What Is a Broad-Based Index and What Are Some Broad Index Funds
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A broad-based index is a market index that reflects the movement of a group of stocks or an entire market. Examples include the Dow Jones Industrial Average (DJIA), FT Wilshire 5000 Index (FTW5000), S&P 500 Index, Russell 3000 Index, and NASDAQ Composite Index.
Key Takeaways:
– A broad-based index is a benchmark used to track the performance of a large group of stocks and adds diversification to a portfolio.
– Examples of broad-based indices range from the S&P 500 and NASDAQ Composite to the Russell 3000.
– Many broad-based indexes are market-value weighted, giving larger companies a greater influence on price changes.
Broad-based indexes allow investors to own the same basket of stocks contained in a major index by investing in securities or financial products like index funds. An example is the SPDR S&P 500 Trust (SPY), an exchange-traded fund (ETF) that holds the same stocks as the S&P 500 Index.
Examples of Broad-Based Indexes:
– Dow Jones Industrial Average (DJIA): has one of the fewest numbers of stocks among broad-based indexes.
– FT Wilshire 5000 Index (FTW5000): named after the approximate number of issues it included at the time.
Investing in broad-based indexes is possible through index funds like ETFs. Popular ones include SPDR S&P 500 ETF Trust (SPY), SPDR Dow Jones Industrial Average ETF Trust (DIA), and Vanguard Total Stock Market Index Fund ETF Shares (VTI).
The Dow Jones Industrial Average is widely cited as a measure of the U.S. stock market, while total stock market indexes track the entire U.S. stock market and include a higher number of holdings.
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