Author Topic: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market  (Read 3585 times)

M237

  • 5 O'Clock Shadow
  • *
  • Posts: 10
  • Age: 29
  • Location: Oklahoma
Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« on: October 26, 2015, 11:58:25 AM »
Okay so I've been diving into the stock series (http://jlcollinsnh.com/stock-series/). I'm convince that index funds are the way to go for the average investor.

This is because of
  • Low cost ratios, fees
  • It is base on the market, a reflection of the US's economics
  • Historically through the ups and downs the market has always been on a rise
  • It's easy to maintain

My question is which market reflection do you invest in? The S&P500 v. Dow Jones v. The WHOLE Market (as reflected by Vanguard's VTSAX/VTSMX/VTI)

The major difference between these two indexes is that the Dow Jones Industrial Average (DJIA) includes a price-weighted average of 30 stocks whereas the Standard & Poor's 500 (S&P 500) is a market value-weighted index of 500 stocks.

So I guess people prefer the whole market because it better reflects the real economic state of the country?

What's your take? And if you could, please leave me links/resource to other people's analysis and discussion on this topic.

Thank You

Jeremy E.

  • Handlebar Stache
  • *****
  • Posts: 1946
  • Location: Lewiston, ID
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #1 on: October 26, 2015, 12:08:16 PM »
I don't think dow jones is diverse enough for me personally, although it will still have similar returns to the other 2. S&P 500 and the U.S. total stock market are equivelant, they are about 85% exactly the same and will have returns that are more than 95% the same. I use VINIX in my 401k and VTSAX in my vanguard accounts.

DaveR

  • Stubble
  • **
  • Posts: 243
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #2 on: October 26, 2015, 02:14:05 PM »
Personally, I buy the whole market (VTI). I like having some exposure to small caps and am too lazy right now to figure out the ideal asset mix (for me). One of these days I might get around to figuring out if I need more or less allocated to the various domestic equity sub-classes. At that point, I'd shuffle things around.

If you get down into the weeds, there are a few tax implications around the options. Since companies enter and leave the Dow and S&P, there can be realized gains. If you own the whole market, then index membership doesn't really matter. Of course, ETFs can help, as can holding in tax-advantaged accounts.

An article to read and think about: http://www.zacks.com/stock/news/170627/3-tax-efficient-etfs-for-your-portfolio
(Found via quickie search, doubtfully the best article on the subject, but a starting point.)
It discusses turnover and tax cost ratio and points out a few ETFs in light of those (I wouldn't recommend those ETFs to the "average" investor, since they should not be working that hard on investing).

Jack

  • Magnum Stache
  • ******
  • Posts: 4734
  • Location: Atlanta, GA
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #3 on: October 26, 2015, 02:32:36 PM »
If you get down into the weeds, there are a few tax implications around the options. Since companies enter and leave the Dow and S&P, there can be realized gains. If you own the whole market, then index membership doesn't really matter. Of course, ETFs can help, as can holding in tax-advantaged accounts.

Even a "whole market" ETF isn't really the "whole market." First of all, I don't think VTI literally owns every stock in the index; it only approximates it (although I could be wrong). Second, even if you did own every stock in the index, companies can still get de-listed and end up on the pink sheets...

Third, and most importantly, VTI is supposed to be only the whole US market, not the actual "whole [world] market." Why aren't we talking about VT?

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #4 on: October 26, 2015, 02:43:00 PM »
I don't think dow jones is diverse enough for me personally, although it will still have similar returns to the other 2. S&P 500 and the U.S. total stock market are equivelant, they are about 85% exactly the same and will have returns that are more than 95% the same. I use VINIX in my 401k and VTSAX in my vanguard accounts.

+1.... 80% VTSAX 20% VTIAX for my big account.  100% Fidelity Spartan 500 for my 401k at work. 

26 years old...  I plan I staying 100% stock for a long time.  I felt my first drop on this past decline and I was down like $10k in a week.  Didn't panic... I sold what Bonds I had and put them into S&P500 at 1970... made a few bucks. 

Jeremy E.

  • Handlebar Stache
  • *****
  • Posts: 1946
  • Location: Lewiston, ID
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #5 on: October 26, 2015, 02:51:56 PM »
If you get down into the weeds, there are a few tax implications around the options. Since companies enter and leave the Dow and S&P, there can be realized gains. If you own the whole market, then index membership doesn't really matter. Of course, ETFs can help, as can holding in tax-advantaged accounts.

Even a "whole market" ETF isn't really the "whole market." First of all, I don't think VTI literally owns every stock in the index; it only approximates it (although I could be wrong). Second, even if you did own every stock in the index, companies can still get de-listed and end up on the pink sheets...

Third, and most importantly, VTI is supposed to be only the whole US market, not the actual "whole [world] market." Why aren't we talking about VT?
We're talking about the U.S. market, the most profitable, reliable market since the 1800's. However the largest U.S. companies are very involved internationally and make up a very large portion of VTI.

M237

  • 5 O'Clock Shadow
  • *
  • Posts: 10
  • Age: 29
  • Location: Oklahoma
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #6 on: October 28, 2015, 10:32:38 AM »
Wow thanks for all the discussion.
Right now my 401k is with fidelity. It has a couple Vanguard indexes and funds. Iím in the process of converting the bonds and high fee items into the vanguard indexes. (Iím waiting for those items to recover.) As soon as I get 10k I plan on paying a $75 fee and investing all I have into VTSAX. 

Iíve only briefly looked at ETFs and I donít know much about their tax-advantages. Iíll have to look into that later.

