John C. Bogle has been clear that to him the phrase "index fund" meant "total market index fund--as closely as possible." An S&P 500 fund was good enough, but a total market fund was preferable. For example, in a 2004 speech
, he said:
...the original idea of the index fund—own the entire U.S. stock market, own it at low cost, hang on to it forever—has been, to put it bluntly, bastardized.
He also commented
From the outset, I realized that the 500 Index, by owning large-cap stocks that represented 75% to 80% of the value of total U.S. market, would closely parallel, but not precisely match, the stock market’s return, since the Index excluded mid-cap and small-cap stocks. So in 1987, we started a fund called the Extended Market Fund, indexed to those smaller companies. If used in harness with the 500 Fund, it would provide a total market exposure...and in 1991, a Total Stock Market Index Fund, modeled on the Wilshire Total (U.S.) Market Index...
the brute evidence of the past three decades makes a powerful case against the quest to find the needle in the haystack. Investors would clearly be better served by simply owning, through an index fund, the market haystack itself.
I can't recall the slightest hint in any of Bogle's writing that the S&P 500 was somehow preferable to the total market; it was merely an acceptable approximation to the total market, and the best that could be done when the fund was created.
From the point at which the Vanguard Total Stock Market Index Fund's expense ratio dropped to be equal to the 500 Index Fund, in my opinion Total Stock simply superseded
500 Index. Reasons for using the 500 Index are limited: a) tax considerations if you already have a large holding in a taxable account; b) only available choice in a 401(k) plan; c) heard someone, e.g. Warren Buffett mention it, and looked no further; d) pursuing some obscure theory that the S&P 500 amounts to active management and
that it is total-market-beating active management.
So, I still have three questions for harakareid.
1) If you are investing in the world's biggest mutual fund, the Vanguard Total Stock Market Index Fund, why do you care about what happens to the S&P 500?
2) If you are deliberately investing in the 500 index Fund rather than the Total Stock Market Index fund, why
3) If the issues with front-running the S&P 500 are so big, glaring, and obvious that it is easy to get rich by doing it, why isn't there any "S&P 500 Anticipation Fund" that selectively invests in stocks just before they get added to the S&P 500--either an active mutual fund based on human prediction, or a passive fund or ETF based on some rule-based model that predicts addition?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.