Any Vanguard Investors Here? (1 Viewer)

[John*K]

Any Vanguard mutual fund investors here? I was comparing their Total Stock Market Index Fund to their 500 Index Fund, and was kind of puzzled by the difference in performance. The 500 seemed to continualy beat the Total Stock Market Index. This is counter from what I understand, but admittedly, I know so little. In the long run, shouldn't the Total Stock Market Index be doing better? Is the 500 somehow more efficient, e.g., taxes?

 

[Todd Hochard]

Basic understanding-

The Total Stock fund is supposedly representing ALL stocks, whereas the S&P 500 represents just 500 companies designated by Standard & Poors (a rating company). The S&P 500 usually includes 500 companies that are doing fairly well long term, so it won't include long term slackers, or those that go under (after perhaps an initial ride down). Over the short term, it can go either way.

Todd

 

[Eric_L]

It is important to understand that it does not do this equally - they are market weighted. That means that a handfull of large companies make up the bulk of the portfolio and the smaller 425 companies make barely a ripple in the sweat of a gnat.
My advice is that if you don't understand this and issues like it you should seek the aid of a financial advisor. The hard part is finding one who is any good. Like car mechanics there are good and bad ones out there. The good ones are worth the trouble. One possible indicator is if they take the time to actually educate you, even when they know (or think) you don't have much to start with. That is an indication of a passion for the job and not just the income.

 

[Justin Lane]

I use Vanguard for my Roth IRA and it also administers my 401K.

As Eric said, the Total Stock Market Index is weighted by the market cap of it's holdings. Because large cap companies (i.e. S&P 500) make up 80% of the total market, the Total Market Stock Index holdings are approximately 80% the S&P 500 Index fund. Buying the Total Stock Market Index just gives a slightly larger amount of diversification.

Looking at the expense ratios, the S&P 500 Index ratio is %0.18 while the Total Stock Market Index is %0.20. Though this is a small difference, it can have an effect on returns. During bear markets, small cap stocks are typically harder hit, which will result in poorer performance than the S&P 500 on %20 of the Total Stock Market Index during those down times. Also, large cap companies are typically divedend paying which adds to the yearly gains.

J