S&P Index vs Total Market

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David_w
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S&P Index vs Total Market

Post by David_w »

I need to invest some funds for my minor son. I have other types of funds / ETF's in mind too but the bulk of it I will probably put into either an S&P 500 index or total market index. I know wisdom sued to say S&P when there was no total market. Now, many recommend total market. I am wondering if S&P over the long haul wouldn't outperform the total market funds?

What are you opinions and what would you do? Thanks
ecp18
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Re: S&P Index vs Total Market

Post by ecp18 »

Here is a topic from last year on this subject: viewtopic.php?t=295544
And another topic here: viewtopic.php?t=313223

Personally I don't think it makes a lot of difference. I have my money in the Vanguard total market index, but I would be happy in the S&P index fund if the total market find was not available.
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nisiprius
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Re: S&P Index vs Total Market

Post by nisiprius »

I am wondering if S&P over the long haul wouldn't outperform the total market funds?
I would just not even try to figure out a thing like that. Nobody knows for sure. They haven't been very different from each other in the past, they almost can't be very different from each other in the future, because the stocks of the S&P 500 companies constitute 80% of the dollar value of the market. Try to accept the idea that a) it doesn't matter much and b) nobody knows.

If there's a big difference in the expense ratio of the choices available to you--and I mean difference, not ratio, I mean if one of them has an 0.55% ER and the other has an 0.05% ER for a difference of 0.50%--that might matter, but there probably isn't.

If you just kind of like the S&P 500 and just don't feel right about the total market, it's your money and your choice. After you've looked at everything, you still need to do what feels right. A reasonable person could choose the S&P 500. For example, it's the only kind of index fund Warren Buffett ever mentions. Just don't get too attached to the idea that it is always going to do better. I picked this one specific period of time to show that there are times when Total Stock (orange) did somewhat better than 500 Index (blue). I can pick others when it was the other way around. I'm just saying "S&P might outperform" is not any sure thing.

Image

Here are two reasons why I personally prefer Total Stock.

1) There has been an awful lot of ink spilled recently by Tesla fans over the big question of when Tesla is going to get added to the S&P 500 index. It isn't in the index. People expected it to get added. Some are annoyed because they are Tesla fans and feel as if S&P is somehow snubbing Tesla, or screwing up by not adding a terrific company. Others are annoyed because they think that when it is added to the index, S&P 500 index funds will all need to buy it and that will produce a nice little price boost they think they can profit from, at the expense of index fund investors. Since I own the total market index fund, I don't even need to think about this--I've been owning Tesla since 2010. (That's actually meaningless by the way, because despite its incredible rise the amount in the fund isn't enough to matter much, and if I bothered to look I could find other stocks in Total Stock that were tanking over the same period of time).

2) I originally bought the Vanguard 500 Index Fund because I didn't want to pick stocks. The S&P 500 index was intended to be some kind of measure of the whole market. When total market funds became just as cheap as S&P 500 index funds, I switched from the Vanguard 500 Index fund to the Vanguard Total Stock Market index fund because my idea was own the whole market and not pick any, and whether or not Total Stock will outperform, it is closer to what I meant to do.
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JoMoney
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Re: S&P Index vs Total Market

Post by JoMoney »

I would predict both will have periods where they outperform the other by some small margin, and in a unpredictable way, and any out-performance in one period will be matched by under-performance in another.
These are not the funds/indices to be comparing if you're looking for big differences or trying to chase market beating performance. They are largely the same thing.

For what it's worth, since the start of the "Wilshire 5000" total market index, the total return of the S&P 500 has been slightly higher.
MStar Chart Link
... there have been periods within that long stretch that swing either way... but mostly, it's a tight line with the two hugging each other.

I like the S&P 500 index for a variety of reasons, not the least of which is that it IS the main broad US market widely quoted and easy to find data on. I can compare S&P 500 index funds from a variety of fund providers and they all track the same index. If the S&P 500 is the benchmark other funds are trying to beat/comparing themselves too, the benchmark I'm looking at, I'm looking to pick the one that's intended to track that benchmark. There are lots of 'Total Market' funds out there too, but many of them aren't tracking the same index... they have slightly different methodologies... There's nothing wrong with the "Russell 3000" total market, it's just a different methodology that will have periods that vary slightly (but still .99 correlated) to other broad US market indices.
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fishnhunt
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Re: S&P Index vs Total Market

Post by fishnhunt »

Pick whatever one has the smaller expense ratio. The total market is much more diversified. Personally, I like the S&P 500 because it is "self cleansing", meaning only the winners stay in and poor performers get booted eventually. Long term performance wise there has not been much difference.
SimplicityNow
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Re: S&P Index vs Total Market

Post by SimplicityNow »

In my tax deferred accounts I own the S&P 500 because that is what they offer. I supplement this with a small cap index fund. The two combined somewhat replicate the total market index. The total market has about 3,500 different companies where the S&P 500 and small cap index combines hold about 2,000 companies. That is close enough for me.

