SP500 Index fund will outperform total stock market?

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Mode32
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SP500 Index fund will outperform total stock market?

Post by Mode32 » Thu Mar 26, 2020 3:40 pm

https://www.marketwatch.com/story/coron ... =home-page


Although I’ve been investing for a while, I’m fairly new at critically reviewing investment articles. Above is a recent article from MarketWatch.com.

It basically says the five stocks (Microsoft, Amazon, Facebook, Alphabet, and Google) with the largest market capitalizations have outperformed the market since this economic downturn in Feb ‘20 with a high likelihood that there will be a “long-term shift: The stock market is becoming split between a few large firms that are wildly profitable and everything else.” The articles goes on to recommend investing in broad market index funds (which I already do like most of us on this site).

Of course, every article has its own bias, but could this article be further interpreted to mean that an S&P 500 specific Index fund (VFIAX) would likely outperform a Total Stock Market Index fund (VTSAX) because the weights given to the above five companies within the VFIAX are higher? I understand that the performance of VFIAX vs VTSAK is very similar, but would like to hear how seasoned investors may look at this.

Thanks in advance.

Stay safe and healthy.

alex_686
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Re: SP500 Index fund will outperform total stock market?

Post by alex_686 » Thu Mar 26, 2020 3:46 pm

Hard to tell what the future will bring but the past 20 years have favored larger corporations. Partly thanks to to technology, networking and increasing complex regulations.

Could things shift? Maybe. In my part of the land micro-breweries are taking a huge bit out of the macro-breweries. However, you can only buy shares in the multinational breweries, not the local family owned brewers. Private equities have been buying all of the good small cap publicly traded companies. I could go on.

Edit: I though this was a discussion between a large cap and a total market funds. Whoops. That changes things a bit.
Last edited by alex_686 on Thu Mar 26, 2020 4:11 pm, edited 1 time in total.

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White Coat Investor
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Re: SP500 Index fund will outperform total stock market?

Post by White Coat Investor » Thu Mar 26, 2020 3:49 pm

Nifty Fifty all over again?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Ferdinand2014
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Re: SP500 Index fund will outperform total stock market?

Post by Ferdinand2014 » Thu Mar 26, 2020 3:51 pm

For all practical purposes the TSM is the S&P 500. By definition, the top 5 or 10 stocks always dominate. That’s how market cap works. The difference between the S&P 500 and a TSM fund is essentially noise over the last 100 years. Currently the top 10 represent about 21% of an S&P 500 index fund and 18% in a total stock index fund. The article is as stupid as they come. Full disclosure, I own all of my equities in a S&P 500 index fund and do not expect it to outperform the TSM.

https://awealthofcommonsense.com/2020/0 ... tors-care/

“It’s important to remember that concentration in stock market gains in the S&P 500 is a feature, not a bug. In a market-cap-weighted index, the majority of the gains will invariably come from the largest names. This doesn’t mean smaller stocks aren’t participating in the rally, just that they don’t move the needle for the overall market.”

“While the 25% concentration in the top 10 names today feels high, that’s right where it was in 1980. And the market was even more concentrated if we take things further back. In 1965, AT&T made up nearly 8% of the index. General Motors was another 7%. The top 10 holdings were 34% of the S&P 500. In the early 1960s the top 10 holdings at one time made up over 50% of the S&P!”

Ben Carson - A wealth of Common Sense
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

k1982
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Re: SP500 Index fund will outperform total stock market?

Post by k1982 » Thu Mar 26, 2020 3:54 pm

it doesn't matter which you chose..both are GREAT funds

the question is whether you decide to go all domestic stock? or dip into the int'l market too? that is the bigger question here

some prefer 100% domestic like me

others go 80% domestic 20% int'l

and then you have many brokerage firms recommending 60/40

GeraniumLover
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Re: SP500 Index fund will outperform total stock market?

Post by GeraniumLover » Thu Mar 26, 2020 4:00 pm

Mode32 wrote:
Thu Mar 26, 2020 3:40 pm

It basically says the five stocks (Microsoft, Amazon, Facebook, Alphabet, and Google) with the largest market capitalizations have outperformed the market since this economic downturn in Feb ‘20 with a high likelihood that there will be a “long-term shift: The stock market is becoming split between a few large firms that are wildly profitable and everything else.”
Alphabet and Google are one and the same. The article includes Apple as the fifth stock.

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Mode32
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Re: SP500 Index fund will outperform total stock market?

