HI
As a stock market beginner, I read JL Collins's book - The Simple Path to Wealth.
First, I found this book to be of great value for my time.
He talks a lot about the Vanguard Total Stock Market index fund. and, when I checked the Vanguard website and comper it with the S&p500 index fund I don't see any difference in results between them ( yes, the Total Stock Market index contains mostly the S&P 500) and when there is a difference, it is better for the S&P 500, So, what do you think? Is there a good reason to peek one off them?
Thanks.
S&P500 vs Total Stock Market
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RetireJapan
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Re: S&P500 vs Total Stock Market
Great book. I'm a big fan of JL Collins.
The S&P500 is the 500 biggest companies listed in the US, the whole market then adds in small and medium companies. The former makes up a large amount of the latter.
Results will depend on how the market behaves (impossible to predict). Generally speaking, owning more of the market gives you more chances to capture performance (small companies have more chance to grow than enormous ones).
Same argument for buying whole world funds instead of just the US too.
The S&P500 is the 500 biggest companies listed in the US, the whole market then adds in small and medium companies. The former makes up a large amount of the latter.
Results will depend on how the market behaves (impossible to predict). Generally speaking, owning more of the market gives you more chances to capture performance (small companies have more chance to grow than enormous ones).
Same argument for buying whole world funds instead of just the US too.
English teacher and writer. RetireJapan founder. Avid reader.
eMaxis Slim Shady
eMaxis Slim Shady
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Re: S&P500 vs Total Stock Market
I don't necessarily think it's a clear case of one being better than the other, and you can make legitimate arguments for investing more in either the S&P or the total market. It of course also depends on your investment goals and timeline.
One argument tends to focus on the safety of broadening one's portfolio through the addition of stocks representing various size companies as well as companies located outside of one country (the US). On the face of it, this would seem to make the total market funds the clearly better choice. Personally, though, I am not convinced by this logic. And as you said, history tells a slightly different story with the long-term performance of the S&P generally performing better, rebounding from corrections faster, and including less risk overall than a global fund. Adding more countries and companies to a fund does not automatically make a fund safer in times of trouble, and these funds tend to be heavily weighted with US stocks anyway. Globally-oriented total market funds are a relatively new category of investment (certainly compared to traditional indices), whereas the S&P has over 100 years of returns, and very nice and fairly consistent returns at that, albeit with periods of high volatility.
Past performance is no guarantee of future returns of course, and anything could happen. The US had a meltdown as recently as 2008, and there's talk of the market potentially unperforming going forward. But for the time being it's still the strongest economy in the world with a relatively high degree of transparency and the lion's share of well-known brands, and these are measures that many (most?) investors use to decide what to invest in.
One argument tends to focus on the safety of broadening one's portfolio through the addition of stocks representing various size companies as well as companies located outside of one country (the US). On the face of it, this would seem to make the total market funds the clearly better choice. Personally, though, I am not convinced by this logic. And as you said, history tells a slightly different story with the long-term performance of the S&P generally performing better, rebounding from corrections faster, and including less risk overall than a global fund. Adding more countries and companies to a fund does not automatically make a fund safer in times of trouble, and these funds tend to be heavily weighted with US stocks anyway. Globally-oriented total market funds are a relatively new category of investment (certainly compared to traditional indices), whereas the S&P has over 100 years of returns, and very nice and fairly consistent returns at that, albeit with periods of high volatility.
Past performance is no guarantee of future returns of course, and anything could happen. The US had a meltdown as recently as 2008, and there's talk of the market potentially unperforming going forward. But for the time being it's still the strongest economy in the world with a relatively high degree of transparency and the lion's share of well-known brands, and these are measures that many (most?) investors use to decide what to invest in.