Total Stock Market Index Funds: VTSMX and 3 More Like It

Vanguard Total Stock Market Index Fund and More

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Total stock market index funds have been growing in popularity, and the Vanguard Total Stock Market Index (VTSMX) is the largest mutual fund in the world as measured by assets under management. Total stock index funds are preferred by many investors because they're a good tool for capturing a large segment of a particular market. 

Total Stock Market Fund Definition

A total stock market index fund is a mutual fund that invests in a basket of stocks that will closely mirror the stock holdings and performance of a broad stock market benchmark. The Wilshire 5000 or the Russell 3000 are good examples.

These benchmarks represent a large portion of the U.S. or international stock market. For example, the holdings in the Wilshire 5000 and Russell 3000 include most of the domestic U.S. stock holdings traded on stock exchanges. The "total market" name is usually included in the fund name.

Like S&P 500 Index Funds, the Wilshire 5000 is market-cap weighted. Larger companies with larger capitalization represent a larger portion by percentage than the smaller companies among the top holdings. The top holdings in the Wilshire 5000 include big companies like Apple (AAPL), Facebook (FB), and Microsoft (MSFT).

Some total stock index funds focus on stocks outside the U.S. These funds typically track an international stock index like the FTSE Global All Cap ex US Index.

Should You Use a Total Stock Market Index Fund?

The primary purpose of using a total stock market index fund is often as a core holding in a portfolio of mutual funds, such as the Core and Satellite Portfolio Strategy. Investors can gain access to the entire U.S. stock market in one low-cost fund. They can then build around that core with other holdings representing different categories.

Many investors might also use one of the best S&P 500 Index Funds as core holdings because the performance is similar to Total stock market index funds due to the heavy weighting of large cap stocks in the top holdings. 

Total stock market index funds offer more diversification than S&P 500 index funds. You'll also get small- and mid-cap stocks in the total stock index, in addition to the largest U.S. stocks, so there might be some overlap with other funds in your portfolio.

Many investors prefer using an S&P 500 index fund combined with a separate small-cap index fund to achieve optimal diversification. Be sure to find other holdings in diverse categories if you use a total stock index fund.

VTSMX and 3 More Index Funds Like It

The best index funds are typically those that have the lowest expense ratios. They're offered by large mutual fund or exchange traded fund (ETF) families.

  • Vanguard Total Stock Market Index (VTSMX): Vanguard is the original indexer, and VTSMX is among the first index funds to capture the total market. With an expense ratio of 0.14 percent, it makes a solid core holding for any mutual fund portfolio. About 22 percent of the portfolio is dedicated to technology companies. Financial companies account for another 15 percent, healthcare companies represent 14 percent, and industrial companies represent about 11 percent. VTSMX generated an average annual return of 11.96 percent from 2008 through 2018. It has no load fees.
  • Schwab Total Stock Market Index (SWTSX): It's tough to beat SWTSX with an expense ratio of 0.05 percent unless you qualify to get lower expense ratios with one of Vanguard's Admiral Shares funds. SWTSX tracks the Dow Jones U.S. Total Stock Market Index. About 70 percent of the fund's portfolio is made up of large market-cap stocks. It also focuses on the technology, financial services, healthcare, cyclical consumer, and industrial sectors. The average annual rate of return was 12 percent from 2008 through 2018, and there are no load fees.
  • iShares Russell 3000 Index Fund (IWV): The Russell 3000 Index measures the U.S. equity market. This is an ETF that works well for investors who like ETFs because of the ability to trade intra-day like stocks, or because they're able to trade certain ETFs with no transaction fees. Some mutual fund companies charge fees for trading certain index funds. About 75 percent of this fund's assets are invested in large-cap companies. IWV has an expense ratio of 0.20 percent, and an average rate of return of 11.8 percent from 2008 to 2018.
  • Vanguard Total International Stock Market (VGTSX): Some total stock market funds cover stocks outside the U.S., and VGTSX is one of the best. VGTSX covers the FTSE Global All Cap ex US Index, which includes over 6,000 stocks of companies in developed and emerging markets.

Total stock index funds can be appropriate for investors looking for a mutual fund as a standalone investment or—even better—as a core holding in a diversified portfolio.

The information on this site is provided for discussion purposes only. It should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.