Vanguard Total Stock Market Index Fund (VTSAX)

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
Gufomel
Posts: 616
Joined: Sat Feb 14, 2015 9:52 pm

Vanguard Total Stock Market Index Fund (VTSAX)

Post by Gufomel »

I see a lot of people here that adamantly favor the 3 fund portfolio, in which VTSAX is a major component (along with Total International and Total Bond).

In your opinion, isn't VTSAX too highly weighted in large cap (approximately 75%) with very little in small cap (less than 10%)?

For US stocks, I favor doing a mix of 2/3 Vanguard S&P Index Fund and 1/3 Vanguard Small-Cap Index Fund. Since a portion of the S&P and a portion of the Small-Cap funds falls into mid-cap, this 2/3 and 1/3 split puts my US stock allocation at almost exactly 60% large cap, 20% mid cap, and 20% small cap.

I'm not really looking for an evaluation of my portfolio, so I didn't put this post in the personal investment board. I'm more so just wanting to know why the Total Stock Market fund is so highly touted. However, since it may be a valuable piece of information, I'm in my late 20's so I have a ultra long-term investing horizon, hence maybe the reason I'm favoring small cap more than the typical investor.
User avatar
stevewolfe
Posts: 1537
Joined: Fri Oct 10, 2008 7:07 pm

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by stevewolfe »

Gufomel wrote:I'm more so just wanting to know why the Total Stock Market fund is so highly touted. However, since it may be a valuable piece of information, I'm in my late 20's so I have a ultra long-term investing horizon, hence maybe the reason I'm favoring small cap more than the typical investor.
Some people don't want to rebalance a 2/3 - 1/3 portfolio. Some people own their bonds in tax deferred and stocks in taxable and rebalancing would cause them to incur taxes. Some people just want to track the market and are willing to accept the market returns at the lowest possible cost. There are a lot of reasons, I'm sure you will get a ton more in this thread. The most important thing at your age (in my opinion) is getting into the habit of saving, your savings rate and sticking with your investment plan. If you are happy with 2/3 S&P 500 and 1/3 small, and can stick with that, by all means it's a perfectly reasonable US stock portfolio. :beer
livesoft
Posts: 76066
Joined: Thu Mar 01, 2007 8:00 pm

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by livesoft »

Even folks who like to overweight small-cap and value equities can start with VTSAX. Simply add some VBR / VSIAX / VISVX.

Also, I suggest you be careful when reading the forum. Sometimes the 3-fund folks post more and sometimes the small-cap/value-tilted folks post more. You might be surprised how many folks on the forum actually tilt away from total-market weighted 3-fund portfolio, just like you do.

For myself, I like something that is about half large-caps and half small/mid-caps, so I have less large-caps than the OP. My asset allocation has been described in this thread http://www.bogleheads.org/forum/viewtop ... 1&t=150267 among others.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Peter Foley
Posts: 5294
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by Peter Foley »

Of course, some individuals also like to use the Vanguard Extended Market Index to compliment the S&P 500.

I use the VTSAX just to keep things simple. I am less concerned about my AA and rebalancing within sectors of the US market than I am with my overall stocks/non equities AA. I also do not pay very close attention to the ratio of US to International because the views on those ratios is so disparate.

Your point is well taken, however, especially for those individuals who only have access to an S&P 500 fund in their deferred accounts, or the S&P 500 fund is the only low cost option. If that were the case for me I would probably hold a higher percentage of extended market than VTSAX does.
User avatar
Taylor Larimore
Advisory Board
Posts: 30460
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by Taylor Larimore »

Just wanting to know why the Total Stock Market fund is so highly touted?
Gufomel:

There are many reasons that the Total Stock Market Index is "highly touted." One of the most important reasons is that it is on the Efficient Frontier (no other US stock portfolio can have lower risk and higher expected return):

Three Proofs that TSM is Efficient

One of the best articles I've seen on the subject is this one by John Norstad:

Investing in Total Markets

What experts say:
Christine Benz, Morningstar Director of Personal Finance: "The no-brainer holdings if you have taxable accounts are broad-market index funds."

