The last time I looked, VFINX had better historical performance than VTSMX. I don’t know if that is still true / what periods that was true for, but the difference between the two shouldn’t be that large. I personally hold both, and consider either a fine choice.
I don’t pay much attention to historical performance. If one segment of the market has been doing better than the market as a whole, that doesn’t mean that it will keep it up. And looking at the data here, VTSMX seems to have actually done very slightly better than the S&P 500 since it was created in 1992.
I’ve invested in the Vanguard Total Stock Market Index (VTSMX) since that comes closer to betting on the market as a whole. It’s closer to the ideal of diversifying as much as possible, spreading your investment evenly across the whole market rather than concentrating it in particular companies, sectors, or segments of the market. The S&P 500 only covers about 75% of the US stock market and is concentrated in larger companies, while the Total Stock Market Index fund is based on an index (MSCI US Broad Market Index) which covers over 99% of the US stock market and matches the market’s balance between large, medium, and small companies.
I agree that the difference between the two index funds isn’t large. Investing in the Total Stock Market Index (VTSMX) is basically equivalent to putting three quarters of your money in an S&P 500 index (like VFINX) and putting the other quarter of your money in an index of the rest of the US stock market (excluding the S&P 500). And even that last quarter is highly correlated with the S&P 500.
I’ve edited it in to the original post, though with a significantly more terse description of it than this comment tree. I do want option one to be as simple as possible :P
The last time I looked, VFINX had better historical performance than VTSMX. I don’t know if that is still true / what periods that was true for, but the difference between the two shouldn’t be that large. I personally hold both, and consider either a fine choice.
I don’t pay much attention to historical performance. If one segment of the market has been doing better than the market as a whole, that doesn’t mean that it will keep it up. And looking at the data here, VTSMX seems to have actually done very slightly better than the S&P 500 since it was created in 1992.
I’ve invested in the Vanguard Total Stock Market Index (VTSMX) since that comes closer to betting on the market as a whole. It’s closer to the ideal of diversifying as much as possible, spreading your investment evenly across the whole market rather than concentrating it in particular companies, sectors, or segments of the market. The S&P 500 only covers about 75% of the US stock market and is concentrated in larger companies, while the Total Stock Market Index fund is based on an index (MSCI US Broad Market Index) which covers over 99% of the US stock market and matches the market’s balance between large, medium, and small companies.
I agree that the difference between the two index funds isn’t large. Investing in the Total Stock Market Index (VTSMX) is basically equivalent to putting three quarters of your money in an S&P 500 index (like VFINX) and putting the other quarter of your money in an index of the rest of the US stock market (excluding the S&P 500). And even that last quarter is highly correlated with the S&P 500.
I’ve edited it in to the original post, though with a significantly more terse description of it than this comment tree. I do want option one to be as simple as possible :P