The best total stock market index funds that give you exposure to the entire U.S. equity market at rock-bottom cost.
- It is the broadest, cheapest, most diversified way to invest in American equities, and it forms the core of most successful long-term portfolios.
- For practical purposes, either fund is an excellent core holding, and the choice between them is far less important than the decision to invest in either one.
- A total stock market index fund is the single most useful investment product ever created.
A total stock market index fund is the single most useful investment product ever created. One purchase gives you ownership of virtually every publicly traded company in the United States, from the largest blue chips to the smallest emerging firms. It is the broadest, cheapest, most diversified way to invest in American equities, and it forms the core of most successful long-term portfolios.
What Total Stock Market Funds Hold
A total stock market fund tracks an index that includes all U.S. stocks, weighted by market capitalisation. This means the largest companies like those in the S&P 500 make up the majority of the fund by weight, while thousands of smaller mid-cap and small-cap companies make up the remainder. The result is a fund holding 3,000 to 4,000 individual stocks that collectively represent the entire domestic equity market.
The market-cap weighting means the fund naturally adjusts as companies grow or shrink. A small company that becomes successful automatically increases in weight within the fund. A large company that declines decreases in weight. This self-adjusting mechanism means the fund always reflects the current market without requiring active management decisions.
Total Stock Market vs S&P 500
The S&P 500 holds only the 500 largest U.S. companies, while a total stock market fund adds thousands of mid-cap and small-cap stocks. In practice, the performance difference is small because large caps dominate both indices by weight. Over the past 20 years, the correlation between the two has been above 0.99, meaning they move almost identically on most days.
The total stock market fund provides marginally broader diversification, which is theoretically preferable. Small-cap stocks have historically delivered slightly higher returns over very long periods, though with more volatility. For practical purposes, either fund is an excellent core holding, and the choice between them is far less important than the decision to invest in either one.
Comparing the Top Funds
Several fund families offer total stock market index funds with expense ratios at or near zero. The differences between them are negligible: they all track similar indices, hold similar stocks, and deliver virtually identical returns. The main considerations are expense ratio (look for 0.03% or less), the index tracked (slight differences exist between total market indices), minimum investment amount (many have eliminated minimums), and availability in your brokerage or retirement plan.
If your 401(k) does not offer a total stock market fund, an S&P 500 index fund is a very close substitute. You can supplement with a small-cap index fund if one is available to approximate the total market exposure.
How to Use It in Your Portfolio
A total stock market fund serves as the domestic equity foundation of any portfolio. In a three-fund portfolio, it is paired with an international stock fund and a bond fund. The proportion allocated to the total stock market fund depends on your age, risk tolerance, and the rest of your allocation. For a young investor with a high stock allocation, the total stock market fund might represent 50% to 70% of the entire portfolio.
For an investor who wants absolute simplicity, a total stock market fund alone is a legitimate one-fund portfolio, particularly for young investors with decades ahead. It lacks international diversification and bond ballast, but its simplicity and breadth make it a perfectly reasonable starting point that can be expanded later.
All investments carry risk, including loss of principal. Past performance does not guarantee future results. See our financial disclaimer for important disclosures.
A worked example
Imagine investing $500/month for 30 years at an average 8% annual return. Total contributions: $180,000. Final balance: roughly $745,000. The first $180,000 is yours; the other $565,000 is compounded growth. Now imagine starting 10 years later - same $500/month for 20 years at 8%: contributions $120,000, balance $295,000. The 10 years cost you about $450,000 in foregone growth. Time in the market beats timing the market by an enormous margin.
Common mistakes to avoid
- Trying to time the market. Studies consistently show that missing just the 10 best market days over 20 years cuts returns roughly in half. You can't reliably know which days those will be.
- Picking individual stocks based on news or tips. By the time it's news, the price already reflects it. Index funds aren't exciting but they outperform most retail stock-picking by a wide margin.
- Panic-selling in a downturn. Selling locks in losses. Markets have always recovered. The investors who do worst are the ones who sell low and re-buy high.
Frequently asked questions
How much money do I need to start investing?
Less than you think. Most major brokerages (Fidelity, Schwab, Vanguard) have no minimum balance. Fractional shares mean you can buy a $1 slice of any stock or ETF. Realistically, $50-100/month into a low-cost index fund is enough to start building real wealth over decades.
Is it too late to start investing at 40, 50, or 60?
No - but the strategy changes. At 40 you still have 25 years of compounding ahead. At 50 the focus shifts to maximizing 401(k) contributions (you can contribute extra after age 50). At 60 it's about preserving what you have and shifting to a more conservative allocation. The worst day to start was 20 years ago; the second-best is today.
Should I invest in individual stocks or index funds?
Index funds for nearly everyone. Over 20-year periods, 80%+ of professional fund managers fail to beat the index - and they have PhD analysts and millions in research budgets. A target-date retirement fund or a total-market index ETF will outperform what almost any retail investor can do picking individual stocks.
What is the safest investment?
FDIC-insured savings accounts and CDs (up to $250,000 per bank per ownership type) and US Treasury bills/bonds are the safest. They won't make you rich but they won't lose principal. For real (inflation-adjusted) safety, TIPS and I-Bonds protect against inflation, which traditional bonds don't.
How much should I have in stocks vs bonds?
A starting heuristic is 'your age in bonds' - so a 30-year-old holds 70% stocks / 30% bonds. Many financial planners now suggest something more aggressive given longer lifespans: 110 or 120 minus your age in stocks. Target-date funds do this automatically based on your retirement year.
Where this guide fits in
This article is part of the Chase The Dollar editorial library of practical money guides. We update guides as rules and rates change. If you spot a mistake or want us to cover a topic, the contact form is the fastest way to reach us.