Post by Mode32 » Thu Mar 26, 2020 4:07 pm

Ferdinand2014 wrote:
Thu Mar 26, 2020 3:51 pm
For all practical purposes the TSM is the S&P 500. By definition, the top 5 or 10 stocks always dominate. That’s how market cap works. The difference between the S&P 500 and a TSM fund is essentially noise over the last 100 years. Currently the top 10 represent about 21% of an S&P 500 index fund and 18% in a total stock index fund. The article is as stupid as they come. Full disclosure, I own all of my equities in a S&P 500 index fund and do not expect it to outperform the TSM.

https://awealthofcommonsense.com/2020/0 ... tors-care/

“It’s important to remember that concentration in stock market gains in the S&P 500 is a feature, not a bug. In a market-cap-weighted index, the majority of the gains will invariably come from the largest names. This doesn’t mean smaller stocks aren’t participating in the rally, just that they don’t move the needle for the overall market.”

“While the 25% concentration in the top 10 names today feels high, that’s right where it was in 1980. And the market was even more concentrated if we take things further back. In 1965, AT&T made up nearly 8% of the index. General Motors was another 7%. The top 10 holdings were 34% of the S&P 500. In the early 1960s the top 10 holdings at one time made up over 50% of the S&P!”

Ben Carson - A wealth of Common Sense
Doesn’t having “the top 10 represent about 21% of an S&P 500 index fund and 18% in a total stock index fund” theoretically result in the S&P500 index fund outperforming the Total Stock Market Index fund ever so slightly (if the top five companies continue to dominate the market as per the article)?

Ferdinand2014
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Re: SP500 Index fund will outperform total stock market?

Post by Ferdinand2014 » Thu Mar 26, 2020 4:23 pm

Mode32 wrote:
Thu Mar 26, 2020 4:07 pm
Ferdinand2014 wrote:
Thu Mar 26, 2020 3:51 pm
For all practical purposes the TSM is the S&P 500. By definition, the top 5 or 10 stocks always dominate. That’s how market cap works. The difference between the S&P 500 and a TSM fund is essentially noise over the last 100 years. Currently the top 10 represent about 21% of an S&P 500 index fund and 18% in a total stock index fund. The article is as stupid as they come. Full disclosure, I own all of my equities in a S&P 500 index fund and do not expect it to outperform the TSM.

https://awealthofcommonsense.com/2020/0 ... tors-care/

“It’s important to remember that concentration in stock market gains in the S&P 500 is a feature, not a bug. In a market-cap-weighted index, the majority of the gains will invariably come from the largest names. This doesn’t mean smaller stocks aren’t participating in the rally, just that they don’t move the needle for the overall market.”

“While the 25% concentration in the top 10 names today feels high, that’s right where it was in 1980. And the market was even more concentrated if we take things further back. In 1965, AT&T made up nearly 8% of the index. General Motors was another 7%. The top 10 holdings were 34% of the S&P 500. In the early 1960s the top 10 holdings at one time made up over 50% of the S&P!”

Ben Carson - A wealth of Common Sense
Doesn’t having “the top 10 represent about 21% of an S&P 500 index fund and 18% in a total stock index fund” theoretically result in the S&P500 index fund outperforming the Total Stock Market Index fund ever so slightly (if the top five companies continue to dominate the market as per the article)?
No it does not. I am a big fan of using an S&P 500 index fund, but for none of the reasons suggested. Read the article that I linked and note the dynamic changes that occur over decades. It is highly likely that what dominates now will not dominate in 20 years. This is what capitalism is all about.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Mode32
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Re: SP500 Index fund will outperform total stock market?

Post by Mode32 » Thu Mar 26, 2020 4:36 pm

But wouldn’t the S&P 500 index fund have a larger % of the top 10 companies (at whatever time/companies in future)compared with a Total stock market fund, and therefore perform slightly better?

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Re: SP500 Index fund will outperform total stock market?

Post by ruralavalon » Thu Mar 26, 2020 4:37 pm

Mode32 wrote:
Thu Mar 26, 2020 3:40 pm
https://www.marketwatch.com/story/coron ... =home-page


Although I’ve been investing for a while, I’m fairly new at critically reviewing investment articles. Above is a recent article from MarketWatch.com.

It basically says the five stocks (Microsoft, Amazon, Facebook, Alphabet, and Google) with the largest market capitalizations have outperformed the market since this economic downturn in Feb ‘20 with a high likelihood that there will be a “long-term shift: The stock market is becoming split between a few large firms that are wildly profitable and everything else.” The articles goes on to recommend investing in broad market index funds (which I already do like most of us on this site).

Of course, every article has its own bias, but could this article be further interpreted to mean that an S&P 500 specific Index fund (VFIAX) would likely outperform a Total Stock Market Index fund (VTSAX) because the weights given to the above five companies within the VFIAX are higher? I understand that the performance of VFIAX vs VTSAK is very similar, but would like to hear how seasoned investors may look at this.

