companies to include.
Let’s break them down!
S&P 500 Index
The S&P 500 Index measures the performance of the 500 largest U.S. publicly traded companies, covering about 80% of the total U.S. stock market capitalization.
FTSE All-World Index
The FTSE All-World Index captures the performance of over 3,000 companies in 47 countries, covering 90% of the global stock market capitalization.
MSCI World Index
The MSCI World Index is a capitalization-weighted index that tracks the performance of over 1,600 companies in 23 developed countries worldwide, accounting for around 85% of the investable equity universe.
Dow Jones Global Total Stock Market Index
The Dow Jones Global Total Stock Market Index, representing approximately 100% of the global stock market capitalization, gauges the performance of more than 32,000 publicly traded companies across 49 countries.
Russell 3000 Index:
The Russell 3000 Index monitors the performance of the 3,000 largest publicly traded companies in the U.S. This index covers approximately 98% of the total U.S. stock market capitalization and is commonly recognized as a benchmark for the U.S. equities market.
Final Thoughts: Wilshire 5000 Index
Using the Wilshire 5000 Index as a benchmark or investing in funds that track this index can expose investors to a broad representation of the U.S. stock market and effectively diversify their investment portfolio.
By encompassing a wide range of publicly traded companies and incorporating adjustments for market capitalization, these indexes provide a thorough overview of market performance and serve as significant benchmarks for investors and financial professionals.
Frequently Asked Questions
3,867 stocks are currently on the Wilshire 5000 Index.
FRED discontinued the Wilshire data as of June 6. 2024, but it is still an active index.
Traders view Wilshire for better, broader data as it's a larger index.
The Wilshire has more stocks on it than the Russell 3000 index.
