Title: Why You Might Want to Own Both the Vanguard Total Stock Market ETF and the Vanguard S&P 500 ETF
Many investors face the dilemma of choosing between the Vanguard Total Stock Market ETF and the Vanguard S&P 500 ETF when it comes to index investing. Both funds have their own merits, with low expense ratios and strong track records of matching their respective indexes. However, the decision between the two can be challenging due to the differences in the indexes they track.
The Total Stock Market ETF tracks the CRSP US Total Market Index, which includes practically every investable U.S. stock in the market. On the other hand, the S&P 500 ETF tracks the S&P 500, a collection of about 500 of the largest U.S. companies that have been consistently profitable for at least a year.
While there is a lot of overlap between the two funds, with the top 10 holdings being the same, there is still a 14% difference in the Total Stock Market ETF’s holdings that are outside of the S&P 500. These include mid- and small-cap stocks, providing some diversification beyond the S&P 500 companies.
Both ETFs offer low expense ratios, low turnover rates, and minimal tracking errors, making them attractive options for investors. However, it may make sense to own both funds for added exposure to mid- and small-cap stocks while still maintaining a significant allocation to large-cap stocks.
By splitting your investments evenly between the two funds, you can achieve a balanced portfolio that includes exposure to a wide range of U.S. stocks. While rebalancing may be necessary at times, the similar returns of both funds ensure that you will not stray too far from your target allocation.
In conclusion, owning both the Vanguard Total Stock Market ETF and the Vanguard S&P 500 ETF can provide a solid foundation for your portfolio, offering a mix of large-cap and mid- and small-cap stocks. Whether you choose one or both, these funds can be valuable assets in your investment strategy.