BarkyardBQ

  • Pencil Stache
  • ****
  • Posts: 667
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #7 on: October 28, 2015, 10:40:47 AM »
Wow thanks for all the discussion.
Right now my 401k is with fidelity. It has a couple Vanguard indexes and funds. Iím in the process of converting the bonds and high fee items into the vanguard indexes. (Iím waiting for those items to recover.) As soon as I get 10k I plan on paying a $75 fee and investing all I have into VTSAX. 

Iíve only briefly looked at ETFs and I donít know much about their tax-advantages. Iíll have to look into that later.

Does your fidelity 401k not off Spartan Funds? They are comparable to Vanguard Admiral Shares, without additional fees.

M237

  • 5 O'Clock Shadow
  • *
  • Posts: 10
  • Age: 29
  • Location: Oklahoma
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #8 on: October 28, 2015, 02:42:46 PM »
They do have the Spartan 500.
Their exp ratio is 0.095% compared to the admiral exp ratio of 0.05%
A 0.045% difference

However the biggest difference is that the Spartan 500 is base on the S&P 500 index while the Vanguard admiral one is base on about 3,000 different stocks in the market. To me that's a 'safer' bet because it most closely mirrors the real market, better than the S&P 500.

I'll be investing 100% of my 401k into it for the next many years. I'm not trying to beat the market, I'm just trying to get what the market gets. That should be an average return of 7% after accounting for inflation.

Too many people try to beat the market and end up doing worst than the market. So by getting the 'average' I'll be doing better than most people =P

What do you think?

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #9 on: October 29, 2015, 08:03:31 AM »
They do have the Spartan 500.
Their exp ratio is 0.095% compared to the admiral exp ratio of 0.05%
A 0.045% difference

However the biggest difference is that the Spartan 500 is base on the S&P 500 index while the Vanguard admiral one is base on about 3,000 different stocks in the market. To me that's a 'safer' bet because it most closely mirrors the real market, better than the S&P 500.

I'll be investing 100% of my 401k into it for the next many years. I'm not trying to beat the market, I'm just trying to get what the market gets. That should be an average return of 7% after accounting for inflation.

Too many people try to beat the market and end up doing worst than the market. So by getting the 'average' I'll be doing better than most people =P

What do you think?

I believe you are overthinking this, in doing so it seems you are trying to beat the market even though you said you are not.

Spartan 500 is where I put my 401k.  Vanguard Admiral is where my IRA is.

Either way, its an excellent option. 

Jeremy E.

  • Handlebar Stache
  • *****
  • Posts: 1946
  • Location: Lewiston, ID
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #10 on: October 29, 2015, 10:15:56 AM »
They do have the Spartan 500.
Their exp ratio is 0.095% compared to the admiral exp ratio of 0.05%
A 0.045% difference

However the biggest difference is that the Spartan 500 is base on the S&P 500 index while the Vanguard admiral one is base on about 3,000 different stocks in the market. To me that's a 'safer' bet because it most closely mirrors the real market, better than the S&P 500.

I'll be investing 100% of my 401k into it for the next many years. I'm not trying to beat the market, I'm just trying to get what the market gets. That should be an average return of 7% after accounting for inflation.

Too many people try to beat the market and end up doing worst than the market. So by getting the 'average' I'll be doing better than most people =P

What do you think?
Sounds perfect to me, the only reason I put my 401k into S&P 500 fund is because the total market fund isn't offered. S&P 500 is equivelant to the total market fund anyway, they are 85% and their returns are 95% the same.

BarkyardBQ

  • Pencil Stache
  • ****
  • Posts: 667
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #11 on: October 30, 2015, 01:02:45 PM »
They do have the Spartan 500.
Their exp ratio is 0.095% compared to the admiral exp ratio of 0.05%
A 0.045% difference

However the biggest difference is that the Spartan 500 is base on the S&P 500 index while the Vanguard admiral one is base on about 3,000 different stocks in the market. To me that's a 'safer' bet because it most closely mirrors the real market, better than the S&P 500.

I'll be investing 100% of my 401k into it for the next many years. I'm not trying to beat the market, I'm just trying to get what the market gets. That should be an average return of 7% after accounting for inflation.

Too many people try to beat the market and end up doing worst than the market. So by getting the 'average' I'll be doing better than most people =P

What do you think?

Does it not offer Spartan Extended market, with this and the 500 you could match the total market. You could also go 500 in your 401k and use an IRA/taxable to add extended market and use all accounts as a whole portfolio.

Jeremy E.

  • Handlebar Stache
  • *****
  • Posts: 1946
  • Location: Lewiston, ID
Re: Index Investing: S&P500 v. Dow Jones v. The WHOLE Market
« Reply #12 on: October 30, 2015, 02:31:54 PM »
They do have the Spartan 500.
Their exp ratio is 0.095% compared to the admiral exp ratio of 0.05%
A 0.045% difference

However the biggest difference is that the Spartan 500 is base on the S&P 500 index while the Vanguard admiral one is base on about 3,000 different stocks in the market. To me that's a 'safer' bet because it most closely mirrors the real market, better than the S&P 500.

I'll be investing 100% of my 401k into it for the next many years. I'm not trying to beat the market, I'm just trying to get what the market gets. That should be an average return of 7% after accounting for inflation.

Too many people try to beat the market and end up doing worst than the market. So by getting the 'average' I'll be doing better than most people =P

What do you think?

Does it not offer Spartan Extended market, with this and the 500 you could match the total market. You could also go 500 in your 401k and use an IRA/taxable to add extended market and use all accounts as a whole portfolio.
If he already can get the total stock market fund in his 401k with a mere .05% expense ratio I see no reason to do this. It would make more sense to have that same total stock market fund in both his 401k and IRA if he chooses to do both.