Bill Bernstein: "If you own VTSMX with a bit of foreign and REIT, mixed with your bonds, you're most of the way there."

Jack Bogle: "The beauty of owning the market is that you eliminate individual stock risk, you eliminate market sector risk, and you eliminate manager risk."

Scott Burns, columnist, author: "The odd are really, really poor than any of us will do better than a low-cost broad index fund."

Andrew Clarke, co-author of Wealth of Experience: "If your stock portfoliio looks very different from the broad stock market, you're assuming additional risk that may, or may not, pay off."

John Cochrane, President American Finance Association: "The market in aggregate always gets the allocation of capital right."

Jonathan Clements, author and Wall Street Journal columnist: "If you want a surefire strategy for outpacing most other U.S. stock investors, simply shovel money into an index fund that tracks a broad U.S. market index such as the Wilshire 5000 or the Russell 3000."

Jim Dahle, adviser and author of The White Coat Investor: When interviewing potential advisers, one of the first questions I would ask is: “Can you beat the market yourself or choose mutual fund managers who can?” If the answer is "yes", stand up and walk out."

Edesess . Tsui . Fabbri . Peacock, authors of The Three Simple Rules of Investing: "The end results of the theories of Nobel Laureates in finance is that the most efficient portfolio is one that mirrors the whole market, a total market index fund."

Prof. Eugene Fama, Nobel Laureate: "When I talk with pension fund people, what I start with is the market portfolio. That's always one of the optimal portfolio' one can settle on."

Paul Farrell, author of The Lazy Person's Guide to Investing: Where does Fama invest his retirement money?" In index funds. Mostly the Wilshire 5000."

Rick Ferri, author of many financial books: "For 99% of the the investing population, I still recommend total stock and total bond market index funds."

Graham/Zweig, authors: "The single best choice for a lifelong holding is a total stock-market index fund."

Alan Greenspan, former Chairman of the Federal Reserve: "Prices in the marketplace are by definition the right price."

Sheldon Jacobs who wrote the first book on no-load fund investing: "The best index fund for almost everyone is the Total Stock Market Index Fund.--The fund can only go wrong if the market goes down and never comes back again, which is not going to happen."

Lawrence Kudlow, CNBC: "I like the concept of the Wilshire 5000, which essentially gives you a piece of the rock of all actively traded companies."

Prof. Burton Malkiel, author of the classic Random Walk Down Wall Street: "I now believe the best general U.S. index to emulate is the broader Wilshire 5,000 Stock Index--not the S&P 500."

Bill Miller, famed fund manager: "With the market beating 91% of surviving managers since the beginning of 1982, it looks pretty efficient to me."

"Morningstar (10-19-2012) named Vanguard's Total Stock Market Index Fund: "Our favorate U.S. Equity ETF."

Motley Fools: "Invest your long-term moolah in index mutual funds that are designed to track the performance of a broad market index."

Pat Regnier, former Morningstar analyst: "We should just forget about choosing fund managers and settle for index funds to mimic the market."

Ron Ross, author of The Unbeatable Market: "Giving up the futile pursuit of beating the market is the surest way to increase your investment efficiency and enhance your financial peace of mind."

Paul Sameulson, Nobel Laureate: "The most efficient way to diversify a stock portfolio is with a low-fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios."

Gus Sauter, retired Vanguard Chief Investment Officer: "I think a very good way to gain exposure to the stock market is through the Total Stock Market Portfolio on the domestic side."

Bill Schultheis, author of The Coffeehouse Investor: The simplest approach to diversifying your stock market investments is to invest in one index fund that represents the entire stock market."

Charles Schwab: "Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing."

Chandan Sengupta, author of The Only Proven Road to Investment Success: "Use a low-cost, broad-based index fund to passively invest in a little bit of a large number of stocks.

Prof. Jeremy Siegel, author of Stocks for the Long Run: "For most of us, trying to beat the market leads to disastrous results."

