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.

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 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 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.