Thanks in advance.

Stay safe and healthy.
Maybe, maybe not. I would not want to guess. We use Vanguard Total Stock Market Index Fund (VTSAX), and don't plan to switch.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: SP500 Index fund will outperform total stock market?

Post by Northern Flicker » Thu Mar 26, 2020 4:40 pm

Mode32 wrote: It basically says the five stocks (Microsoft, Amazon, Facebook, Alphabet, and Google) with the largest market capitalizations have outperformed the market since this economic downturn in Feb ‘20 with a high likelihood that there will be a “long-term shift: The stock market is becoming split between a few large firms that are wildly profitable and everything else.”
Large-cap stocks tend to do better than small-caps in a downturn because they tend to have less debt load, tend to have more cash on hand, and tend to have better credit ratings if they do need to borrow, among other things. Large-caps tend to be better able to weather a storm like this. As a result, when the market prices in bigger risk premia in times like this (discounts the price of a stock to reflect greater future uncertainty of revenue) the discounting will tend to be steeper for small-cap stocks.

What has happened since Feb 20 is pretty irrelevant to the long-term trajectory, whether or not the prediction of a long-term trend turns out to be correct.
Last edited by Northern Flicker on Thu Mar 26, 2020 4:57 pm, edited 1 time in total.
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Re: SP500 Index fund will outperform total stock market?

Post by watchnerd » Thu Mar 26, 2020 4:47 pm

Mode32 wrote:
Thu Mar 26, 2020 3:40 pm
https://www.marketwatch.com/story/coron ... =home-page


Although I’ve been investing for a while, I’m fairly new at critically reviewing investment articles. Above is a recent article from MarketWatch.com.

It basically says the five stocks (Microsoft, Amazon, Facebook, Alphabet, and Google) with the largest market capitalizations have outperformed the market since this economic downturn in Feb ‘20 with a high likelihood that there will be a “long-term shift: The stock market is becoming split between a few large firms that are wildly profitable and everything else.” The articles goes on to recommend investing in broad market index funds (which I already do like most of us on this site).

Of course, every article has its own bias, but could this article be further interpreted to mean that an S&P 500 specific Index fund (VFIAX) would likely outperform a Total Stock Market Index fund (VTSAX) because the weights given to the above five companies within the VFIAX are higher? I understand that the performance of VFIAX vs VTSAK is very similar, but would like to hear how seasoned investors may look at this.

Thanks in advance.

Stay safe and healthy.
I already work for one of the tech megacorps, so not only is my job/salary tied to this market segment, but also my ESPP and RSUs.

This is why I invest in Total World Stock -- to diversify *away* from the US mega tech sector.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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Re: SP500 Index fund will outperform total stock market?

Post by arcticpineapplecorp. » Thu Mar 26, 2020 4:53 pm

compare the largest holdings between the S&P500 and the total stock market index fund:

Image

Image

do you notice any difference?

the only difference is the 10 largest companies make up 24.80% of the S&P500 index, whereas the 10 largest companies "only" make up 20.70% of the total stock market index fund (and whether amazon or alphabet make up a larger percentage of holdings).

when you're talking about a percentage in U.S. stocks, a percentage in International stocks (hopefully) and a percentage in U.S. Bonds, don't you think a 4.1% difference in your stock portion (held in these 10 companies) accounts for very little overall difference in returns?

pick your poison.
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Re: SP500 Index fund will outperform total stock market?

Post by Jags4186 » Thu Mar 26, 2020 4:59 pm

alex_686 wrote:
Thu Mar 26, 2020 3:46 pm
Hard to tell what the future will bring but the past 20 years have favored larger corporations. Partly thanks to to technology, networking and increasing complex regulations.
Small caps have trounced large caps over the last 20 years:

Annualized Returns

Vanguard SP500 Index 2000-2019: 5.94%
Vanguard Small Cap Index 2000-2019: 8.43%

Even considering the relative poor performance of small caps in 2020, small caps are well ahead of large caps since 2000.

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Re: SP500 Index fund will outperform total stock market?

Post by ruralavalon » Thu Mar 26, 2020 5:05 pm

Jags4186 wrote:
Thu Mar 26, 2020 4:59 pm
alex_686 wrote:
Thu Mar 26, 2020 3:46 pm
Hard to tell what the future will bring but the past 20 years have favored larger corporations. Partly thanks to to technology, networking and increasing complex regulations.
Small caps have trounced large caps over the last 20 years:

Annualized Returns

Vanguard SP500 Index 2000-2019: 5.94%
Vanguard Small Cap Index 2000-2019: 8.43%

Even considering the relative poor performance of small caps in 2020, small caps are well ahead of large caps since 2000.
It is hard to see much difference in historical performance between Vanguard 500 Index Fund and Vanguard Total Stock Market Index Fund. Portfolio Visualizer, 1993-2020.

