DEFINITION of 'Broad-Based Index'

An index designed to reflect the movement of the entire market. The smallest broad-based index is the Dow Jones Industrial Average with 30 industrial stocks and the largest is the Wilshire 5000 Total Market Index. Other examples include the S&P 500, Russell 3000 Index, AMEX Major Market Index and the Value Line Composite Index.

BREAKING DOWN 'Broad-Based Index'

Investors who want the maximum benefit of diversification can invest in securities that have as their underlying tracking instrument an index or other financial product made up of several, well-diversified stocks. Securities based on broad-based indices allow investors to effectively own the same basket of stocks contained in a major index while committing a small amount of financial resources.

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RELATED FAQS
  1. What is the best way to measure the total market?

    There is a variety of market indices which function as statistical gauges of the market's activities. Many investors look ... Read Answer >>
  2. Is it possible to invest in an index?

    First, let's review the definition of an index. An index is essentially an imaginary portfolio of securities representing ... Read Answer >>
  3. How do indexes determine which stocks are removed or added to them?

    Stock indexes are formed based on the kinds of stocks or financial securities they want to track. For example, the Standard ... Read Answer >>
  4. Is there an index for tracking mid-cap stocks?

    Learn the specifics about indexes available for tracking companies with market capitalizations in the medium-sized, small ... Read Answer >>
  5. The broadest measure of the activity and movement of the overall stock market can ...

    The correct answer is b). The Wilshire 5000 is a value weighted index that consists of more than 7,000 issues that trade ... Read Answer >>
  6. Why can you short sell an ETF but not an index fund?

    To answer this question, we should first define exactly what an index fund is. An index fund is a mutual fund, or a basket ... Read Answer >>
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