User:Okwriter/Approximating total stock market

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 shows how funds can be combined in order to mimic the composition of the U.S. stock market.

Investors wishing to invest in a Total Stock Market Index Fund often face a situation where they have to approximate it with the funds available in their employer sponsored plans and quite possibly some other funds available in other accounts such as a Roth IRA.

This page shows a few examples of approximating a Total Stock Market Index Fund with funds covering specific parts of the market.

Total stock market index
This table provides Total Stock Market Index Funds from three different providers. The objective is to approximate the Morningstar style box with available funds.

Approximating total stock with two funds
These examples show weightings of two funds that match the composition of the total US stock market.

Approximating total stock with three funds
These examples show weightings of three funds that match the composition of the total US stock market.

Table notes
For the above tables:


 * The style box numbers were computed by Morningstar Instant XRay by entering each fund ticker as a holding, and entering the dollar value based on the percentage; for example, for VFIAX at 81% and VEXAX at 19%, enter $81 and $19 respectively and observe the computed Morningstar Style Box on the Instant X-Ray tab. Enter different dollar amounts (always adding up to $100) in a trial and error fashion until you replicate the same computation as Total Stock Market, or as close as you can get. A free (or paid) subscription to Morningstar is required to access Instant Xray.
 * Computation was done by the method of least squares
 * Investors contemplating on using an S&P MidCap 400 fund, for example, may consider the example above that uses IJH. However, there may be slight implementation differences between the S&P MidCap 400 fund you have access to and IJH.
 * Two funds may appear to track the same portion of the market (say, mid-cap), but their holdings may differ depending on the indexes they track.

Size
Stocks may classified by the size of the corporation. This is most commonly done looking at the market capitalization. Market capitalization is simply a measurement found by taking a stock's current share price and multiplying it by the number of stock shares outstanding.

Exact market cap ranges will vary among different financial and rating institutions, but there are three different terms commonly used to describe stocks by their general size.


 * Large cap stocks have a market cap over $10 billion.


 * Mid cap stocks have a market cap between $2 billion and $10 billion.


 * Small cap stocks have a market cap between $300 million and $2 billion.

The Morningstar style box uses percentages rather than fixed dollar thresholds for size classification.

Style
Stocks may also be classified by "style," either value, blend, or growth.


 * Growth stocks are companies that are growing their profits at a very fast rate and are expected to continue to grow at an increasing rate.


 * Value stocks are stocks that tend to trade at deep discount relative to their intrinsic value (as defined by profits, book value etc.).

Common investor perceptions tend to perceive growth stocks as "high flying companies" and value stocks as "distressed companies." Both growth and value stocks have taken turns leading and lagging one another during different markets and economic conditions.