Ben Stein, author and economist: "Scholarly work by Burton Malkiel, Eugene Fama and others has proved that it is the rare investor indeed who can outperform the overall market."

"Robert Stovall, investment manager: It's just not true that you can't beat the market. Every year about one-third do it. Of course, each year it is a different group."

Larry Swedroe, author many investment books: "Over the last 75-years, investors who simply invested passively in the total U.S. stock Market would have doubled their investment approximately every seven years."

Peter D. Teresa, former Morningstar Sr. Analyst: My recommendation: a fund that indexes the entire market, such as Vanguard Total Stock Market Index."

Jason Zweig, author and Wall Street Journal columnist: "I think a total stock market index fund is not only the simplest, but the very best core investment for most people.
"There seems to be some perverse human characteristic that likes to make easy things difficult." - Warren Buffett

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
climbhigh
Posts: 18
Joined: Fri May 30, 2014 1:54 pm

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by climbhigh »

Gufomel wrote:In your opinion, isn't VTSAX too highly weighted in large cap (approximately 75%) with very little in small cap (less than 10%)?
I have always quoted that "75%" number as well, but recently I went through the Vanguard Portfolio Watch online and when it broke everything down it has VTI as being 64% large cap, 28% mid cap, and 8% small cap.
User avatar
Uncle Pennybags
Posts: 1836
Joined: Tue Oct 28, 2014 2:05 am

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by Uncle Pennybags »

The "three fund" portfolio is best for simplicity and low volatility. That keeps a retail investor on track. That is the core of my investments; to scratch my itch to "play" the market I have 30% in REIT and company stock; their volatility is more than enough to keep me real.
User avatar
CABob
Posts: 5026
Joined: Sun Feb 25, 2007 8:55 pm
Location: Southern California

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by CABob »

Gufomel wrote:In your opinion, isn't VTSAX too highly weighted in large cap (approximately 75%) with very little in small cap (less than 10%)?
The 75/25 is what it is the total stock market. Holding it will give you market returns less expenses. If you choose to hold some different large/small holding or some other "tilt" you are betting that the overweighed portion will outperform the rest or at least give you a reasonable position on the risk/reward scale. There is nothing wrong with that and some investors choose to do so while others choose to hold the market. It is one of those things that is not right vs. wrong but is just a different approach.
Bob
User avatar
JoMoney
Posts: 11355
Joined: Tue Jul 23, 2013 5:31 am

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by JoMoney »

Perhaps odd too some given the small-cap superiority often touted here, but I prefer the S&P500 fund because it avoids small-caps. By my preference, TSM is overweight small.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
TradingPlaces
Posts: 1245
Joined: Sun Nov 09, 2014 1:19 pm
Location: 30.286029, -97.530011

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by TradingPlaces »

Can you please change the title of your thread.
rkhusky
Posts: 10909
Joined: Thu Aug 18, 2011 8:09 pm

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by rkhusky »

The market cap weighting of the Total Stock Market Index is the result of millions and million of investors trying to maximize their profits and minimize their risk of loss. If you feel that you know more than that collective wisdom, feel free to tilt away from the total market (or perhaps you are gambler and want to take on a bit more risk). For example, the universe of investors has decided that they will make more money on a risk-adjusted basis investing with Apple than with AMCON Distributing Co., Dover Downs Gaming & Entertainment Inc., CMS Bancorp Inc., Wheeler REIT Inc. and Clean Diesel Technologies Inc, etc combined.
Dandy
Posts: 6498
Joined: Sun Apr 25, 2010 7:42 pm

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by Dandy »

Cover the US stock market for 5 basis points - hard to beat. If you want more small or mid cap exposure buy some. I did (about 3% of my total portfolio). But, the general philosophy is to buy the market -- getting too far away from that could be just making bets vs investing. There is a bit of a fine line between careful "tilting" vs gambling.

My concern with the 3 fund portfolio is putting all your fixed income in Total Bond, especially in retirement when you may have only 40% allocation to equities.
User avatar
Rx 4 investing
Posts: 735
Joined: Sat Apr 25, 2015 11:03 am

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by Rx 4 investing »

For consideration...

