Definition: Often called "the total stock market index," The Wilshire 5000 is the broadest stock market index -- a sampling of more than 5000 stocks representing a range of market capitalization (i.e. large-cap, mid-cap and small-cap).
Investor Application: According to its namesake, Wilshire Associates, "The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data."
However, the Wilshire 5000 is market-cap weighted, which means that larger companies (those with larger capitalization) will represent a larger portion (be among the top holdings) by percentage than the smaller companies. In other words, investors may feel that they have a diversified holding because of its exposure to so many stocks of different capitalization. However, the high exposure to large-cap stocks is so significant that the performance will have a high correlation (be similar to) most large-cap stock funds. For this reason, many investors choose to use an S&P 500 index fund to represent large-cap stocks and a separate index, such as the Russell 2000, to represent small-cap stocks within their portfolio.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.
