Total Stock Market
Key Takeaways
- The total stock market encompasses all publicly traded U.S. stocks across all market capitalizations
- Total market index funds hold thousands of stocks, providing maximum diversification
- The Wilshire 5000 and CRSP US Total Market Index are common total market benchmarks
- Total market funds include small-cap and mid-cap exposure beyond the S&P 500
Definition
The total stock market refers to the entire universe of publicly traded stocks in a given country, most commonly the United States. Unlike the S&P 500, which tracks only 500 large-cap companies, a total stock market index includes companies of all sizes — from mega-caps to micro-caps.
The U.S. total stock market is represented by indices such as the Wilshire 5000 Total Market Index (which, despite its name, includes more than 3,500 stocks) and the CRSP US Total Market Index. These benchmarks capture virtually 100% of the investable U.S. equity market.
Investing in the total stock market through index funds or ETFs has become extremely popular, with vehicles like the Vanguard Total Stock Market Index Fund (VTSAX) and its ETF equivalent (VTI) holding over $1.5 trillion in combined assets.
How It Works
Total stock market index funds hold thousands of stocks weighted by market capitalization. This means large-cap companies still dominate the fund's holdings, but small-cap and mid-cap stocks are also included in their market-proportional weights. A typical total market fund might hold 60-70% large-caps, 20-25% mid-caps, and 10-15% small-caps.
The primary difference between a total market fund and an S&P 500 fund is the inclusion of approximately 3,000+ additional small-cap and mid-cap stocks. In practice, the performance difference is modest because large-caps dominate both indices by weight, but over long periods, the small-cap exposure in a total market fund can add diversification benefits.
Total stock market funds are a cornerstone of the passive investing philosophy popularized by Vanguard founder John Bogle. His argument was simple: owning every stock in the market ensures you capture the overall market return at minimal cost, without needing to pick individual stocks or time the market.
Example
If you invest $30,000 in the Vanguard Total Stock Market ETF (VTI), your money is spread across approximately 3,700 U.S. stocks. About $20,000 goes to large-cap stocks like Apple and Microsoft, about $6,000 to mid-cap companies, and about $4,000 to small-cap stocks. With an expense ratio of just 0.03%, you pay only $9 per year in fees on a $30,000 investment. Over 30 years at an average 10% annual return, this investment could grow to approximately $523,000.
Why It Matters
Total stock market investing embodies the principle that broad diversification and low costs are the most reliable path to long-term wealth. By owning the entire market, investors eliminate the risk of missing out on the best-performing sectors or market cap segments. The approach removes the need for complex decisions about how much to allocate to small-caps versus large-caps.
For most individual investors, a total stock market index fund combined with a bond fund and international stocks forms a complete, well-diversified portfolio. This three-fund approach, popularized by the Bogleheads community, is widely recommended by financial advisors for its simplicity and effectiveness.
Advantages
- Maximum diversification across all U.S. publicly traded stocks
- Extremely low expense ratios, typically 0.03% or less
- Eliminates the need to choose between large-cap, mid-cap, and small-cap allocations
- Captures the entire U.S. equity market return with one investment
Limitations
- Still heavily weighted toward large-cap stocks due to market-cap weighting
- No international diversification — requires separate international holdings
- Cannot outperform the market by definition — only matches it
- Small-cap exposure may add slight volatility without significant performance difference
Frequently Asked Questions
Related Terms
Browse more definitions in the financial terms glossary.