The Wilshire 5000 Index: What You Need To Know

Wilshire 5000 IndexMost investors probably know about the S&P 500 Index, the go-to index for large-cap stocks. They may also be aware of the Dow Jones where they can find the Dow Jones Industrial Average. The S&P 500 Index contains 500 of the largest publicly-traded U.S. stocks by market capitalization, as well as other criteria. It could be the most well-known index for investors with an index fund watchlist.

It is likely that investors know less about the broader Wilshire 5000 Index. This is a market-capitalization-weighted index of equities. It covers all equities that are actively traded in the United States on the American Stock Exchange. The number of stocks contained within the Wilshire 5000 make it a good tool to find investment ideas. Investors looking for high-quality stocks with growth potential should find several good candidates in the Wilshire 5000 total market index.  It’s a good source for identifying market value.

Wilshire 5000 Index Overview

The Wilshire 5000 Index holds thousands of stocks—but not 5,000 right now. There were 5,000 when the index was set up in 1974, by Wilshire Associates. As of 6/30/18, there were 3,486 stocks in the index. The mean market capitalization of the index is $8.5 billion. The goal of the index is to track the performance of the entire U.S. stock market including the New York Stock Exchange (NYSE). This is why the Wilshire 5000 is sometimes known as the total market index.

The Wilshire 5000 is a diverse index, as is the S&P 500. The Wilshire 5000 has hundreds of stocks across all major market sectors covering the total stock market. People can invest via an ETF or mutual funds. The sectors for stocks are as follows:

  • Information Technology: 24% of holdings
  • Financials: 15% of holdings
  • Health Care: 13% of holdings
  • Consumer Discretionary: 13% of holdings
  • Industrials: 10% of holdings
  • Consumer Staples: 7% of holdings
  • Energy: 6% of holdings
  • Real Estate: 4% of holdings
  • Materials: 3% of holdings
  • Utilities: 3% of holdings
  • Telecom Services: 2% of holdings

The Wilshire 5000 includes all U.S. equities that have readily-available prices in the US market. Some issues such as bulletin-board and other thinly-traded stocks are not included, as their share prices are not easy to find. Also, limited partnerships and American Depositary Receipts are not included in the index.

S&P 500, Wilshire 5000, Or Something Else?

Both the S&P 500 and Wilshire 5000 cap index track the largest publicly-traded U.S. stocks. They are both seen as proxies for the U.S. stock market and less so for the U.S. economy. But there are differences between the two. First, the Wilshire 5000 is a much wider index. It is nearly seven times as wide as the S&P 500. The S&P 500 deals more with large-cap stocks. It has a mean market capitalization of $47.8 billion. This means that investors should receive more access to mid-cap and small-cap stocks with the Wilshire 5000. In terms of sector allocation, both indexes are similar. The Wilshire 5000 has a slightly more technology stocks, and slightly fewer real estate stocks than the S&P 500. For investors who want a different investment option, the Russell 2000 is worth a look.  It’s small-cap stock market index that offers growth potential of small-caps, but with greater volatility.

Both the S&P 500 and Wilshire 5000 have dividend yields slightly less than 2%, so income investors will find them roughly equal. However, value investors might favor the S&P 500. This is because as it has an average price-to-earnings ratio of 22.8, compared with 25.6 for the Wilshire 5000. Again, this is because Wilshire has more smaller growth stocks. This means the Wilshire 5000 may underperform during a market downturn. This is because large caps tend to outperform small-caps when markets are falling.

The reverse may also be true; the Wilshire 5000 could outperform during bull markets. Although, it did not significantly outperform the S&P 500 in the years since the Great Recession ended. For example, in the past 10 years the Wilshire 5000 generated total returns of 10.23% per year. The S&P 500 generated total returns of 10.17%.

The S&P 500 and Wilshire 5000 appear to be more similar than they are different. They carry equal weight with many investors and financial advisors. Investors look for the value of the index that is of most benefit to them. The major advantage to the Wilshire index is its higher number of holdings, which provides investors with greater diversification. This can be an advantage for investors who want to limit investment risk.

Note: This article originally appeared at Modest Money. The author is Jeremy Biberdorf. Jeremy is the founder of Modest Money.


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Category: Stocks

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