Comparing total stock market index funds can be like trying to distinguish between snowflakes. You’ve been told they are all unique, but they sure do look a lot alike. Ultimately, the most important factor is fees: The lower the fees, the higher the returns, at least for the most part. But above and beyond fees, there are several factors we considered in making our selections. Show We considered how each fund sought to mirror the total stock market in the U.S. We excluded those funds that didn’t track the majority of U.S. equities, such as S&P 500 index funds. While the performance of these funds is highly correlated with total market funds, they exclude small and mid-cap stocks. As such, they can’t fairly be described as total market funds. With one exception, the funds in our list track the Russell 3000 Index, the Dow Jones U.S. Total Market Index or the CRSP US Total Market Index. In our view, each of these is a reasonable approach to capturing the U.S. equities market. We also included Fidelity’s ZERO fund, which uses a proprietary Fidelity index. It’s the first fund we’ve found that doesn’t charge an expense ratio. Whether it will outperform the other funds in our list over the long-term is still unknown given is short tenure. Finally, we considered a fund’s minimum investment and most recent 12-month yield. While there was some variance among the funds that made our list, they all fell within a narrow range. I recently wrote a column entitled The Case against S&P 500 Index Funds. In that column, I noted two flaws in this index fund and pointed to a better way, namely a Total US index fund. I received a note in the mail this week from - wait for it - John C. Bogle, the person who brought both of these index funds to the investing public. He also gave me permission to publish his note. Hi Allan! History of the S&P 500 In 1928, the S&P index was comprised of only 90 companies. It didn't get to its current state of 500 companies until 1957. So comparing a total index with data that may contain inaccuracies to the S&P index, which contained a vastly different number of companies in that period, may yield some unintended consequences in the outcome. Performance of the two funds Bogle is right -- on both issues He's also right, however, that it's far from a slam dunk that a total stock market fund will outperform the S&P 500 fund. In fact, the performance variation between the two should never be large since the S&P 500 comprises about 80 percent of the value of the total market fund. My conclusion While I'm willing to bet that the total stock market fund will outperform the S&P 500 over the next decade, I'd also put the odds of me being wrong at just under 50 percent. I'd be shocked, however, if one beat the other by very much. And most importantly, I'd like to thank Mr. Bogle for giving investors two great ways to harness the capitalism from U.S. based companies. Prologue - Jack Bogle explains the logic of the Total Stock Market Index Fund On October 26, 2000, Jack Bogle had the following to say to the Investment Analysts Society of Chicago. Trending NewsPG&E says its equipment likely sparked California's Camp Fire E-commerce tracking practices raise privacy questions China only makes $8.46 from an iPhone. That's why Trump's trade war is futile What does the "organic" label really mean? Allan Roth Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month. Is it better to invest in S&P 500 or total stock market?Total stock market index funds are only slightly more diversified than S&P 500 index funds. Since both types of indexes are heavily weighted toward large-cap stocks, the performance of the two funds is highly correlated (similar).
Should I buy S and P or Nasdaq?So, if you are looking to own a more diversified basket of stocks, the S&P 500 will be the right fit for you. However, those who are comfortable with the slightly higher risk for the extra returns that investing in Nasdaq 100 based fund might generate will be better off with Nasdaq 100.
What is the difference between index funds and S&P 500?Although investors can't buy an index per se, they can invest in index funds that are designed to mirror the index. In other words, an index fund tracking the S&P would have all 500 stocks from the S&P 500 in the fund. Index funds tend to provide investors with broad market exposure or exposure to an overall sector.
Is VTI the same as S&P 500?VTI invests in every publicly traded company in the U.S., while VOO invests in the S&P 500, which consists of the largest 500 companies in the U.S.
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