What is the best way to measure the total market?

By Investopedia Staff AAA
A:

There is a variety of market indices which function as statistical gauges of the market's activities. Many investors look at the Dow Jones Industrial Average or the Nasdaq Composite Index as benchmarks or representatives of the stock market as a whole. However, these indices are composed of only 30 and 100 stocks, respectively. A better and broader representation is offered by the Standard and Poor's 500 Index, which consists of 500 of the most widely traded companies in the United States. But the index with the broadest representation of the total market is the Wilshire 5000 Total Market Index. The diagram below illustrates both the number of securities and the degree of representation of each index:

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Contrary to what its name implies, the Wilshire 5000 actually includes a lot more than 5,000 equities. In 2004, the index contained more than 7,500 equity securities, and Wilshire's website states that the purpose of the index is to "measure the performance of all U.S. headquartered equity securities with readily available price data."

So, if you really want to measure the "total market", you would be best advised to check out the Wilshire Total Market Index. Although it does not include every publicly traded company, it does include a lot more than the other indices which people often refer to as "the market".

For more information on the Wilshire 5000, check out the company's website.

For more information on the different indices, check out Indexes: The Good the Bad and the Ugly, A Market by Any Other Name and the Index Investing Tutorial.

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