The Wilshire Index is a stock market index which aims to track all actively traded stocks in the United States. It is also known as the Wilshire 5000, while its full name is the Wilshire 5000 Total Market Index. There are associated index funds which benefit from diversity but may have high fund costs.
Many stock market indices aim to cover a select group of stocks. For example, the Dow Jones Industrial Average only tracks 30 major companies. The NASDAQ index tracks the 100 largest companies, and excludes financial firms.
The Wilshire Index, however, covers as many US-based companies as possible. This includes stocks which are traded on a variety of markets, including NASDAQ and NYSE. The only stocks excluded are those where there is so little trading, or the firm is so small, that there is no readily available market price. These stocks are often known as penny stocks.
The name of the Wilshire Index comes from Wilshire Associates, the company which began the index in 1974. It was taken over by Dow Jones in 2004. The reference to 5000 comes from the approximate number of stocks covered when the index launched. In 2010, the number of stocks covered was more than 6,300.
The index is a market capitalization weighted fund. A weighted fund is one where particular emphasis, known as weight, is given to certain stocks, rather than the index simply being a straight average. This avoids wild fluctuations in less significant stocks having a disproportionate effect on the entire index.
The weighting for the Wilshire Index is based on market capitalization. This is calculated by multiplying the number of shares in a company by its current market price. In effect, the market capitalization is the total value the market places on a company at any particular moment. This is the figure being referred to when news articles report large amounts being "wiped off the value" of either an individual company or an entire market.
It is possible to invest in Wilshire Index funds. These aim to buy and sell stocks such that the return on the investment closely matches the overall performance of the index. Because the Wilshire Index covers more stocks than most indices, it is generally less prone to excessive movements up or down caused by particular stocks or industry sectors. The management costs of investing in a Wilshire Index fund may be higher than most simply because the fund managers have more stocks to keep track of.