In my taxable account I own total market for simplicity.

I think either one is a good choice.
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familythriftmd
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Re: S&P Index vs Total Market

Post by familythriftmd »

fishnhunt wrote: Fri Oct 16, 2020 8:20 am Pick whatever one has the smaller expense ratio. The total market is much more diversified. Personally, I like the S&P 500 because it is "self cleansing", meaning only the winners stay in and poor performers get booted eventually. Long term performance wise there has not been much difference.
You say that, but the correlation r^2 value is about 99% and the market overall is so overrepresented by the S&P 500 given the market cap of FAANG, DJIA, and the next 470 or so corporations on that S&P list that I think there is about no difference unless you were to have a more complicated portfolio with say, VISVX small value representing a large portion of your portfolio (which I know is another conversation altogether).

However, please correct me if I'm wrong! :sharebeer
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KMoney
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Re: S&P Index vs Total Market

Post by KMoney »

I will be in a similar situation soon, and like others I agree the performance difference is not something to be concerned about. All other things being equal I choose the total market funds for my own investments.

Having said that, I am also considering the educational impact of the choice on my son. From that angle I wonder if the S&P 500 funds are a better choice since I expect the S&P 500 to be a relevant benchmark for a long time and it will be easier for him to make a connection between his funds and the current state of the markets this way.

What do others think? Is the S&P 500 fund a better choice for introducing someone to investing?
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Re: S&P Index vs Total Market

Post by snailderby »

David_w wrote: Fri Oct 16, 2020 7:24 amI am wondering if S&P over the long haul wouldn't outperform the total market funds?
No one knows. If you have access to both types of funds in your account, I would use the total stock market fund for more diversification. But a S&P 500 fund is perfectly fine too. I would flip a coin and tell your son that his savings rate will matter more than any difference between these two funds.
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Re: S&P Index vs Total Market

Post by ruralavalon »

I prefer a total stock market index fund if available, because a little more diversified than a S&P 500 index fund.

Over the 28 years since the creation of the first total stock market index fund the two types of funds have had almost identical performance. Some years a total stock market index fund has done a little better, some years a S&P 500 index fund has done a little better, they have never been far apart. Portfolio Visualizer, 1993-2020.
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Taylor Larimore
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S&P 500 Index vs Total Market?

Post by Taylor Larimore »

David_w wrote: Fri Oct 16, 2020 7:24 am I need to invest some funds for my minor son. I have other types of funds / ETF's in mind too but the bulk of it I will probably put into either an S&P 500 index or total market index. I know wisdom sued to say S&P when there was no total market. Now, many recommend total market. I am wondering if S&P over the long haul wouldn't outperform the total market funds?

What are you opinions and what would you do? Thanks
David_w:

You must be congratulated for this gift for your minor son!

I slightly prefer the Total Stock Market Index Fund but the S&P 500 Index Fund could be a better choice for your son because it is better known and easier for him to follow. I would not add more funds.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom (2005): "The S&P 500 Index remains the principal measurement standard used by most mutual funds and pension accounts."
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Bama12
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Re: S&P Index vs Total Market

Post by Bama12 »

I use VTI for my son.
Laundry_Service
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Re: S&P Index vs Total Market

Post by Laundry_Service »

KMoney wrote: Fri Oct 16, 2020 9:57 am What do others think? Is the S&P 500 fund a better choice for introducing someone to investing?
From my own experience, I suggested and helped someone move their high-cost Roth IRA w/ a target retirement fund with 1% ER and 5.75% load to a low-cost SP500 fund. I think a total stock market fund would be insignificantly better down the road but was more concerned about the name recognition of an SP500 fund and most research confirming this to be a good plan.
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Re: S&P Index vs Total Market

Post by tibbitts »

David_w wrote: Fri Oct 16, 2020 7:24 am I need to invest some funds for my minor son. I have other types of funds / ETF's in mind too but the bulk of it I will probably put into either an S&P 500 index or total market index. I know wisdom sued to say S&P when there was no total market. Now, many recommend total market. I am wondering if S&P over the long haul wouldn't outperform the total market funds?

