Total Stock Market Index Vs S&P 500: Which is better? S&P Dow Jones Indices. Depending on your risk appetite, you can have a greater exposure to any of the three segments. One similarity between the two indexes is that they both represent only U.S. stocks. Most importantly, investors should first determine that stocks are appropriate for their risk tolerance and financial goals. The Balance does not provide tax, investment, or financial services and advice. These funds track the broader equity market including the large-cap, mid-cap, small-cap, and micro-cap stocks. But in 2018, it replaced the S&P 500 index fund with a Total Stock Market index fund in the 401(k) retirement plan of its own employees. That’s why there is a lot of talk about the Total Stock Market funds that cover almost the entire investable US equity market. In both indices, the largest stocks are responsible for most of the gains or losses. The inclusion of the small-cap and micro-cap stocks in the index makes it slightly riskier, but could also benefit investors in the long run. If you want a truly diversified portfolio and you have the risk appetite to invest in mid-cap and small-cap stocks, you can better capture the total stock market by investing in a few index funds/ETFs that separately represent different market segments. Past performance is not indicative of future results. Please speak to a licensed financial professional, Marcelo Claure of WeWork on the appointment of a new CEO, Here’s where the major court cases for Fannie/ Freddie stand, Facebook Accused Of Illegally Conspiring With Google, 5 Business Management Tools Every Entrepreneur Needs, The Vaccine Push Continues To Aid Stability On Wall Street. But in terms of risk-adjusted returns over the long-term, it’s not significantly better than the S&P 500 index. The Total Stock Market index gives you a small exposure to mid-cap, small-cap, and micro-cap stocks. The primary difference between a total stock market index fund and an S&P 500 index fund is that the S&P 500 Index includes only large-cap stocks, whereas the total stock index includes small-, mid- and large-cap stocks. Vikas Shukla has a strong interest in business, finance, and technology. Please speak to a licensed financial professional before making any investment decisions. However, investors can achieve greater diversification, and potentially greater performance, by selecting their own allocations. It’s important to select the right stock fund based on your risk appetite and needs. While nobody knows what future performance will be, a broad market index fund will always do exact what it’s supposed to: give you better diversification. The remaining 490 or so companies make up about 76% of the index. In summary, a total stock market fund does not capture the total stock market; it captures a majority of the large-cap stock market with extremely small representation of other segments, such as mid-cap and small-cap stocks. Subscribe to ValueWalk Newsletter. Should You Invest in Broad Market Index Funds? The Dow Jones U.S. Market Index (DWCF) is a total market index that represents the top 95% of the U.S. stock market based on market capitalization. Vanguard Group popularized the S&P 500 index funds. What's Inside the Most Popular Stock Index? The Dow Jones U.S. Chances are, a total stock market index fund could be—and probably should be—the largest part of your portfolio. Many have pitched the Total Stock Market index as a superior alternative to the S&P 500. That’s much higher than the 500 stocks covered by the S&P 500. var jo = document.createElement('script'); Switching funds every now and then could affect your returns. Total Stock Market Index vs. S&P 500 Index, Total Stock Market Index vs S&P 500 Index: How They Invest, Total Stock Market Index vs S&P 500 Index: Performance. Find out which stock index fund is best for your portfolio. The S&P 500 is well studied. The S&P 500 index consists of the 500 largest stocks in the US by market capitalization. As a result, the top 500 largest stocks that constitute the S&P 500 account for nearly 80% of the CRSP U.S. Total Market Index. INDEX Symbol INDEX Last CHANGE % Chg Open High Low Share Vol. Since these funds are cap-weighted, a large percentage of the holdings are large-cap stocks, making the performance similar to an S&P 500 index fund.. When investing in a total stock market index fund, don't make the mistake of thinking that you have a fully diversified mix of large-cap stocks, mid-cap stocks and small-cap stocks in one fund. Traded companies, big and small that returns for Total Stock Market funds financial professional before making any decisions. 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