After all small-caps make up a only small part (instant xray) of a total stock market index fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: SP500 Index fund will outperform total stock market?

Post by tibbitts » Thu Mar 26, 2020 5:32 pm

Mode32 wrote:
Thu Mar 26, 2020 3:40 pm
https://www.marketwatch.com/story/coron ... =home-page


Although I’ve been investing for a while, I’m fairly new at critically reviewing investment articles. Above is a recent article from MarketWatch.com.

It basically says the five stocks (Microsoft, Amazon, Facebook, Alphabet, and Google) with the largest market capitalizations have outperformed the market since this economic downturn in Feb ‘20 with a high likelihood that there will be a “long-term shift: The stock market is becoming split between a few large firms that are wildly profitable and everything else.” The articles goes on to recommend investing in broad market index funds (which I already do like most of us on this site).

Of course, every article has its own bias, but could this article be further interpreted to mean that an S&P 500 specific Index fund (VFIAX) would likely outperform a Total Stock Market Index fund (VTSAX) because the weights given to the above five companies within the VFIAX are higher? I understand that the performance of VFIAX vs VTSAK is very similar, but would like to hear how seasoned investors may look at this.

Thanks in advance.

Stay safe and healthy.
I don't know how "seasoned" investors look at this, but personally it would be hard to find something I believe is less important than the difference between the S&P500 and the Total Market.

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Re: SP500 Index fund will outperform total stock market?

Post by hulburt1 » Thu Mar 26, 2020 5:52 pm

If I put 1m in the top 5 equally and 1m in s&p and 1m in total-Which one would be ahead in 5 years?

$questions
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Re: SP500 Index fund will outperform total stock market?

Post by $questions » Thu Mar 26, 2020 6:10 pm

Do you have any invest in the ETF RSP? It's an equal weighted market cap ETF for S&P 500?

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Re: SP500 Index fund will outperform total stock market?

Post by Triple digit golfer » Thu Mar 26, 2020 6:12 pm

I used to have most of my U.S. equities in total market. Now most are in the S&P 500. I don't know that there's anything less important in investing than distinguishing between the two.

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Re: SP500 Index fund will outperform total stock market?

Post by Jags4186 » Thu Mar 26, 2020 6:16 pm

ruralavalon wrote:
Thu Mar 26, 2020 5:05 pm
Jags4186 wrote:
Thu Mar 26, 2020 4:59 pm
alex_686 wrote:
Thu Mar 26, 2020 3:46 pm
Hard to tell what the future will bring but the past 20 years have favored larger corporations. Partly thanks to to technology, networking and increasing complex regulations.
Small caps have trounced large caps over the last 20 years:

Annualized Returns

Vanguard SP500 Index 2000-2019: 5.94%
Vanguard Small Cap Index 2000-2019: 8.43%

Even considering the relative poor performance of small caps in 2020, small caps are well ahead of large caps since 2000.
It is hard to see much difference in historical performance between Vanguard 500 Index Fund and Vanguard Total Stock Market Index Fund. Portfolio Visualizer, 1993-2020.

After all small-caps make up a only small part (instant xray) of a total stock market index fund.
I wasn't commenting on the TSM vs the SP500. For all intents and purposes, they perform near identically.

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Re: SP500 Index fund will outperform total stock market?

Post by aristotelian » Thu Mar 26, 2020 6:18 pm

The academic literature says there is a "size premium" for smaller companies which are theoretically higher risk, higher reward. The reward hasn't been there in recent years but could come back. Again theoretically, any group of stocks that outperforms will become overvalued and will underperform in the future. The problem is any of these theories can be true depending on what timeframe you pick, and even if there is a historical trend, future performance is never guaranteed.

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Re: SP500 Index fund will outperform total stock market?

Post by Phineas J. Whoopee » Thu Mar 26, 2020 6:32 pm

The S&P 500 represents approximately 80% of the market capitalization of the total US stock market. Therefore, they will track each other closely.

If you want to outperform the total US stock market, on a capitalization-weighted basis, you'll have to deviate from it much more than just the S&P 500. Of course you will risk underperforming. That, to use a cliche, is what risk means.

What are you trying to accomplish? With the information we might be able to provide more specific guidance.

PJW

rasta
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Re: SP500 Index fund will outperform total stock market?

Post by rasta » Thu Mar 26, 2020 7:40 pm

likely QQQ will beat both VOO and VTI.

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Re: SP500 Index fund will outperform total stock market?

