The Wilshire 5000 Index, often called the Wilshire 5000 Whole Market Index, is a market capitalization-weighted index that consists of all U.S. equities securities for which price information is publicly available. This index, which reflects the performance of almost all publicly traded U.S. corporations, is regarded as the most inclusive of the U.S. equity markets.
Barron's originally released the Wilshire 5000 Index on January 13th, 1975, with 5,000 stocks in it. However, the number of companies included in the index has increased along with the growth of the US equities markets. Around 98% of the investable U.S. equities market was represented by the index as of September 2021, which included slightly under 7,000 businesses.
Market capitalization is taken into account when calculating the Wilshire 5000 Index, which means that companies with a larger market capitalization, or market cap, have a greater impact on the index's performance than smaller companies. Market capitalization is calculated by multiplying a company's share price by its outstanding shares. For example, a company with 1 million shares outstanding and a share price of $100 has a market capitalization of $100 million. A company with a larger market cap will have a greater influence on the index's performance than a company with a smaller market cap, even if they have the same percentage change in price.
The Wilshire 5000 Index is often used as a benchmark for the U.S. equity markets because it includes such a broad range of companies. Many professional and institutional investors track the index to gain a sense of how the U.S. equity markets are performing. The Federal Reserve Board also monitors the Wilshire 5000 Index as a measure of the overall health of the U.S. economy.
One of the advantages of the Wilshire 5000 Index is its diversification. Because it includes nearly all publicly traded U.S. companies, it offers exposure to a wide range of industries and sectors. This can help investors mitigate risk by spreading their investments across many companies rather than investing in just a few individual stocks.
However, there are some limitations to using the Wilshire 5000 Index as a benchmark. For example, the index does not include companies that are not publicly traded, such as privately held companies or those that are owned by a single family or individual. Additionally, the index only includes U.S. companies, so it does not capture the performance of international companies.
Another limitation of the Wilshire 5000 Index is its focus on market capitalization. Companies with a larger market cap are given greater weight in the index, which means that the performance of the index is heavily influenced by the performance of the largest companies. This can make the index less representative of the overall U.S. equity markets, which includes many smaller companies that may not have as much impact on the index's performance.
Despite these limitations, the Wilshire 5000 Index remains a widely used benchmark for the U.S. equity markets. Many investors use the index to gauge the performance of their portfolios and to make investment decisions. The index is also used by financial professionals to develop investment strategies and to create financial products such as exchange-traded funds (ETFs) and mutual funds.
In conclusion, the Wilshire 5000 Index is a market capitalization-weighted index that includes nearly all publicly traded U.S. companies. It is widely used as a benchmark for the U.S. equity markets and is tracked by many professional and institutional investors. While there are some limitations to using the index as a benchmark, its diversification and broad representation of the U.S. equity markets make it a valuable tool for investors and financial professionals alike.
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