Total Stock Market ETFs

Read our Advertiser Disclosure.
Contributor, Benzinga
March 20, 2023

Most people want to beat the market, but there's nothing wrong with matching the market. Instead of actively trying to pick the best stocks or exchange-traded funds (ETFs) that will outperform, consider just passively indexing all the stocks in the market at a low cost.

Here's a sobering fact: According to the SPIVA scorecard from S&P Dow Jones Indices, 94.58% of U.S. stock funds underperformed a total stock market index (the S&P Composite 1500) over the last 15 years. That's right – by betting on the total stock market, an investor could beat the majority!

Investing in the total stock market is even easier thanks to the existence of low-cost ETFs that track various indexes. These are called total stock market ETFs, and they're a great way to invest long-term with minimal costs or worries. 

As the late Founder and Chairman of Vanguard John Bogle once said: “Don't look for the needle in the haystack. Just buy the haystack!” Here's a guide on how investors can do that by investing in total stock market ETFs. 

What Are Total Stock Market ETFs?

A total stock market ETF is a fund that holds a basket of all types of stock from a particular geographical market, usually the U.S. domestic market. Like individual stocks, shares of total stock market ETFs trade throughout the day on exchanges, with their own ticker symbols. These ETFs have a broad focus, meaning:

  • They're diversified across all 11 stock market sectors. 
  • They hold value and growth stocks. 
  • They are market-cap weighted and hold large-, mid-, and small-cap stocks according to their proportional weights.

The goal of a total stock market ETF is to do what its name suggests – provide complete exposure to the stock market of a particular geography, agnostic as to what's going on in the economy, a certain sector, a particular equity style or market cap size.

With a total stock market ETF, investors no longer have to worry or bet on a certain equity sector, style or size doing well or poorly. Instead, they will receive the average return of the total stock market over the long term, net of fees.

This trait makes total stock market ETFs an efficient and low-maintenance investment. Because they hold so many stocks and are bound to an index, these ETFs have much lower portfolio turnover and fees than actively managed ETFs, which can help them perform better over time.

Types of Total Stock Market ETFs

The different types of total stock market ETFs can be differentiated by their underlying index. Different ETF managers will pick varying benchmarks for their total stock market ETF. However, their performance over the long term tends to be similar despite the different benchmarks. Some examples of total stock market indexes and their respective ETFs include:

  • CRSP US Total Market Index: This index is used by the Vanguard Total Stock Market Index Fund ETF (NYSEARCA: VTI).
  • S&P Total U.S. Stock Market: This index is used by the iShares Core S&P Total US Stock Market ETF (NYSEARCA: ITOT).
  • Dow Jones U.S. Broad Stock Market Index: This index is used by the Schwab US Broad Market ETF (NYSEARCA: SCHB).
  • S&P 1500 Composite Index: This index is used by the SPDR Portfolio S&P 1500 Composite Stock Market ETF (NYSEARCA: SPTM). 

Outside the U.S. market, international markets will also have their own total stock market indexes. Some examples of total international stock ETFs include the Vanguard Total International Stock Index Fund ETF (NASDAQ: VXUS) and the iShares Core MSCI Total International Stock ETF (NASDAQ: IXUS). 

Total stock market ETFs track stocks from all around the world, meaning they have a U.S. and ex-U.S. focus. A great example of this is the Vanguard Total World Stock Index Fund ETF (NYSEARCA: VT) and the iShares MSCI ACWI ETF (NASDAQ: ACWI). 

Benefits of Total Stock Market ETFs

Total stock market ETFs are highly popular core portfolio holdings for passive index investors because of a variety of reasons:

  • Low fees: Many total stock market ETFs charge expense ratios as low as 0.03%. For a $10,000 investment, this works out to around $3 in annual fees, which is very cheap. 
  • Simplicity: There's no need to worry about and predict which stocks, sectors, styles or market-cap sizes will perform well with a total stock market ETF. 
  • Low turnover: The broad index nature of a total stock market ETF ensures low portfolio turnover, which helps keep fees low and tax efficiency high.

Drawbacks of Total Stock Market ETFs

While the majority of investors are unlikely to outperform a total stock market ETF over time, there are still compelling reasons why some may not find them to be ideal investments:

  • Market risk: When the broad stock market crashes, a total stock market ETF will follow suit. In contrast, specialty ETFs such as value, low-volatility or dividend ETFs may be more defensive. 
  • No chance at outperformance: Buying a total stock market ETF means accepting the market's average return net of fees. If your goal is to beat the market, buying a total stock market ETF won't allow you to do that unless you use leverage.
  • Low excitement: A boring, simple strategy is a good one, but it's of no use if an investor cannot stick to it. If your goal is to actively trade stocks and ETFs, then a total stock market ETF might not be your best bet. 

Compare Total Stock Market ETFs

Investors looking to research and choose the best total stock market ETFs can use Benzinga to compare the available selections available on the market. This ETF category is highly competitive, so doing the right research can help investors get the best bang for their buck. Here is a list of brokers that support total stock market ETF trading and offer research tools to help investors select the right one.

Frequently Asked Questions

Q

Are total stock market ETFs a good idea?

A

Total stock market ETFs are a good idea for long-term investors who accept that they cannot beat the market. As noted earlier, most investors will not be able to beat the market consistently, especially over long periods of time. Those who acknowledge this fact can instead focus on controlling their sources of risk – high fees, bad investing behaviors and excessive complexity. Buying a total stock market ETF can easily help keep these under control. For a low-cost, passive investment that requires little research or time spent on portfolio management, a total stock market ETF is ideal. 

Q

Are total stock market ETFs a safe investment?

A

As with most equity investments, a total stock market ETF is not safe. While the chances of the entire U.S. market collapsing is remote, there have been occasions where U.S. markets have dropped by up to 50% (like during the 2008 Great Recession) or stagnated for decades (like from 1999 – 2009). As a 100% stock investment, a total stock market ETF will also be fairly volatile, more so than bonds. For additional safety, investors may want to diversify further. This can entail adding international stock, Treasury or money market ETFs. Doing so will help diversify the geographical risk and equity risk that total stock market ETFs possess. 

About Tony Dong

Tony Dong, MSc, CETF®, is a seasoned investment writer and financial analyst with a wealth of expertise in ETF and mutual fund analysis. With a background in risk management, Tony graduated from Columbia University in 2023, showcasing his commitment to continuous learning and professional development. His insightful contributions have been featured in reputable publications such as U.S. News & World Report, USA Today, Benzinga, The Motley Fool, and TheStreet. Tony’s dedication to providing valuable insights into the world of investing has earned him recognition as a trusted source in the finance industry. Through his writing, he aims to empower investors with the knowledge and tools needed to make informed financial decisions.