Wilshire 5000

The Wilshire 5000 was created by Wilshire Associates in 1974 and originally contained approximately 5,000 U.S. stocks — hence the name. Today, despite the name, the index contains fewer than 3,500 companies, reflecting the long-term decline in the number of publicly traded U.S. companies since the mid-1990s peak of roughly 8,000 listings. The shrinkage is due to a combination of mergers and acquisitions, company failures, and the trend of companies staying private longer before going public or choosing to go public via direct listings or SPACs rather than traditional IPOs.

Because it aims to include every U.S.-domiciled publicly traded equity with a float-adjusted market capitalization, the Wilshire 5000 is considered the most comprehensive measure of overall U.S. stock market performance. It is market-capitalization weighted, meaning larger companies have proportionally greater influence on the index's daily movements. As a result, the index's behavior is heavily influenced by a handful of mega-cap companies — the same Apple, Microsoft, Amazon, Alphabet, and Nvidia that dominate the S&P 500 — even though the Wilshire 5000 nominally contains thousands of small and micro-cap stocks.

Legendary investor John Bogle, founder of Vanguard, popularized the concept of investing in a total market index fund tracking the Wilshire 5000 as the purest expression of passive investing. The idea is that by holding every publicly traded U.S. company in proportion to its market weight, an investor captures the aggregate return of the entire U.S. economy without any active security selection. Vanguard's Total Stock Market Index Fund (VTSAX and its ETF share class VTI) is one of the largest funds in the world and tracks an index closely related to the Wilshire 5000.

The Wilshire 5000 is sometimes used to calculate the 'Buffett Indicator,' a market valuation metric popularized by Warren Buffett that divides total U.S. stock market capitalization by U.S. GDP. When the ratio is high (well above 100%), it suggests the stock market may be overvalued relative to the underlying economy. When it is low, it may suggest undervaluation. While this metric has significant limitations as a timing tool, it is widely cited as a rough gauge of overall equity market valuation.

For institutional investors and academics, the Wilshire 5000 serves as a comprehensive performance benchmark against which active managers across the capitalization spectrum can be measured. Its all-inclusive nature makes it particularly useful for evaluating the aggregate value added (or destroyed) by the active management industry relative to a no-cost, passive alternative — a comparison that, according to decades of academic research, most active managers fail to beat on a risk-adjusted, after-fee basis over long time horizons.