Poll

Which is better: Total Stock Market Index or S+P 500 Stock Index

Total Stock Market Index
S+P 500 Stock Index
Neither is better or worse.

Author Topic: POLL: Total Stock Index vs. S+P 500 Index  (Read 13468 times)

heybro

  • Stubble
  • **
  • Posts: 173
POLL: Total Stock Index vs. S+P 500 Index
« on: October 04, 2014, 01:38:23 AM »
Answer Poll Above.

GGNoob

  • Pencil Stache
  • ****
  • Posts: 725
  • Age: 31
  • Location: Colorado
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #1 on: October 04, 2014, 07:08:53 AM »
The total stock market includes small and mid cap funds and has historically out performed the S&P 500.

financialforager

  • 5 O'Clock Shadow
  • *
  • Posts: 32
    • Financial Forager
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #2 on: October 04, 2014, 07:22:00 AM »
I own both. The S+P 500 pays a better dividend. I think they are both good funds to have in your portfolio.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #3 on: October 04, 2014, 02:01:07 PM »
I am not sure what you mean. How is a fund better or worse. Are you talking expenses? The price of both funds is based on risks and rewards. So they are priced exactly to be equal when risk adjusted.


soccerluvof4

  • Magnum Stache
  • ******
  • Posts: 3703
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #4 on: October 04, 2014, 02:51:04 PM »
I own both but if i had to pick just one as you asked i would pick Total Stock Market first. 

tj

  • Handlebar Stache
  • *****
  • Posts: 1235
  • Age: 33
  • Location: Phoenix
    • Arcadia Power
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #5 on: October 04, 2014, 03:13:18 PM »
For better or worse, the S&P 500 index do have other features that may make it more appealing. Rather than just buying whatever the market is selling, there are some criteria such as Financial Viability (four consecutive quarters of positive as reported earnings), Adequate Liquidity and Reasonable Price, IPO's seasoned for 6 to 12 months before being considered for addition to an index, etc..

The S&P500 is the most widely recognized proxy for the U.S. Market, and has lots of information and history more easily and freely available. It's probably more appealing to a recovering stock picker than to someone with strong faith in CAPM or EMH theories, but for someone who likes to know what it is they own, the 500 is a bit more manageable assortment too look over and recognize, and be assured of broad coverage of the individual issues and details in builk available for things like earnings and buybacks.

OJ4_JayGats

  • 5 O'Clock Shadow
  • *
  • Posts: 7
  • Location: Boston, MA
    • Operation J4
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #6 on: October 04, 2014, 04:00:06 PM »
Did you mean the Vanguard Total Stock Index and S+P 500 Index funds? This link from the Vanguard website compares the two directly: https://personal.vanguard.com/us/funds/vanguard/compare?navigatingFrom=2

Few things stood out to me:
  • The Total Stock Index is more diversified with only has over 3700 securities compared to the S+P 500 Index funds 505. This provides more exposure to small caps. Don't be deceived by the Total Stock Index though, only 0.1% of it is foreign, so it mostly domestic exposure.
  • On a pre-tax basis, TSI returned about 0.66% more than S+P 500 over the past 10 years. On an after tax basis, the difference reduces to 0.55%.
  • The fees, minimums and expense ratios (a nice low 0.17%) are identical for both funds. The turnover is slightly higher for TSI, which makes since due to the number of securities, but on the after tax basis, TSI is still performing better than S+P500, so as long as the turnover ratio doesn't increase significantly in the future, it shouldn't be an issue.
  • SEC Yield is 0.1% for S+P 500 at 1.87%.
  • The P/E, ROE, and Earnings Growth rate slightly favor S+P 500 fund.

Overall, I don't think the two are very different. I'd lean towards the S+P 500 fund because the value metrics (P/E, ROE, Earnings Growth) are slightly better and past performance doesn't guarantee future returns.

Love to hear more what other think,
JayGats

Joel

  • Pencil Stache
  • ****
  • Posts: 754
  • Location: California
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #7 on: October 04, 2014, 04:55:59 PM »
The total stock market includes small and mid cap funds and has historically out performed the S&P 500.

This.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1033
  • Age: 46
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #8 on: October 04, 2014, 06:32:25 PM »
VTI if only 1 and VOO if you match with small cap for tilt purpose. With à portfolio under 500k, I wouldnt botter because of transaction cost.

surfhb

  • Guest
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #9 on: October 05, 2014, 12:11:07 AM »
If your invested in a total market fund there's no reason to be in a S&P fund.   

CanuckExpat

  • Magnum Stache
  • ******
  • Posts: 2749
  • Age: 35
  • Location: Travelling
    • Freedom35
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #10 on: October 05, 2014, 01:01:25 AM »
If your invested in a total market fund there's no reason to be in a S&P fund.   