Retirement expert Paul Merriman does not believe Total Stock Market Fund (VTSAX) is the best fund in the Vanguard's fleet. In this article, Merriman explains what VTSAX is lacking...

"To add a meaningful boost to the S&P 500, an index needs value stocks. The best data at my disposal indicates that over the long haul, small-cap value stocks returned 14.4%, far better than the S&P 500's 9.7% return. "

http://www.marketwatch.com/story/why-va ... 2014-12-03

Here's his thoughts on having representation with a "group of four" equity sub-categories from "Eight (8) lessons from 80 years of market history."

"...there's magic in combining all four of these in one portfolio. Over 84 years from 1930 through 2013, this Group of Four (S & P 500, large cap value, small cap, and small cap value) boosted the annual return from 9.7% to 12%."

http://www.marketwatch.com/story/8-less ... 2014-11-19

For long-term investors who agree with the merits of Merriman's critique, and who then may consider going beyond a "simple" portfolio to address the gaps in VTSAX, here are Merriman's recommendations of Vanguard funds for tax-deferred and taxable portfolios:

http://paulmerriman.com/vanguard/

Good luck to everyone in the markets! :happy
“Everyone is a disciplined, long-term investor until the market goes down.” – Steve Forbes
User avatar
JoMoney
Posts: 11355
Joined: Tue Jul 23, 2013 5:31 am

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by JoMoney »

The advantage of owning the Total Stock Market is that it assures you will get the average performance of the market, which is something Merriman and others who would suggest performance chasing schemes can't. Holding some other portfolio will perform differently, maybe better, maybe worse.
The whole small-cap/value tilting is definitely a popular strategy... which I don't think bodes well for it's future prospects, but you make your bet you take your chances.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
Uncle Pennybags
Posts: 1836
Joined: Tue Oct 28, 2014 2:05 am

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by Uncle Pennybags »

Rx 4 investing wrote:Retirement expert Paul Merriman does not believe Total Stock Market Fund (VTSAX) is the best fund in the Vanguard's fleet. In this article, Merriman explains what VTSAX is lacking...
"Experts" need something to write about. Not much to to write about with the three fund portfolio investing.
Stonebr
Posts: 1472
Joined: Wed Jan 21, 2009 11:19 am
Location: Maine

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by Stonebr »

I first read about the "superiority" of small cap in 1982. It was a long wait -- about 20 years -- for the payoff. By then I had gray hair.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear
jay22
Posts: 897
Joined: Thu Aug 23, 2012 8:56 am
Location: Sacramento, CA

Re: Vanguard Total Stock Market Index Fund (VTSAX)

Post by jay22 »

Rx 4 investing wrote:For consideration...

Retirement expert Paul Merriman does not believe Total Stock Market Fund (VTSAX) is the best fund in the Vanguard's fleet. In this article, Merriman explains what VTSAX is lacking...

"To add a meaningful boost to the S&P 500, an index needs value stocks. The best data at my disposal indicates that over the long haul, small-cap value stocks returned 14.4%, far better than the S&P 500's 9.7% return. "

http://www.marketwatch.com/story/why-va ... 2014-12-03

Here's his thoughts on having representation with a "group of four" equity sub-categories from "Eight (8) lessons from 80 years of market history."

"...there's magic in combining all four of these in one portfolio. Over 84 years from 1930 through 2013, this Group of Four (S & P 500, large cap value, small cap, and small cap value) boosted the annual return from 9.7% to 12%."

http://www.marketwatch.com/story/8-less ... 2014-11-19

For long-term investors who agree with the merits of Merriman's critique, and who then may consider going beyond a "simple" portfolio to address the gaps in VTSAX, here are Merriman's recommendations of Vanguard funds for tax-deferred and taxable portfolios:

http://paulmerriman.com/vanguard/

Good luck to everyone in the markets! :happy
The biggest problem with Merriman's argument is that he bases this recommendation on Small Cap's past performance. Who knows if this will continue or not.
Post Reply