Total Stock Market Index Funds

What Are Total Stock Market Index Funds and Which Are the Best?

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Use only the best total stock market index funds. Getty Images

Total stock market index funds have been growing in popularity in recent years. In fact Vanguard Total Stock Market Index (VTSMX) is the largest mutual fund in the world.

Before diving into the best total stock market index funds, let's review the basics 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).

Many investors 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). In other words, the top 500 holdings in a Wilshire 5000 index fund or a Russell 3000 index fund will influence the performance of a Total Stock Market Index fund so significantly that an investor could simply use an S&P 500 Index Fund for the same purpose -- as a large-cap core holding -- and achieve similar results.

Also, 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.

Which Are the Best Total Stock Market Index Funds (and ETFs)?

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. 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.