I agree with you in principal, but in practice sometimes you only have access to one in each account. It's easy to hold a total market fund in a taxable or individually directed IRA, but your 401k might only have access to an S&P500 fund, or you have to approximate total market with other index funds

I'm not sure if that's why people indicated they hold both:
I own both but if i had to pick just one as you asked i would pick Total Stock Market first. 
I own both. The S+P 500 pays a better dividend. I think they are both good funds to have in your portfolio.

Or maybe if wanted to own the total market with a large and growth tilt?

For what it's worth, I go total market with a small value tilt.

GGNoob

  • Pencil Stache
  • ****
  • Posts: 725
  • Age: 31
  • Location: Colorado
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #11 on: October 05, 2014, 06:41:54 AM »

VTI if only 1 and VOO if you match with small cap for tilt purpose. With à portfolio under 500k, I wouldnt botter because of transaction cost.

Depending on where you are investing, there would be no transaction cost. Vanguard.com does not have transaction fees for its own ETF's or mutual funds.


Sent from my iPhone using Tapatalk

Davids

  • Pencil Stache
  • ****
  • Posts: 974
  • Location: Somewhere in the USA.
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #12 on: October 05, 2014, 06:50:06 AM »
I love VTI, definitely the one to go with.

RyeWhiskey

  • 5 O'Clock Shadow
  • *
  • Posts: 83
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #13 on: October 05, 2014, 10:22:33 AM »
In a vacuum, the Total Stock Market Index is better as it is more diversified. But none of us live in vacuums so it obviously depends upon what funds you have access to and what the expense ratios are on them. Rick Ferri has a great article on why the S&P 500 Index is a terrific index and one which he would happily own presuming he could not own the TSM.

Full disclosure, I do not own either the TSM or the S&P500 index as single funds.

tj

  • Handlebar Stache
  • *****
  • Posts: 1235
  • Age: 33
  • Location: Phoenix
    • Arcadia Power
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #14 on: October 06, 2014, 07:38:53 PM »
In a vacuum, the Total Stock Market Index is better as it is more diversified. But none of us live in vacuums so it obviously depends upon what funds you have access to and what the expense ratios are on them. Rick Ferri has a great article on why the S&P 500 Index is a terrific index and one which he would happily own presuming he could not own the TSM.

Full disclosure, I do not own either the TSM or the S&P500 index as single funds.

What index funds do you own?

Dodge

  • Pencil Stache
  • ****
  • Posts: 790
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #15 on: October 06, 2014, 09:21:37 PM »
Let me guess, after all the threads about international stocks, you're trying to figure out which fund to go 100% into? :-P

heybro

  • Stubble
  • **
  • Posts: 173
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #16 on: October 07, 2014, 01:40:49 AM »
Not so fast Dodge.  I'll be holding firmly to my 25% international stock.  Thanks to all you guys and your long staches.  HEY, I KNEW Total Stock Index was better.  No contest.

Scandium

  • Handlebar Stache
  • *****
  • Posts: 2190
  • Location: EastCoast
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #17 on: October 07, 2014, 07:32:51 AM »
I own both. The S+P 500 pays a better dividend. I think they are both good funds to have in your portfolio.
In a taxable account this is an argument against the S&P fund. Dividends are taxed yearly so less is better.

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1211
  • Age: 38
  • Location: Texas
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #18 on: October 07, 2014, 08:16:05 AM »
Small caps have gone through 10 yrs+ of underperformance in the past. If you think because the total stock market index has outperformed the S&P 500 the past years, that it will do the same for the next 10 years...you may be in for some nice disappointment.

skunkfunk

  • Handlebar Stache
  • *****
  • Posts: 1057
  • Age: 32
  • Location: Oklahoma City
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #19 on: October 07, 2014, 08:41:42 AM »
I'm no investing genius, so I hold both. I just kinda buy a little bit of everything, any index fund or ETF that I can find with low fees goes in the portfolio.

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #20 on: October 07, 2014, 11:11:18 AM »
Not so fast Dodge.  I'll be holding firmly to my 25% international stock.  Thanks to all you guys and your long staches.  HEY, I KNEW Total Stock Index was better.  No contest.

You were probably being sarcastic, but I will reiterate.  If you believe that markets are efficient, then they are priced/valued to have an equivalent risk rated returns.  Meaning that neither fund is better or worse than the other on a risk weighted manner.  How the fund supports your asset allocation is the better question.  If it is in a taxable account, which one has the lowest dividend yield would be a positive.  Your exposure to international, small cap, dividend, commodities, etc. 

Obviously, one will not have a better yield or everyone would flock to that Index driving down the expected Return on Investment.  So chasing yield for an index is pretty meaningless as the price already reflects what people believe the risk/reward is for the future. 

