Definition
The Wilshire 5000 Total Market Index (TMWX) is a comprehensive index representing virtually all publicly traded U.S. stocks. It serves as a benchmark measuring the performance of all U.S. equity securities with readily available price data. Named for the nearly 5000 stocks it contained at launch, it now includes over 3,500 companies due to mergers, acquisitions and listing standards.
Phonetic
“Wilt-sheer five thousand Total Market Index (tee-em-double-u-ex)”
Key Takeaways
- Comprehensive Coverage: The Wilshire 5000 Total Market Index (TMWX) includes nearly all U.S.-based stocks that meet specific eligibility criteria, making it one of the most comprehensive indices for measuring the U.S. equity market.
- Market Capitalization Weighted: The index is market capitalization-weighted, which means larger companies have a more significant impact on the index’s performance compared to smaller companies.
- Reliable Indicator of Market Performance: Because of its broad range and comprehensive nature, the TMWX is often used as a benchmark for other funds and investment products. It is also considered a reliable indicator of overall U.S. stock market performance.
Importance
The Wilshire 5000 Total Market Index (TMWX) is significant in the finance world as it provides a comprehensive measure of the entire U.S. stock market’s performance. It’s often referred to as the “total market index” because it includes practically all publicly-traded U.S. equity securities, essentially representing the whole equity market universe. As such, it offers a broader and more inclusive benchmark than narrower indices like the S&P 500. The TMWX’s importance can thus be found in its broad market representation and its capacity to serve as a critical benchmark for investors looking to understand market trends, compare their portfolio performance, or assess the overall health of the U.S. equity market.
Explanation
The Wilshire 5000 Total Market Index (TMWX) functions as a benchmark for the entirety of the U.S. equity market, hence why it is frequently referred to as the “total market index”. It offers a broad-based assessment of stock performance across a wide range of sectors, spanning both large and small companies. By doing so, it gives financial analysts, portfolio managers, and investors a comprehensive overview of how the market is performing as a whole. It serves a particularly important role for strategists and managers who are focused on diversifying portfolios as it helps gauge performance against the largest possible opportunity set.TMWX’s primary use is thus to provide a metric for comparison. Financial advisors, fund managers and analysts use it to assess if the investments under their management or consideration are outperforming, underperforming, or meeting the performance of the broad market. Consequently, it helps these professionals make key decisions about asset allocation, risk management, and investment strategy. Furthermore, its widespread use makes it an indicator of market sentiment, with significant changes in TMWX values reflecting broader economic trends and investor confidence.
Examples
1. Vanguard Total Stock Market ETF: This exchange-traded fund attempts to track the performance of the CRSP US Total Market Index, but it closely resembles the diversification and performance of the Wilshire 5000 Total Market Index as well. Both offer investors exposure to virtually the entire U.S. equity market, including a vast array of small, mid, and large-cap companies across both growth and value styles.2. BlackRock’s Investment in the Wilshire 5000: BlackRock, an American multinational investment management corporation, relies on indices like the Wilshire 5000 for piecing together investment strategies for clients. They might use the index as a benchmark, measuring their portfolio’s performance against it to understand if their strategies are effective.3. Strategic Asset Management Programs: Some investment companies or financial advisors might use the Wilshire 5000 Total Market Index as a reference while designing strategic asset management programs for their clients. This can help clients achieve a balanced portfolio with sufficient diversification across different sectors of the U.S. equity market.
Frequently Asked Questions(FAQ)
What is the Wilshire 5000 Total Market Index (TMWX)?
The Wilshire 5000 Total Market Index (TMWX), commonly referred to as the ‘total stock market index’ , is a market-capitalization-weighted index of the market value of all stocks actively traded in the United States.
Why is it called the Wilshire 5000?
When it was originally created in 1974, the index contained around 5000 companies. Although the number of companies has fluctuated over time, the name Wilshire 5000 is retained for historical continuity.
What does the Wilshire 5000 Index represent?
The index is designed to measure the performance of all U.S. equity securities with readily available price data. It serves as an excellent indicator of the overall health of the US stock market and economy.
How is the value of the Wilshire 5000 Index calculated?
The index’s value is calculated by adding up the capitalization values of all included companies and then dividing this total by a specific calculated value known as the index’s divisor.
How often is the Wilshire 5000 Index updated?
The index is updated on a real-time basis throughout the trading day, offering a constantly-refreshing view of market performance.
How can I invest in the Wilshire 5000 Index?
While you can’t directly invest in the index, there are many mutual funds and exchange-traded funds (ETFs) that track the performance of the Wilshire 5000, allowing investors to indirectly invest in the index.
Is the Wilshire 5000 Index a good indicator of the overall US stock market?
Yes, the Wilshire 5000 Total Market Index is considered one of the broadest and most comprehensive equity indicators, representing a wide array of companies across all sectors of the U.S. stock market, and is often used as a benchmark for the overall market.
How does the Wilshire 5000 Index compare to the S&P 500?
While both are commonly used benchmarks for the U.S. stock market, the S&P 500 focuses on larger, main industry companies, while the Wilshire 5000 includes all actively traded stocks, offering a wider view of the entire market.
Related Finance Terms
- Stock Market Index
- Equity Investment
- Market Capitalization Weighted
- Historical Returns
- Total Market Index Funds
Sources for More Information
