What is a Broad-Base Index?

The broad-base index is a type of investment evaluation and indexing that draws on the collective performance of the entire market. There are several different index models of this type that differ slightly in evaluation criteria. Many investors choose to consult more than one of these broad-base indices when making a decision on a given investment.

While there are a number of different indices available to the investor, there are several that stand out due to the comprehensive nature of the information they provide for investors. The four most highly respected examples of a broad-base index are the AMEX Major Market Index, the Value Line Composite Index, the S&P 500, and the Wilshire 500. While much of the information provided by each of these four would overlap, the focus of each broad-base index is slightly different.

The Wilshire 500 is understood to be one of the most all-inclusive of any broad-base index. An investor will find the latest information about any stocks currently listed on the New York Stock Exchange, as well as the vast majority of the stocks currently trading on NASDAQ and the American Stock Exchange. For sheer volume of information, the Wilshire 500 cannot be equaled.

The S&P 500 is also considered a highly valuable broad-base index. The approach here is to spotlight the five hundred companies that are understood to serve as the best indicators of the current conditions of the US market. One thing to keep in mind about the S&P 500 is that the index is market weighted. In other words, roughly ten percent of the listed companies account for 75% of the total value of the tracking.

The AMEX Major Market Index also takes an approach of spotlighting major players in various industries, taking into account their prominence in terms of size and performance within those key industries. Finally, the Value Line Composite Index provides a broad-base index that tracks in excess of 1700 different issues. However, it is important to remember that the use of the Value Line Composite Index includes details on the status of speculative stocks along with stocks that are considered to be more stable. Keeping this distinction in mind may be important for the more conservative investor.