NP

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #21 on: October 07, 2014, 02:43:25 PM »
The majority of reasonable asset allocation policies except some very simplistic (not necessarily bad) ones include some amount of small and mid cap stocks. So either a total stock index fund is needed or some combination of large cap (like the S&P 500) and separate small (and maybe mid) cap funds. There is no fundamental difference between the two solutions.

Those with a long time horizon should assess whether increasing the proportion of small and mid (vs. large) cap stocks relative to the composition of a total stock market index would make sense for them. If the answer is yes (as it is in my opinion for most people), you'll need multiple stock funds even if you go with a total stock market fund.

Rather than pitting total stock market index and S&P 500 funds against each other, a more useful approach is to decide on some asset allocation policy that works for you, and then see whether a total stock market fund or an S&P 500 fund makes it easier to stick to your goals given other constraints. Those constraints could be the selection of funds available in a retirement account, how some other funds you might like to have skew the balance between large, mid and small cap stocks, or how you can avoid wash sales if you do tax loss harvesting, and so on.

Unless you wish to follow some very simple asset allocation policy, it makes sense to research the composition of various funds because it's rarely the case that if a fund calls itself such and such (e.g. mid cap), then it invests in almost nothing else. Morningstar.com, for example, offers some useful tools that help analyze portfolios.

Louisville

  • Bristles
  • ***
  • Posts: 481
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #22 on: October 07, 2014, 02:56:50 PM »
HEYBRO. Instead of starting all these different threads about indices and asset allocation, why not take some time, do some reading, and try to get some big picture background on the subject. It's not that new threads aren't welcome or that asking questions is discouraged, it just seems like you're trying to build a strategy one question at a time.

Beric01

  • Handlebar Stache
  • *****
  • Posts: 1156
  • Age: 28
  • Location: SF Bay Area
  • Law-abiding cyclist
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #23 on: October 07, 2014, 03:11:50 PM »
I have only the Vanguard S&P500 fund in my 401(k), not the total stock market index. So I buy the Vanguard total bond and total international stock market funds in my 401(k), and buy the total stock market fund in my Vanguard Roth IRA and taxable accounts.

I have to wonder how bad of a decision it would be if I bought some of the S&P500 fund in my 401(k) to substitute for the TSM fund.

JetBlast

  • Bristles
  • ***
  • Posts: 324
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #24 on: October 08, 2014, 09:42:25 AM »

I have to wonder how bad of a decision it would be if I bought some of the S&P500 fund in my 401(k) to substitute for the TSM fund.
It wouldn't be a bad decision at all. Roughly 80% of the TSM is the S&P 500. So if you buy the TSM you're buying 80% S&P 500 and 20% small and mid cap stocks.

foobar

  • Pencil Stache
  • ****
  • Posts: 731
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #25 on: October 08, 2014, 09:58:39 AM »
I own both. The S+P 500 pays a better dividend. I think they are both good funds to have in your portfolio.

Thats a great reason not to buy the S&P 500.

frogstomp81

  • 5 O'Clock Shadow
  • *
  • Posts: 36
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #26 on: January 29, 2015, 10:10:58 PM »
I own both. The S+P 500 pays a better dividend. I think they are both good funds to have in your portfolio.

Thats a great reason not to buy the S&P 500.

Pardon my ignorance, but why is a better dividend a reason not to own the S&P 500?

Eric

  • Magnum Stache
  • ******
  • Posts: 3938
  • Location: On my bike
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #27 on: January 30, 2015, 11:09:20 AM »
I own both. The S+P 500 pays a better dividend. I think they are both good funds to have in your portfolio.

Thats a great reason not to buy the S&P 500.

Pardon my ignorance, but why is a better dividend a reason not to own the S&P 500?

I assume foobar is referencing taxes.  You're taxed on dividends every year.  You're only taxed on capital gains when you sell.  However, you pay no capital gains taxes if you're in the 15% tax bracket.  So it's beneficial to receive fewer dividends while working and you're in a higher tax bracket, and instead receive the capital appreciation.  Then, upon stopping work, you can sell at a 0% capital gains rate (assuming 15% or less top rate), therefore paying less taxes than with dividends.

I hope I explained that well enough.  Does that make sense?

skunkfunk

  • Handlebar Stache
  • *****
  • Posts: 1057
  • Age: 32
  • Location: Oklahoma City
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #28 on: January 30, 2015, 11:33:23 AM »
I own both. The S+P 500 pays a better dividend. I think they are both good funds to have in your portfolio.

Thats a great reason not to buy the S&P 500.

Pardon my ignorance, but why is a better dividend a reason not to own the S&P 500?

