August 14, 2013

What is the difference between a total stock market index fund and a S & P 500 stock index fund? Why should you care?

2 thoughts on “August 14, 2013”

  1. Thomas Graham says:

    The total stock market index fund will include large, mid, and small companies, where the S & P only includes the large. The small companies are worth looking at because they can provide larger returns over a long period of time.

  2. Mike Finley says:

    Well stated, Thomas. Let’s recap. When looking at your 401k, 403b, TSP, 457 at work or your Traditional or Roth IRA outside of work try to identify what index funds you have available to you.

    In an ideal world (every company retirement fund is different and offers different choices to invest in), one would choose a total stock market index fund which provides them diversification over the entire U.S. economy (and world based on how much international revenue many large U.S. companies take in) and at very low price.

    If this fund is not available, one would be wise to next look at an S and P 500 index fund, but it will be lacking in the small and mid size companies, which as Thomas stated, have returned higher returns over time than the large companies (varies from year to year). KEY POINT: When looking at your company retirement options, focus on broad diversification and the cheapest cost (expense ratio). Your financial future will thank you!

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