Should You Invest in a Total Stock Index Fund or S&P 500 Index Fund? (2024)

FAQs

Should I buy Total market or S&P 500? ›

If you want some added exposure to mid- and small-cap stocks, but not as much as the Vanguard Total Stock Market ETF provides, you could simply buy both. Splitting your money between the two evenly will put most of your investments in large-cap stocks, but around 7% in mid- and small-cap stocks outside the S&P 500.

Once you've opened an investment account, you'll need to decide: Do you want to invest in individual stocks included in the S&P 500 or a fund that is representative of most of the index? Investing in an S&P 500 fund can instantly diversify your portfolio and is generally considered less risky.

Overall Rating. Morningstar has awarded this fund 3 stars based on its risk-adjusted performance compared to the 1293 funds within its Morningstar Category.

Indexing has several benefits including lower costs, broad-based diversification, and lower taxes. Investors, however, must consider the index fund that they select since not every one is low-cost, not some may be better at tracking an index than others.

They are Vanguard's largest ETFs by net assets. VTI is a total U.S. market fund and holds more than 3,500 stocks. VTI is better diversified and benefits from small and mid-cap stocks that grow into large caps. VOO is less diversified, tracking the performance of the S&P 500 Index.

Pretty much by definition, the S&P 500 is mad up of large-cap companies. A total market index is mostly large-cap stocks, but by definition includes all the mid-cap and small-cap stocks as well.

The S&P 500 weighting system gives a small number of companies major influence, which could have an undue negative effect on the index if one or a few of them run into trouble. The index does not expose investors to small or emerging companies with the potential for market-beating growth.

The one time it's okay to choose a single investment

That's because your investment gives you access to the broad stock market. Meanwhile, if you only invest in S&P 500 ETFs, you won't beat the broad market. Rather, you can expect your portfolio's performance to be in line with that of the broad market.

VFIAX and QQQM are often described as some of the best index funds for beginner investors.

Which index fund gives the highest return? ›

ICICI Prudential Nifty 50 Index Fund-Growth is among India's top 10 index funds. It falls within the Large Cap Index category. Over the past year, ICICI Prudential Nifty 50 Index Fund-Growth has returned 15.09 percent. Since its inception, it has delivered an average annual return of 14.74 percent.

While Fidelity wins out overall, Vanguard is the best option for retirement savers. Its platform offers tools and education focused specifically on retirement planning.

The benefits of index investing include low cost, requires little financial knowledge, convenience, and provides diversification. Disadvantages include the lack of downside protection, no choice in index composition, and it cannot beat the market (by definition).

In fact, a number of billionaire investors count S&P 500 index funds among their top holdings. Among those are Buffett's Berkshire Hathaway, Dalio's Bridgewater, and Griffin's Citadel.

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

The S&P 500's track record is impressive, but the Vanguard Growth ETF has outperformed it. The Vanguard Growth ETF leans heavily toward tech businesses that exhibit faster revenue and earnings gains. No matter what investments you choose, it's always smart to keep a long-term mindset.

Because the S&P 500 contains hundreds of large companies and represents the lion's share of total stock market value, it is considered a much better gauge of how the market is performing, even though it excludes thousands of smaller and midsize companies.

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.