Post by ruralavalon » Thu Mar 26, 2020 8:40 pm

Jags4186 wrote:
Thu Mar 26, 2020 6:16 pm
ruralavalon wrote:
Thu Mar 26, 2020 5:05 pm
Jags4186 wrote:
Thu Mar 26, 2020 4:59 pm
alex_686 wrote:
Thu Mar 26, 2020 3:46 pm
Hard to tell what the future will bring but the past 20 years have favored larger corporations. Partly thanks to to technology, networking and increasing complex regulations.
Small caps have trounced large caps over the last 20 years:

Annualized Returns

Vanguard SP500 Index 2000-2019: 5.94%
Vanguard Small Cap Index 2000-2019: 8.43%

Even considering the relative poor performance of small caps in 2020, small caps are well ahead of large caps since 2000.
It is hard to see much difference in historical performance between Vanguard 500 Index Fund and Vanguard Total Stock Market Index Fund. Portfolio Visualizer, 1993-2020.

After all small-caps make up a only small part (instant xray) of a total stock market index fund.
I wasn't commenting on the TSM vs the SP500. For all intents and purposes, they perform near identically.
I was trying to stick to the original question which is "SP500 Index fund will outperform total stock market?"

Turning to your point, long-term Vanguard 500 Index Fund has had better total return than Vanguard Small-cap Fund.
S&P 500 = 10.89% CAGR
Small-cap = 9.81% CAGR

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Re: SP500 Index fund will outperform total stock market?

Post by ruralavalon » Thu Mar 26, 2020 8:48 pm

rasta wrote:
Thu Mar 26, 2020 7:40 pm
likely QQQ will beat both VOO and VTI.
"Likely"??? Historical returns are otherwise.

The more diversified funds, S&P 500 and total stock market, have had better CAGR (Compound annual growth rate) than Invesco QQQ Trust (QQQ). Portfolio Visualizer, 2000-2020
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: SP500 Index fund will outperform total stock market?

Post by 1789 » Thu Mar 26, 2020 11:36 pm

ruralavalon wrote:
Thu Mar 26, 2020 8:48 pm
rasta wrote:
Thu Mar 26, 2020 7:40 pm
likely QQQ will beat both VOO and VTI.
"Likely"??? Historical returns are otherwise.

The more diversified funds, S&P 500 and total stock market, have had better CAGR (Compound annual growth rate) than Invesco QQQ Trust (QQQ). Portfolio Visualizer, 2000-2020
QQQ is horrible. I don't understand why anyone invests in that fund honestly.
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Re: SP500 Index fund will outperform total stock market?

Post by drk » Fri Mar 27, 2020 12:07 am

The jump from "did" to "will" is illogical.

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Mode32
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Re: SP500 Index fund will outperform total stock market?

Post by Mode32 » Fri Mar 27, 2020 2:20 pm

Phineas J. Whoopee wrote:
Thu Mar 26, 2020 6:32 pm
The S&P 500 represents approximately 80% of the market capitalization of the total US stock market. Therefore, they will track each other closely.

If you want to outperform the total US stock market, on a capitalization-weighted basis, you'll have to deviate from it much more than just the S&P 500. Of course you will risk underperforming. That, to use a cliche, is what risk means.

What are you trying to accomplish? With the information we might be able to provide more specific guidance.

PJW
I was under the impression that a total stock market index fund has and will (in the future) very slightly outperform the S&P 500 index fund. Of course, can't predict future performance, and I had not seen before an article expecting the S&P 500 index fund to outperform the total stock market fund...so just wanted to get experienced investors thoughts on the article and who they would give the ever so slight edge to (TSM vs SP500).

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cheese_breath
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Re: SP500 Index fund will outperform total stock market?

Post by cheese_breath » Fri Mar 27, 2020 2:22 pm

Whichever one wins, the difference will be negligible.
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Re: SP500 Index fund will outperform total stock market?

Post by bigfry » Fri Mar 27, 2020 2:37 pm

They are for all intents and purposes the same. VTSAX and VFIAX are both very good funds and great TLH partners as well. I just recently exchanged all my VTSAX shares for VFIAX for tax-loss purposes. They are "different" enough in the eyes of the IRS that they will not trigger a wash sale. However in a taxable account it appears VFIAX is slightly more efficient because it produces 100% qualified dividends while VTSAX is 93.79%. Something to consider.
Keep it simple, stupid.

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Re: SP500 Index fund will outperform total stock market?

Post by abuss368 » Mon Mar 30, 2020 12:19 pm

I have both but not by choice. Personal accounts are Total Stock. Employer plan for now (changing to include Total Stock in future) has S&P 500. I sleep well as both are so close in terms of performance.
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Re: SP500 Index fund will outperform total stock market?

