What is 'Broad-Based Index'

A broad-based index is 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.

The Smallest and Largest Broad-Based Indices

Down Jones Industrial Average

The Dow is the smallest, as well as the  second-oldest, U.S. market index after the Dow Jones Transportation Average. The Industrial portion of the name is largely historical, as many of the modern components have little to do with traditional heavy industry. It was conceived by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. It is currently owned by S&P Dow Jones Indices, which is majority owned by S&P Global. It is the best known of the Dow Averages, which are named after Dow and one of his business associates, statistician Edward Jones. The industrial average was first calculated on May 26, 1896.

Although designed to reflect the strength of the American economy, the index's performance is heavily influenced by global corporate and economic reports and domestic and foreign political events. War, terrorism and natural disasters can all impact the Dow.

Wilshire 5000 Total Market Index

Wilshire Associates, an investment management company, started the Wilshire 5000 Total Market Index in 1974, naming it for the approximate number of issues it included at the time. It was renamed the "Dow Jones Wilshire 5000" in April 2004, after Dow Jones & Company assumed responsibility for its calculation and maintenance. On March 31, 2009, the index reverted back to the Wilshire 5000 name when Wilshire Associates terminated its deal with Dow Jones.

The base value for the index was 1404.60 points on base date December 31, 1980, when it had a total market capitalization of $1,404.596 billion. On that date, each one-index-point change in the index was equal to $1 billion. However, index divisor adjustments due to corporate actions and index composition changes have changed the relationship over time, so that by 2005 each index point reflected a change of about $1.2 billion in the index’s total market capitalization.

RELATED TERMS
  1. Dow Jones Wilshire Mid-Cap Index

    A market-capitalization weighted index maintained by Dow Jones ...
  2. Dow Jones Wilshire Small-Cap Index

    Former name of the Wilshire US Small-Cap Index, a market-capitalization ...
  3. Dow Jones U.S. Market Index

    A market-capitalization-weighted index maintained by Dow Jones ...
  4. Total Return Index

    Total return indexes include any dividends in the calculation ...
  5. NYSE Amex Composite Index

    An index made up of stocks that represent the NYSE Amex equities ...
  6. Russell 3000 Index

    A market capitalization weighted that seeks to track 3,000 of ...
Related Articles
  1. Insights

    An Introduction to Stock Market Indices

    Lear more about the five most talked about stock indices and what makes them all different.
  2. Investing

    The Pros and Cons of Indexes

    Learn about the advantages and disadvantages of stock indexes and passive index funds. Discover how there is an opportunity cost to using index funds.
  3. Insights

    Investment Fundamentals: S&P 500 Index Vs. Russell 1000 Index

    Learn about the similarities and differences between the S&P 500 and the Russell 1000 indices, and discover why investors may choose one over the other.
  4. Trading

    Using Index Futures to Predict the Future

    Want to know whether the stock market will open up or down? Learn about index futures and how they can help predict how the market will trade.
  5. Trading

    Index Options: A How-To Guide

    Index options, financial derivatives that derive their value from a stock index, can provide stability and peace of mind for less risky investors.
  6. Investing

    How to Use Index Funds to Diversify Your Portfolio

    Index funds can act as quality diversification tools.
  7. Investing

    The Hidden Flaws of Index Investing

    Index investing isn't always better than active investing. Here's why.
  8. Investing

    ETF Tracking Errors: Protect Your Returns

    Tracking errors tend to be small, but they can still adversely affect your returns. Learn how to protect against them.
RELATED FAQS
  1. Is it possible to invest in an index?

    While you cannot buy indexes, which are just benchmarks, there are three ways for you to mirror their performance. Read Answer >>
  2. 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 >>
  3. How can I find out if a company I like is included in an index?

    Learn how to find out what indexes include a company's stock. Determine the importance of predicting future price movement ... Read Answer >>
  4. How Do I Find Mutual Funds That Track Indexes?

    Two good sources for finding index funds are Fidelity Investments and Vanguard. Read Answer >>
  5. What are the pros and cons of using the S&P 500 as a benchmark?

    Learn about the advantages and disadvantages of using the S&P 500 as a benchmark for portfolio performance, and understand ... Read Answer >>
Hot Definitions
  1. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  2. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  3. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  4. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
  5. Sharpe Ratio

    The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
  6. Capital Expenditure (CAPEX)

    Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial ...
Trading Center