S&P 500 or total stock market index for U.S. exposure?

Understanding the differences and similarities between these two popular indexing strategies can affect your portfolio planning.

Adam Zoll 2 December, 2013 | 7:00PM

Question: I'm trying to decide which would make a better holding for the core U.S. equity portion of my portfolio: an S&P 500 index fund or a total stock market index fund. What should I take into consideration?

Answer: Since the advent of exchange-traded funds, a lot of Canadian investors have chosen to go the index route for their U.S. equity exposure, so many of you likely have the same question.

For those who might be unfamiliar with the two index types mentioned, the S&P 500 tracks 500 of the largest U.S. stocks as measured by the value of their shares. Because the index is weighted by market capitalization -- the number of shares on the market times share price -- higher-value companies take up bigger weightings and lower-value companies take up smaller positions. The overwhelming majority of ETF assets in the U.S. Equity category are invested in ETFs that track this index.

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Adam Zoll

Adam Zoll  Adam Zoll is an assistant site editor with Morningstar.com

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