Post by 1789 » Mon Mar 30, 2020 2:31 pm

Whichever one is available i would go with it. Also if both SP500 and extended market available to approximate TSM, i wouldn't spend energy to add extended market fund and would just stick to SP500.
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Re: SP500 Index fund will outperform total stock market?

Post by colodane » Mon Mar 30, 2020 4:06 pm

They will have essentially the same performance. They are so close in performance (and yet use a different index) that I pair them for Tax Loss Harvesting purposes and really don't care which one I am currently holding at any given time.

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Re: SP500 Index fund will outperform total stock market?

Post by dave_k » Mon Mar 30, 2020 6:55 pm

^ This. I slightly prefer TSM for diversification, but TLH between the two and consider them essentially equivalent. The correlation is something like 99%.

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Re: SP500 Index fund will outperform total stock market?

Post by ochotona » Mon Mar 30, 2020 7:17 pm

Over the long run, equal weight S&P 500 funds like RSP (VADAX is the sympbol for the older mutual fund version) have beaten market-cap weighted like VOO / VFINX. But not since 2009. I like to focus on the long term. There's a great podcast where Rob Arnott talks about this:

https://mebfaber.com/2016/09/07/episode ... ectations/
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Re: SP500 Index fund will outperform total stock market?

Post by Alan S. » Mon Mar 30, 2020 11:39 pm

I think the S&P 500 will outperform TSM in the coming years, because the large firms can survive this, while many small firms will disappear or will be cannibalized. The large firms end up with a larger market share as a result, and will continue to dominate the supply chain using their leverage.

That's why small and mid caps are down much more than the 500 in the last few weeks. Of course, they could get temporarily oversold.

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Re: SP500 Index fund will outperform total stock market?

Post by Alex GR » Tue Mar 31, 2020 7:57 am

Mode32 wrote:
Fri Mar 27, 2020 2:20 pm
Phineas J. Whoopee wrote:
Thu Mar 26, 2020 6:32 pm
The S&P 500 represents approximately 80% of the market capitalization of the total US stock market. Therefore, they will track each other closely.

If you want to outperform the total US stock market, on a capitalization-weighted basis, you'll have to deviate from it much more than just the S&P 500. Of course you will risk underperforming. That, to use a cliche, is what risk means.

What are you trying to accomplish? With the information we might be able to provide more specific guidance.

PJW
I was under the impression that a total stock market index fund has and will (in the future) very slightly outperform the S&P 500 index fund. Of course, can't predict future performance, and I had not seen before an article expecting the S&P 500 index fund to outperform the total stock market fund...so just wanted to get experienced investors thoughts on the article and who they would give the ever so slight edge to (TSM vs SP500).
Yes, I was under the same impression because it makes logical sense: Mid-cap and small cap outperform large cap but they're more risky(higher drawdown as we've seen recently). Hence we often see a recommendation to hold some small cap in the portfolio. More risk = more reward. If S&P 500 index outperformed TSM, that would mean "less risk but more reward". In other words, there must be a higher payoff for holding the riskier mid-cap and small cap.

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Re: SP500 Index fund will outperform total stock market?

Post by 3funder » Tue Mar 31, 2020 8:10 am

cheese_breath wrote:
Fri Mar 27, 2020 2:22 pm
Whichever one wins, the difference will be negligible.
+1

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Re: SP500 Index fund will outperform total stock market?

Post by Peculiar_Investor » Tue Mar 31, 2020 8:42 am

cheese_breath wrote:
Fri Mar 27, 2020 2:22 pm
Whichever one wins, the difference will be negligible.
And better still, you can invest in either via a very low-cost index fund.
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Re: SP500 Index fund will outperform total stock market?

Post by ochotona » Tue Mar 31, 2020 9:24 am

I find that equal-weight S&P 500 performs very much like market cap weight SPY plus a decent slide of Mid-Cap.
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Re: SP500 Index fund will outperform total stock market?

Post by Peculiar_Investor » Tue Mar 31, 2020 9:46 am

Mode32 wrote:
Thu Mar 26, 2020 3:40 pm
Of course, every article has its own bias, but could this article be further interpreted to mean that an S&P 500 specific Index fund (VFIAX) would likely outperform a Total Stock Market Index fund (VTSAX) because the weights given to the above five companies within the VFIAX are higher?
I haven't read the linked article, nor do I have any inclination to do so.

What I would recommend is reading Bogle's speech The Dream of A Perfect Plan
Jack Bogle wrote:Over the years, I’ve come to respect Von Clausewitz’ epigram, “the greatest enemy of a good plan is the dream of a perfect plan.”
A great reminder.
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams

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Re: SP500 Index fund will outperform total stock market?

