What Is the FT Wilshire 5000 Index?
Introduced by Wilshire Associates in 1974, the FT Wilshire 5000 Index has been managed by a few different partnerships over the years. Today, the FT Wilshire 5000 Series is managed by a partnership between Wilshire and the Financial Times — thus the “FT” in its name.
What Companies Make Up the FT Wilshire 5000 Index?
As the first and oldest measure of the total United States equity market, the FT Wilshire 5000 Index is largely considered “the definitive benchmark for the U.S. stock market,” according to the website for Wilshire Advisors LLC. The index gives “an unbiased and complete gauge of the broad market,” with constituent companies in such varied industries as real estate, information technology, health care, consumer staples and more. The only companies excluded from the index are those that lack readily available prices, such as thinly traded and over-the-counter (OTC) stocks.
Named for the nearly 5,000 stocks it contained when it was first created, the FT Wilshire 5000 Index grew to include over 7,500 stocks in 1998. Since then, the constituency count has fallen to the current level of 3,660 (as of March 31, 2022).
How Does the FT Wilshire 5000 Work?
The FT Wilshire 5000 Index uses a capitalization-focused methodology, which means it applies certain weights to the stocks it tracks. As a result, the companies with the largest market capitalizations (the share price times the number of shares outstanding) have the greatest influence over the performance of the index.
How Is the FT Wilshire 5000 Used?
As outlined below, there are three main ways to use the FT Wilshire 5000 Index in an investing strategy.
- Market Monitoring: The most common use of the FT Wilshire 5000 Index is to monitor market performance and gauge domestic economic sentiment in the United States.
- Performance Benchmarking: Beyond just monitoring the market in a broad sense, many investors use the FT Wilshire 5000 to gauge the performance of specific investments. For example, an investor in an actively managed stock fund in the United States can reference the FT Wilshire 5000 to evaluate whether the fund managers are performing well versus the entire market.
- Index-linked Investing: The third way to use the FT Wilshire 5000, which is arguably the most financially beneficial to your personal finance situation, is index-linked investing. Also known as passive investing, index-linked investing is a popular and low-cost way to replicate the returns of the FT Wilshire 5000 (or any other index) instead of trying to outperform it.
How Index-Linked Investing Works
The process of index-linked investing requires the establishment of an investment fund with positions that mirror the companies in an index such as the FT Wilshire 5000. Then, depending on how the various companies perform, the fund is adjusted accordingly. This means buying more of the stock of outperforming companies and selling the stock of underperforming companies.
The result is an investment return that matches the performance of the index, minus a modest management fee. This is the main benefit of index investing — you get diversified exposure to the stock market without high fees or administrative complexities.
Index-linked investing is most often associated with direct ownership of index mutual funds and exchange-traded funds. However, index-linked investing is also a prominent feature of indexed annuities, which are financial contracts issued by insurance companies to individuals looking to save for retirement. The typical indexed annuity works as follows:
In exchange for an upfront payment, the insurer provides the individual, also known as the annuitant, a guaranteed stream of future income with the opportunity to increase future payouts based on the performance of a stated index like the FT Wilshire 5000. In this example situation, if the FT Wilshire 5000 Index were to perform well, the future income stream would grow (up to stated limits), and the value of the annuity would never decline.
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Other Popular Stock Market Indexes
While broader than most indexes, the FT Wilshire 5000 Index Series is only one of many stock market indexes. A handful of other well-known indexes are outlined below.
- Russell 3000 Index:
- Like the FT Wilshire 5000, the Russell 3000 seeks to represent the entire United States stock market. It does so by tracking the performance of approximately 1,000 of the largest companies and about 2,000 of the smallest companies in the country. Like the FT Wilshire 5000, the Russell 3000 uses a capitalization-weighted methodology to determine the proportion sizes of its constituent companies.
- S&P 500 Index:
- The Standard & Poor’s 500 index (S&P 500) also uses a capitalization-weighted index, but it tracks the performance of 500 of the largest companies in the United States. The S&P 500 is arguably the most referenced stock index in the world and offers a quick and telling view of the United States market.
- Nasdaq Composite Index:
- The Nasdaq Composite Index tracks the performance of over 2,500 technology-related companies listed on the Nasdaq Stock Market. Like the Russell 3000 and S&P 500, it uses a capitalization-weighted methodology. However, unlike these indexes, it contains foreign companies.
- Dow Jones Industrial Average:
- The Dow Jones Industrial Average (DJIA) tracks the performance of 30 of the largest publicly traded companies in the United States. Its constituents represent all industries except transportation and utilities. Unlike the other stock indexes mentioned previously, the DJIA uses a price-focused methodology to determine proportion sizes. As a result, companies with the highest share prices have the greatest influence over the performance of the index.
In terms of the approximate number of constituents that make up the stock index, the indexes are ranked as follows:
| FT Wilshire 5000 | Russell 3000 | S&P 500 | NASDAQ Composite | DIJA |
|---|---|---|---|---|
| 3,700 | 3,000 | 500 | 100 | 30 |
FT Wilshire 5000 Index Historical Data
As of May 12, 2022, the closing value of the FT Wilshire 5000 was 187.86 (indexed against an inception value of 100.00). This closing value was 19.8% off its all-time high of 234.37, which was reached in early November 2021. The pullback has been frustrating for investors, but it’s explainable.
While we are largely past the worst of the COVID-19 pandemic, supply chain disruptions and inflationary pressures continue. These factors, along with rising interest rates and an elevated level of geopolitical uncertainty, have blunted domestic stock valuations in recent months.
Despite these headwinds, domestic stocks have been quite prosperous over the long term. According to data compiled by Wilshire Associates, the annualized return of the FT Wilshire 5000 has been 14.43% over the last 10 years.
High returns like this can make international investment seem unnecessary. Nevertheless, a mix of investments across all geographic areas is important, regardless of the near-term performance of any specific markets.
