• Wilshire 4500. This index isn't quoted very often, but it's importance comes from the fact that some of the high profile small-company index funds use it as their target. This index includes all of the remaining Wilshire 5000 stocks after those in the S&P 500 are removed. As a result many medium-sized stocks are included here, giving this index a larger average stock size (worth an average of $1.6 billion) than the other small-company indexes.

• Nasdaq Composite. Originally started as a place to trade small over-the-counter stocks, the Nasdaq still reflects the fortunes of the roughly 3,500 small-company stocks that comprise it, at least to some degree. However, over the past 15 years, the Nasdaq has become synonymous with technology stocks due to the emergence of Nasdaq giants like Microsoft, Intel, and Cisco. As a result, it's less helpful as a benchmark of true small-company stock performance.

• Standard and Poor's SmallCap 600. Despite covering only about 3% of the U.S. stock market by value, this index is used by a number of funds as a benchmark for small stocks due to the well-known Standard & Poor's brand.

• Russell 2000. The remaining 2,000 companies in the Russell 3000 end up here. At this point, this index is generally accepted as the best measure of pure small-company stock performance. Like the S&P SmallCap 600 index, the average company included here is worth around than $500 million, just one-third the size of the average Wilshire 4500 stock.

International Indexes

Most investment professionals agree that owning some international stocks is an important aspect of diversification. Naturally that means an index is needed to measure foreign stock performance.

• Morgan Stanley EAFE. This index is often labeled the MSCI EAFE index, which is short for Morgan Stanley Capital International Europe, Australasia, Far East index. In other words, it covers the developed foreign markets (as opposed to those considered to still be "emerging"). As a broad foreign index, it does a good job, although some investors would say it masks the fact that various international markets act very differently at times; i.e. stocks may be booming in Europe and tanking in Japan, or vice versa.  

Value/Growth Indexes

In recent years, variations on many of the above indexes have been created that split a particular index into value and growth components. This is usually done by applying one or more valuation measures to all of the stocks in that index, with all those meeting certain criteria placed in a value index and the rest placed in a growth index.

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