Post by pkcrafter » Tue Mar 31, 2020 10:17 am

Mode:
Although I’ve been investing for a while, I’m fairly new at critically reviewing investment articles. Above is a recent article from MarketWatch.com.
Simple answer - Don't read Marketwatch. Their goal is to get you to sign-up for something they are promoting. If you read lots of investment articles, you will mostly get sensationalism and investment porn.


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When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: SP500 Index fund will outperform total stock market?

Post by White Coat Investor » Tue Mar 31, 2020 10:22 am

Mode32 wrote:
Thu Mar 26, 2020 3:40 pm
https://www.marketwatch.com/story/coron ... =home-page


Although I’ve been investing for a while, I’m fairly new at critically reviewing investment articles. Above is a recent article from MarketWatch.com.

It basically says the five stocks (Microsoft, Amazon, Facebook, Alphabet, and Google) with the largest market capitalizations have outperformed the market since this economic downturn in Feb ‘20 with a high likelihood that there will be a “long-term shift: The stock market is becoming split between a few large firms that are wildly profitable and everything else.” The articles goes on to recommend investing in broad market index funds (which I already do like most of us on this site).

Of course, every article has its own bias, but could this article be further interpreted to mean that an S&P 500 specific Index fund (VFIAX) would likely outperform a Total Stock Market Index fund (VTSAX) because the weights given to the above five companies within the VFIAX are higher? I understand that the performance of VFIAX vs VTSAK is very similar, but would like to hear how seasoned investors may look at this.

Thanks in advance.

Stay safe and healthy.
If large stocks outperform small stocks than 500 index should outperform TSM. However, given that the data shows small outperforms large over the long run, and TSM can't be front-run like 500 index, I would expect the opposite. But not by much.
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Re: SP500 Index fund will outperform total stock market?

Post by whereskyle » Tue Mar 31, 2020 10:26 am

ruralavalon wrote:
Thu Mar 26, 2020 8:48 pm
rasta wrote:
Thu Mar 26, 2020 7:40 pm
likely QQQ will beat both VOO and VTI.
"Likely"??? Historical returns are otherwise.

The more diversified funds, S&P 500 and total stock market, have had better CAGR (Compound annual growth rate) than Invesco QQQ Trust (QQQ). Portfolio Visualizer, 2000-2020
Just as arbitrary as any other timeframe-based backtesting. QQQ wipes the floor if you begin tracking from the Great Recession instead of the Y2K-bubble.
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Re: SP500 Index fund will outperform total stock market?

Post by whereskyle » Tue Mar 31, 2020 10:42 am

Mode32 wrote:
Thu Mar 26, 2020 4:36 pm
But wouldn’t the S&P 500 index fund have a larger % of the top 10 companies (at whatever time/companies in future)compared with a Total stock market fund, and therefore perform slightly better?
Difference in top-10 weighting currently is 3.5% higher in S&P 500. Last year, VOO (S&P 500 ETF) outperformed VTI (Total U.S. ETF) by .5%. They both returned greater than 30%. The reason I prefer holding VTI is because then I know I hold a bit of Tesla while it's shooting through the roof even though it is not a part of the S&P 500, and therefore I do not fear that I am missing out. I also know that VTI, just like VOO (S&P 500 ETF) will continue to reflect the weight of the top 10, although not quite as much as VOO because of VOO's smaller basket. If that weight increases, VTI will reflect that. If the weight starts to decrease and investors move to mid- and small-caps chasing the next big thing, then VTI will capture that. VOO won't. The .5% that I missed last year (I didn't really miss it, I was just also invested in other things that did not perform as well last year) by holding VTI does not outweigh for me the regret that I would have if I had missed a wave of price increases in the mid and small caps because I did not hold them at all. But Jack Bogle has always been right that an S&P 500 index is a sufficiently wide net to cast and is the only equity investment one needs. But for me, buying less of the market, effectively shrinking the net, is little more than performance chasing, and is contrary to Bogle's investment principles. Still, Bogle doesn't think one needs VTI. VOO is enough. I just think VTI aligns more neatly with the principles Jack espoused and that I try to follow. Research suggests that in the past, despite consistent top-10 overweighting, a small-cap index outperforms the S&P 500 over a longer time horizon. Does that mean you need small caps to get your fair share of the market return? Absolutely not. My preference for VTI emerges from my concern about keeping my own FOMO in check so that I don't act against my own interests.
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Re: SP500 Index fund will outperform total stock market?

Post by ruralavalon » Tue Mar 31, 2020 10:43 am

whereskyle wrote:
Tue Mar 31, 2020 10:26 am
ruralavalon wrote:
Thu Mar 26, 2020 8:48 pm
rasta wrote:
Thu Mar 26, 2020 7:40 pm
likely QQQ will beat both VOO and VTI.
"Likely"??? Historical returns are otherwise.