I assume foobar is referencing taxes.  You're taxed on dividends every year.  You're only taxed on capital gains when you sell.  However, you pay no capital gains taxes if you're in the 15% tax bracket.  So it's beneficial to receive fewer dividends while working and you're in a higher tax bracket, and instead receive the capital appreciation.  Then, upon stopping work, you can sell at a 0% capital gains rate (assuming 15% or less top rate), therefore paying less taxes than with dividends.

I hope I explained that well enough.  Does that make sense?

Count me among the ones who don't make enough money for it to matter. All 401k and IRA here.

themagicman

  • Bristles
  • ***
  • Posts: 325
  • Age: 28
  • Location: Atlanta, GA
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #29 on: January 30, 2015, 11:50:28 AM »
I do not own either but out of the two total stock index is better. The amount of companies in total stock dwarfs the S&P. Diversification is really the only "free lunch" in investing. You should always try to be as diversified as possible. Since you should not speculate on your investments. So just because the S&P currently and in the past has paid a larger dividend does not mean that it will continue to do that in the future.

You should just own everything, that way you can truly capture how the "market" is doing


tj

  • Handlebar Stache
  • *****
  • Posts: 1235
  • Age: 33
  • Location: Phoenix
    • Arcadia Power
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #30 on: January 30, 2015, 05:59:13 PM »
Total World Stock Index here. I see no reason to avoid Nestle, Shell, Uniliver, etc.

themagicman

  • Bristles
  • ***
  • Posts: 325
  • Age: 28
  • Location: Atlanta, GA
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #31 on: January 31, 2015, 06:08:07 AM »
Total World Stock Index here. I see no reason to avoid Nestle, Shell, Uniliver, etc.

That is what I am too. Wasn't an option so I didn't bring it up. But I never understood why that is not a more common investing strategy (I believe it will gain steam in the next decade). Why do people think its better to only invest in US. You are leaving out half of the investable market.

CanuckExpat

  • Magnum Stache
  • ******
  • Posts: 2749
  • Age: 35
  • Location: Travelling
    • Freedom35
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #32 on: January 31, 2015, 06:36:12 PM »
Total World Stock Index here. I see no reason to avoid Nestle, Shell, Uniliver, etc.

That is what I am too. Wasn't an option so I didn't bring it up. But I never understood why that is not a more common investing strategy (I believe it will gain steam in the next decade). Why do people think its better to only invest in US. You are leaving out half of the investable market.

It's not only you who wonders that: http://en.wikipedia.org/wiki/Equity_home_bias_puzzle
I think there are some valid reasons you might choose to over allocation domestic stocks such as preferential tax treatment, currency concerns, and local regulations; but it doesn't explain the amount of home bias some people display (no foreign equity at all).

As for Total World Stock Index, it is a nice offering and think is a reasonable choice for people who want a very simple portfolio (which should be most people), combine it with a broad bond index and you arguably have all of your bases covered in two funds.
Though for me, instead of Total World, I prefer to own a combination of Total Stock Market Index and Total International Stock Index. The fees doing it that way are slightly lower, especially with admiral shares, and you get a little more flexibility in terms of placing domestic and international stocks differently for tax purposes. In my case I'm happy enough to go with a 50/50 domestic/international allocation with occasional rebalancing.. I think that's close enough to market weight for my purposes.

tj

  • Handlebar Stache
  • *****
  • Posts: 1235
  • Age: 33
  • Location: Phoenix
    • Arcadia Power
Re: POLL: Total Stock Index vs. S+P 500 Index
« Reply #33 on: January 31, 2015, 07:33:50 PM »
Total World Stock Index here. I see no reason to avoid Nestle, Shell, Uniliver, etc.

That is what I am too. Wasn't an option so I didn't bring it up. But I never understood why that is not a more common investing strategy (I believe it will gain steam in the next decade). Why do people think its better to only invest in US. You are leaving out half of the investable market.

It's not only you who wonders that: http://en.wikipedia.org/wiki/Equity_home_bias_puzzle
I think there are some valid reasons you might choose to over allocation domestic stocks such as preferential tax treatment, currency concerns, and local regulations; but it doesn't explain the amount of home bias some people display (no foreign equity at all).

As for Total World Stock Index, it is a nice offering and think is a reasonable choice for people who want a very simple portfolio (which should be most people), combine it with a broad bond index and you arguably have all of your bases covered in two funds.
Though for me, instead of Total World, I prefer to own a combination of Total Stock Market Index and Total International Stock Index. The fees doing it that way are slightly lower, especially with admiral shares, and you get a little more flexibility in terms of placing domestic and international stocks differently for tax purposes. In my case I'm happy enough to go with a 50/50 domestic/international allocation with occasional rebalancing.. I think that's close enough to market weight for my purposes.

I think that as Total World grows, the expense ratio will drop and Admiral Shares will be added.