Total stock market index funds can be a great way to gain exposure to and diversity from nearly all publicly traded stocks on U.S. stock exchanges in one investment. Choosing a total stock market fund is a convenient way to invest in the most stocks possible without the expense of purchasing them all.
Total Stock Market Index Fund Definition
A total stock market index fund is a mutual fund or exchange-traded fund (ETF) that invests in a basket of stocks that passively tracks the performance of a broad stock market benchmark, such as the Wilshire 5000, the CRSP U.S. Total Market Index, Russell 3000, or the Dow Jones U.S. Total Stock Index.
Like S&P 500 Index Funds, total stock market index funds are market-cap weighted. Stocks of companies with the largest capitalization receive higher allocation than those with mid and small capitalization.
The top companies in these indexes include big U.S. companies like Apple (AAPL), Meta (FB), formerly Facebook, and Microsoft (MSFT).
Benefits of Investing in a Total Stock Market Index Fund
Here are the primary benefits of investing in a total stock index fund:
- Core Holding: Total stock market index funds make good core holdings in a portfolio of mutual funds. In a core-and-satellite portfolio strategy, you would invest in multiple funds, with a core that receives the highest allocation and the satellites that receive smaller allocations.
- Simplicity: You can gain access to nearly the entire U.S. stock market in one low-cost fund.
- Diversification: Total stock market index funds typically hold thousands of stocks with various market capitalizations. You can achieve diversification in one fund, because most total stock index funds hold 3,000 or more stocks.
- Tax Efficiency: Since index funds have very little turnover, they generally produce fewer capital gains distributions when compared to actively managed funds. That makes a total stock index fund potentially a good holding if you have a taxable brokerage account.
Best Total Stock Market Index Funds
Since index funds passively track a benchmark index, the best funds generally have the lowest expense ratios. This is like buying generic goods. If you are comparing two items, and they have the same ingredients, it makes more sense to buy the cheaper one.
Total stock index funds should track an index that exposes you to thousands of U.S. stocks.
With those criteria in mind, here are some of the best total stock index funds on the market:
- Vanguard Total Stock Market Index Admiral Shares (VTSAX): Opening to investors in 1992, VTSAX was among the first index funds to capture the total market. This fund tracks the CRSP U.S. Total Market Index. With an expense ratio of 0.04% and exposure to more than 3,500 stocks, it makes a solid core holding for a diversified mutual fund portfolio. For exposure to the same stocks and a lower expense ratio of 0.04%, you can buy the ETF version, Vanguard Total Stock Market ETF (VTI).
- Fidelity Total Market Index Fund (FSKAX): With an expense ratio of just 0.015%, FSKAX is currently the leader for the lowest expense ratio among total stock index funds. This mutual fund tracks the Dow Jones U.S. Total Stock Market Index, representing around 3,000 U.S. stocks.
- Schwab Total Stock Market Index (SWTSX): SWTSX has a low expense ratio of 0.03% for a mutual fund. The fund also tracks the Dow Jones U.S. Total Stock Market Index.
- iShares Russell 3000 Index Fund (IWV): With IWV, you gain access to the Russell 3000, which covers about 3,000 U.S. stocks. While the expense ratio of 0.20% for IWV is a bit higher than that of a few other total stock index funds, IWV is among the largest ETFs of its kind, with over $12 billion in assets.
The Bottom Line
Total stock index funds are good if you're looking for a mutual fund as a standalone investment or as a core holding in a diversified portfolio. However, you should keep in mind that although total stock index funds provide broad diversification, they still have market risk similar to that of other stock investments.
Frequently Asked Questions (FAQs)
What is an expense ratio?
An expense ratio measures how much of a fund's assets are used for operating purposes. It reduces a fund's returns to its shareholders, so it's important to consider it when you're deciding where to invest. Actively managed funds have significantly higher expense ratios than passively managed ones.
What is an ETF?
An exchange-traded fund (ETF) is a security that tracks a sector, index, commodity, or other asset. ETFs are sold on a stock exchange and typically have low expense ratios, because they're passively managed.
The Balance does not provide tax, investment, or financial services or advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.