Total Stock Market Index Funds: VTSMX and Three 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 in recent years. For example, 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 are a good tool for capturing a large segment of a particular market. 

Before diving into the best total stock market index funds, we'll review the definition and primary features so you'll know if these mutual funds are appropriate for you and your investment goals.

Here's what to know about total stock index funds:

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, such as The Wilshire 5000 or The Russell 3000, that represents 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, which is why the "total market" name is usually included in the fund name.

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

Some total stock index funds focus on stocks outside of 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?

Often, the primary purpose of using a Total Stock Market Index Fund is as a core holding in a portfolio of mutual funds (i.e. Core and Satellite Portfolio Strategy). The reason for this is that 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 may also use one of the best S&P 500 Index Funds as core holdings because the performance compared to Total Stock Market Index Funds is similar (due to the heavy weighting of large cap stocks in the top holdings). However, Total Stock Market Index funds offer more diversification than S&P 500 Index funds. In addition to the largest U.S. stocks, you'll also get small- and mid-cap stocks in the total stock index.

Therefore, there will be some mid-cap and small-cap holdings in a Total Stock Market Index Fund so there may be some overlap with other funds in your portfolio. For this reason, many investors prefer using an S&P 500 Index Fund, combined with a separate small-cap index fund, to achieve optimal diversification. So, if you use a total stock index fund, be sure to find other holdings in diverse categories.

Vanguard Total Stock Market Index (VTSMX) and Three More Index Funds Like It

The best index funds of any kind are typically those that have the lowest expense ratios and are offered by large mutual fund or exchange traded fund (ETF) families:

  • : Vanguard is the original indexer and VTSMX is among the first index funds to capture the total market. In fact Vanguard Total Stock Market Index (VTSMX) is the largest mutual fund in the world. With an expense ratio of 0.18%, VTSMX makes a solid core holding for any mutual fund portfolio.
  • : With an expense ratio of 0.11%, it's tough to beat SWTSX unless you qualify to get lower expense ratios with one of Vanguard's Admiral Shares funds.
  • : This is an Exchange Traded Fund (ETF) that works well for those investors who like to use ETFs because of their ability to trade intra-day like stocks or they are able to trade certain ETFs with no transaction fees (some mutual fund companies charge fees for trading certain index funds). IWV has an expense ratio of 0.20%.
  • : Some total stock market funds cover stocks outside of the United States 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.

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