What are you opinions and what would you do? Thanks
I wouldn't waste my time thinking about a choice between essentially identical options.
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Re: S&P Index vs Total Market

Post by arcticpineapplecorp. »

in addition to all the great information so far here's another reason:

John Bogle is hailed as providing the first S&P500 index fund for retail investors which started in Aug 31, 1976.

The total stock market index fund started in 4/27/1992.

Around the year 2000 I heard Jack Bogle interviewed on cnbc and he was touting the total stock market index fund for being more representative of "the market" than the S&P500 index fund. I heard him say this numerous times thereafter.

He was right for the reason he stated.

That's good enough reason for me.
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Re: S&P Index vs Total Market

Post by Buy_N_Hold »

I just switched from S&P 500 funds to TSM funds, mainly due to the recent Tesla drama. The hype around S&P inclusion left a bad taste in my mouth. I like that a TSM holds all the relevant equities, so it avoids these kinds of issues. Also, if you buy into the idea of a “small company premium”, holding a TSM fund could give you a slight edge over time.

Either way, the performance will be very similar, so it probably doesn’t make a whole lot of difference either way. Go with what makes sense and is exciting to you personally!
“To turn $100 into $110 is work. To turn $100 million into $110 million is inevitable.” -Edgar Bronfman
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David_w
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Re: S&P 500 Index vs Total Market?

Post by David_w »

Thank you @Taylor Larimore
It is more out of necessity I am doing this. My son is now 17 and he is on the autism spectrum. Though he is what is considered high functioning we really aren't sure what his earning capacity may be in the future. We are very fortunate and grateful that we are able to provide funds for him to try and give him a boost in the future Our main concern is not only is he taken care of as best we can but that he doesn't become a financial burden on his older brother in the future.
Taylor Larimore wrote: Fri Oct 16, 2020 11:32 am
David_w wrote: Fri Oct 16, 2020 7:24 am I need to invest some funds for my minor son. I have other types of funds / ETF's in mind too but the bulk of it I will probably put into either an S&P 500 index or total market index. I know wisdom sued to say S&P when there was no total market. Now, many recommend total market. I am wondering if S&P over the long haul wouldn't outperform the total market funds?

What are you opinions and what would you do? Thanks
David_w:

You must be congratulated for this gift for your minor son!

I slightly prefer the Total Stock Market Index Fund but the S&P 500 Index Fund could be a better choice for your son because it is better known and easier for him to follow. I would not add more funds.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom (2005): "The S&P 500 Index remains the principal measurement standard used by most mutual funds and pension accounts."
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David_w
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Re: S&P Index vs Total Market

Post by David_w »

Thank you to all of have taken the time to post such insightful replies. I appreciate all of you and your replies. I think I'll just go with the Total Market for his trust.
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Re: S&P Index vs Total Market

Post by UpperNwGuy »

David_w wrote: Fri Oct 16, 2020 7:24 am I need to invest some funds for my minor son. I have other types of funds / ETF's in mind too but the bulk of it I will probably put into either an S&P 500 index or total market index. I know wisdom sued to say S&P when there was no total market. Now, many recommend total market. I am wondering if S&P over the long haul wouldn't outperform the total market funds?

What are you opinions and what would you do? Thanks
There is no right answer to your question. Just pick one, and you'll do fine.
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Re: S&P Index vs Total Market

Post by Buy_N_Hold »

David_w wrote: Sat Oct 17, 2020 8:16 am Thank you to all of have taken the time to post such insightful replies. I appreciate all of you and your replies. I think I'll just go with the Total Market for his trust.
A great choice to be sure! You are in excellent company here at the BH forum. :D
“To turn $100 into $110 is work. To turn $100 million into $110 million is inevitable.” -Edgar Bronfman
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Re: S&P Index vs Total Market

Post by ruralavalon »

David_w wrote: Sat Oct 17, 2020 8:16 am Thank you to all of have taken the time to post such insightful replies. I appreciate all of you and your replies. I think I'll just go with the Total Market for his trust.
That is a reasonable choice.
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