Index funds have become increasingly popular among investors in recent years as a cost-effective way to access diversified portfolios. Total market index funds, available through mutual funds and ETFs, allow investors to invest in a basket of stocks that track an index representing the overall U.S. stock market or global markets. This provides a way for investors to benefit from a country’s economic growth without the need to select individual companies to invest in.
Here’s everything you need to know about total market index funds and some options to consider.
Understanding Total Stock Market Index Funds
A total market index fund is a mutual fund or ETF that tracks an index representing virtually the entire stock market of a country or region. While many are familiar with indexes like the S&P 500 or Dow Jones Industrial Average, total market funds include companies of all sizes, offering investors exposure to the overall stock market’s return.
Most total market index funds are weighted by market capitalization, giving them exposure to both large-cap companies like Nvidia, Apple, and Microsoft, as well as small-cap companies with growth potential.
These funds typically have low fees, allowing investors to capture more of the market’s return. This cost-effective approach has proven to be successful for many investors.
Top Total Market Funds
Bankrate has selected top-performing total stock market ETFs based on criteria including U.S. funds listed in ETF.com’s screener for U.S. total market and strong performance over the past five years.
Vanguard Total Stock Market ETF (VTI)
This ETF tracks the CRSP U.S. Total Market Index, investing in companies across different market cap levels and investment styles.
- Year-to-date performance: 15.8 percent
- Historical performance (5-year annual): 14.1 percent
- Expense ratio: 0.03 percent
Schwab U.S. Broad Market ETF (SCHB)
This fund aims to mirror the Dow Jones U.S. Broad Stock Market Index, encompassing companies of various market cap sizes.
- Year-to-date performance: 15.8 percent
- Historical performance (5-year annual): 14.1 percent
- Expense ratio: 0.03 percent
iShares Core S&P Total U.S. Stock Market ETF (ITOT)
This fund tracks the S&P Total Market Index, holding over 2,500 securities.
- Year-to-date performance: 15.7 percent
- Historical performance (5-year annual): 14.1 percent
- Expense ratio: 0.03 percent
SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)
This fund aims to closely match the total return of the S&P Composite 1500 Index, representing a significant portion of the U.S. equity market.
- Year-to-date performance: 16.4 percent
- Historical performance (5-year annual): 14.6 percent
- Expense ratio: 0.03 percent
Top Total Stock Market Mutual Funds
Several ETFs mentioned above are also available as mutual funds, offering lower fees than comparable ETFs but with investment minimums and daily trading limitations.
Fidelity Total Market Index Fund (FSKAX)
This fund seeks to match the total return of the Dow Jones U.S. Total Stock Market Index.
- Year-to-date performance: 15.8 percent
- Historical performance (5-year annual): 14.1 percent
- Expense ratio: 0.015 percent
Wilshire 5000 Index Investment Fund (WFIVX)
This fund replicates the total return of the Wilshire 5000 Total Market Index.
- Year-to-date performance: 15.2 percent
- Historical performance (5-year annual): 13.7 percent
- Expense ratio: 0.60 percent
* Note: Mutual fund performance data as of July 18, 2024
FAQs on Total Stock Market Index Funds
Pros and Cons of Total Market Index Funds
Investing in total market index funds offers diversification, low fees, minimal research requirements, and the opportunity to earn long-term equity returns. However, growth may be limited, broad diversification can hinder potential gains, and staying disciplined with these funds can be challenging.
Who Should Invest in Total Market Index Funds?
Total market index funds are suitable for both new and experienced investors looking for broad stock market exposure at a low cost. They are ideal for long-term investment goals like retirement, requiring minimal financial expertise to manage effectively.
Benefits of Vanguard Total Stock Market Index Fund Admiral Shares
Vanguard’s total stock market index fund admiral shares are popular due to their low cost and Vanguard’s investor-friendly reputation. With lower investment minimums and expenses, these shares provide access to the entire U.S. stock market at an affordable rate.
Conclusion
Total market index funds offer investors a cost-effective way to access diversified stock portfolios. With their low fees and potential for long-term growth, these funds can be a valuable addition to any investment portfolio. Consider incorporating a total market mutual fund or ETF into your long-term investment strategy.
Editorial Disclaimer: Investors should conduct independent research before making investment decisions. Past performance does not guarantee future results.