Approximating total stock market

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Flag of the United States.svg.png This article contains details specific to United States (US) investors. Acting on fund or ETF suggestions in it may have harmful US tax consequences for non-US investors.

Approximating total stock market 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 four different providers. The objective is to approximate these Morningstar style boxes using available funds chosen from the two-fund and three-fund tables below.

Total Stock Market index funds Morningstar
style box
100% Vanguard Total Stock Market Index Fund (VTSAX)

-or-
100% Fidelity ® Total Market Index Fund (FSKAX)

Updated 23 July 2021

Value Blend Growth
17 24 32 Large
6 9 5 Mid
3 4 2 Small
100% iShares Core S&P Total U.S. Stock Market ETF (ITOT)


Updated 23 July 2021

Value Blend Growth
16 24 32 Large
6 9 5 Mid
3 4 2 Small
100% Schwab U.S. Broad Market ETF (SCHB)


Updated 23 July 2021

Value Blend Growth
17 24 33 Large
6 9 5 Mid
3 3 2 Small
100% Fidelity ZERO Total Market (FZROX)


Updated 23 July 2021

Value Blend Growth
17 25 30 Large
6 9 5 Mid
3 3 2 Small

Approximating total stock with two funds

These examples match the composition of the total US stock market using two funds.

Match Total Stock Index with two funds Morningstar
style box
82% Vanguard 500 Index Fund (VFIAX)

18% Vanguard Extended Market Index Fund (VEXAX)

Updated 31 May 2021

Value Blend Growth
17 27 29 Large
6 9 5 Mid
3 4 2 Small
85% Vanguard Large Cap Index Fund (VLCAX)

15% Vanguard Small-Cap Index Fund (VSMAX)

Updated 31 May 2021

Value Blend Growth
17 26 29 Large
6 9 5 Mid
3 4 2 Small
92% iShares Russell 1000 ETF (IWB)

8% iShares Russell 2000 ETF (IWM)[note 1]

Updated 31 May 2021

Value Blend Growth
17 26 28 Large
6 9 4 Mid
3 4 2 Small
85% Vanguard 500 Index Fund (VFIAX)

15% Vanguard Small-Cap Index Fund (VSMAX)

Updated 31 May 2021

Value Blend Growth
18 27 28 Large
6 9 4 Mid
3 4 2 Small
90% Vanguard 500 Index Fund (VFIAX)

10% iShares Russell 2000 Index (IWM)

Updated 31 May 2021

Value Blend Growth
19 29 29 Large
5 7 2 Mid
3 4 2 Small
90% Vanguard 500 Index Fund (VFIAX)

10% Vanguard Tax-Managed Small-Cap Fund Inv (VTMSX)

Updated 31 May 2021

Value Blend Growth
19 29 29 Large
5 7 2 Mid
3 5 2 Small
83% Fidelity ZERO Large Cap Index Fund (FNILX)

17% Fidelity ZERO Extended Market Fund (FZIPX)

Updated 23 July 2021

Value Blend Growth
17 25 30 Large
6 9 5 Mid
3 4 2 Small

Approximating total stock with three funds

These examples match the composition of the total US stock market using three funds.

Match Total Stock Index with three funds Morningstar
style box
85% Vanguard 500 Index Fund (VFIAX)
10% iShares S&P MidCap 400 Index (IJH)
5% iShares S&P SmallCap 600 Index (IJR)

Updated 31 May 2021

Value Blend Growth
18 27 28 Large
6 9 3 Mid
3 5 1 Small
83% Fidelity 500 Index Fund (FXAIX)
8% Fidelity Mid Cap Index Fund (FSMDX)
9% Fidelity Small Cap Index Fund (FSSNX)

Updated 31 May 2021

Value Blend Growth
18 28 26 Large
6 9 4 Mid
2 4 2 Small
85% Vanguard S&P 500 ETF (VOO)
10% Vanguard S&P Mid-Cap 400 ETF (IVOO)
5% Vanguard Russell 2000 ETF (VTWO)[note 2]

Updated 22 July 2021

Value Blend Growth
17 24 31 Large
6 9 3 Mid
3 5 2 Small

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.

Stock market classifications

Style box format

Style boxes use the following format. Numbers shown are percentages. Because values are rounded, the percentages may not total exactly 100%.

Value Blend Growth
LV LB LG Large
MV MB MG Mid
SV SB SG Small

Size

Stocks may be 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.[1]

Style

Stocks may also be classified by "style," one of 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.[note 3]

Notes

  1. See this Bogleheads® forum post: Re: Follow up questions - total stock market approximation, hoppy08520. Jan 03, 2013 for more on combining these two funds to approximate total stock market.
  2. This combination is likely of interest to investors with a 401(k) plan held at John Hancock Funds, which offers 3 similar funds: JEINX tracks the S&P 500, JECIX follows the S&P Midcap 400, and JESIX tracks the Russell 2000. (As of November 1, 2015, the John Hancock ticker symbols are no longer available in Morningstar Instant X-Ray.)
  3. On the Callan periodic table of investment returns, that visualizes the performance of the different asset classes, one can see the alternating performance of the growth and value stocks.

See also

References

  1. Morningstar, "Fact sheet: The new Morningstar style box methodology", retrieved June 1, 2021.