How to Measure the Total Stock Market

There is a variety of market indexes which function as statistical gauges of the market’s activities. Many investors look at the Dow Jones Industrial Average (DIJA) or the Nasdaq Composite Index as benchmarks or representatives of the stock market as a whole. On the downside, these indices are composed of only 30 and 100 stocks, respectively.

Key Takeaways

  • Many investors consider one of the major indexes, such as the Dow Jones Industrial Average (DJIA) or Nasdaq 100 as broad market indexes.
  • Better representations might be the Wilshire 5000 or Russell 3000, however.
  • Th Nasdaq 100 has handily outperformed the other major market indexes over the last decade.

Broad Representation Indexes

While the DIJA and Nasdaq are well-used and can offer a gauge of the market, certain indexes offer broader representation because they include more stocks. The Standard and Poor’s 500 Indexwhich consists of 500 of the most widely traded companies in the U.S., is one such index.

However, the index with one of the broadest representations 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:

Image by Sabrina Jiang © Investopedia 2020

Wilshire 5000

Contrary to what its name implies, the Wilshire 5000 can include a lot more (or less) than 5,000 equities. In 1998, the index contained a peak of 7,562 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.” By the end of 2014, the index held 3,818 companies. As of Sept., 2020, the index contained only 3,445 components.

Other Ways to Measure the Market

For investors interested in how small-caps are doing, one of the most widely followed indexes is the Russell 2000. The Russell 2000 index tracks 2,000 small-cap firms in the U.S. Now, the Russell 2000 selects the smallest stocks from the Russell 3000 universe. The Russell 3000 includes nearly 98% of the entire U.S. stock market.

Russell 3000 vs. Wilshire 5000

The Russell 3000 aims to track the 3,000 largest U.S. stocks. Meanwhile, the Wilshire 5000, while all companies are headquartered in the U.S., aims to track the entire market, regardless of the number of stocks—hence the reason its holdings fluctuate.

So, if you really want to measure the “total market, you would be best advised to check out the Wilshire 5000. 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.”

But, what might be interesting to investors, is that the Russell 3000 and Wilshire 5000 have performed similarly over the last decade. The annualized return for the Russell 3000 for the last 10 years is 13.84%, while the Wilshire 5000 has returned 13.5%.

Market Index Returns

Finally, let’s take a look at just how these market indexes have performed over the last five and 10-year periods. The widely used DIJA and Nasdaq 100 are broad-market indexes, but they track very different things. To start, the DIJA tracks such companies as Caterpillar (CAT), Cisco (CSCO), Coca-Cola (KO)—mega-cap companies that in many cases pay steady dividends.

Meanwhile, the NASDAQ 100 is largely technology-based, with such holdings as Netflix (NFLX) and Match Group (MTCH). Thus, it’s no surprise that over the longer-term (10 years in this case), the DIJA underperforms other indexes, while the Nasdaq 100 outperforms.

The rest—fall somewhere in the middle—yet, the S&P 500 falls at the bottom. Here’s a look at the breakdown of five- and 10-year returns for the major stock market indexes listed above.

Stock Market Index Returns
Returns5-year 10-year
DIJA (as of 1/29/21) 15.5%12.3%
Nasdaq 100 (12/31/20) 24.3%20.6%
Russell 2000 (2/5/21)19.4%12.3%
Russell 3000 (2/5/21)18.6%13.8%
Wilshire 5000 (9/30/20)13.8%13.5%
S&P 500 (2/5/21)15.6%11.5%

The other interesting bit is that over the last 10-years, the Russell 2000 (which tracks small-cap stocks) has performed in-line with the DJIA. Over the short-term there’s more of a dichotomy, but you’d expect the return of the Russell 2000 to perform closer to the Nasdaq 100, where greater risk (with small-caps and tech stocks having inherently more volatility) should equate to greater return.

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