The more diversified funds, S&P 500 and total stock market, have had better CAGR (Compound annual growth rate) than Invesco QQQ Trust (QQQ). Portfolio Visualizer, 2000-2020
Just as arbitrary as any other timeframe-based backtesting. QQQ wipes the floor if you begin tracking from the Great Recession instead of the Y2K-bubble.
The time frame was not arbitrary.

The time frame is based on the inception of Invesco QQQ Trust (QQQ), to give the longest possible comparison.
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Re: SP500 Index fund will outperform total stock market?

Post by whereskyle » Tue Mar 31, 2020 10:51 am

ruralavalon wrote:
Tue Mar 31, 2020 10:43 am
whereskyle wrote:
Tue Mar 31, 2020 10:26 am
ruralavalon wrote:
Thu Mar 26, 2020 8:48 pm
rasta wrote:
Thu Mar 26, 2020 7:40 pm
likely QQQ will beat both VOO and VTI.
"Likely"??? Historical returns are otherwise.

The more diversified funds, S&P 500 and total stock market, have had better CAGR (Compound annual growth rate) than Invesco QQQ Trust (QQQ). Portfolio Visualizer, 2000-2020
Just as arbitrary as any other timeframe-based backtesting. QQQ wipes the floor if you begin tracking from the Great Recession instead of the Y2K-bubble.
The time frame was not arbitrary.

The time frame is based on the inception of Invesco QQQ Trust (QQQ), to give the longest possible comparison.
Agreed. I did not mean to accuse you of cherry-picking the start date, and I figured that you were tracking QQQ's inception, which in terms of tracking the "NASDAQ 100" (if that's what it indeed tracks) is an arbitrary start point. I meant to point out merely that backtesting is an imperfect tool. We cannot say whether QQQ will "likely" underperform if an investor buys it today. We can say that there may be more risks in buying QQQ than in buying a total market fund. But if we're merely talking about the significance of the Nasdaq 100 in terms of so many variables, such as investor interest and speculation in "technology" branded companies at this point in time, it's anyone's guess whether it is "likely" that QQQ will continue its recent outperformance.
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Re: SP500 Index fund will outperform total stock market?

Post by abuss368 » Tue Mar 31, 2020 11:22 am

1789 wrote:
Mon Mar 30, 2020 2:31 pm
Whichever one is available i would go with it. Also if both SP500 and extended market available to approximate TSM, i wouldn't spend energy to add extended market fund and would just stick to SP500.
I would agree and I actually do this within my employer plan. We have an S&P 500 (no Total Stock) and I simply use that. It has worked.
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Re: SP500 Index fund will outperform total stock market?

Post by ruralavalon » Tue Mar 31, 2020 12:10 pm

whereskyle wrote:
Tue Mar 31, 2020 10:51 am
ruralavalon wrote:
Tue Mar 31, 2020 10:43 am
whereskyle wrote:
Tue Mar 31, 2020 10:26 am
ruralavalon wrote:
Thu Mar 26, 2020 8:48 pm
rasta wrote:
Thu Mar 26, 2020 7:40 pm
likely QQQ will beat both VOO and VTI.
"Likely"??? Historical returns are otherwise.

The more diversified funds, S&P 500 and total stock market, have had better CAGR (Compound annual growth rate) than Invesco QQQ Trust (QQQ). Portfolio Visualizer, 2000-2020
Just as arbitrary as any other timeframe-based backtesting. QQQ wipes the floor if you begin tracking from the Great Recession instead of the Y2K-bubble.
The time frame was not arbitrary.

The time frame is based on the inception of Invesco QQQ Trust (QQQ), to give the longest possible comparison.
Agreed. I did not mean to accuse you of cherry-picking the start date, and I figured that you were tracking QQQ's inception, which in terms of tracking the "NASDAQ 100" (if that's what it indeed tracks) is an arbitrary start point. I meant to point out merely that backtesting is an imperfect tool. We cannot say whether QQQ will "likely" underperform if an investor buys it today. We can say that there may be more risks in buying QQQ than in buying a total market fund. But if we're merely talking about the significance of the Nasdaq 100 in terms of so many variables, such as investor interest and speculation in "technology" branded companies at this point in time, it's anyone's guess whether it is "likely" that QQQ will continue its recent outperformance.
I agree.

I was questioning rasta's claim that "likely QQQ will beat both VOO and VTI."
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Re: SP500 Index fund will outperform total stock market?

Post by Chip Shot » Tue Mar 31, 2020 12:50 pm

I can tell you that the S&P has not out performed Total Market since March 16. That is when I did TLH from total Market to S&P. It has already cost me 0.62%

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