S&P 500 vs Total Stock Market: Which Index Fund Should You Choose?

Key Data Points

What Each Index Actually Holds

The S&P 500, tracked by ETFs like VOO, SPY, and IVV, contains 500 of the largest US companies selected by a committee at S&P Dow Jones Indices. These 500 companies represent approximately 80% of total US stock market capitalization. The index is market-cap weighted, meaning the largest companies like Apple, Microsoft, and Amazon have the greatest influence on performance.

The total stock market, tracked by ETFs like VTI, ITOT, and SWTSX, includes virtually every publicly traded US company, roughly 3,700 to 4,000 stocks. This includes the same 500 large-cap stocks in the S&P 500 plus approximately 3,200 to 3,500 additional mid-cap and small-cap companies. Because the S&P 500 already represents 80% of total market capitalization, VTI and VOO share about 80% of their holdings and tend to perform very similarly.

Historical Performance Comparison

Over the past 30 years, the S&P 500 and total US stock market have produced remarkably similar returns. The annualized difference in performance has typically been less than 0.1% to 0.3% per year, with neither consistently outperforming the other over long periods. In some decades, the additional small-cap and mid-cap exposure in the total market index provides a slight return boost, while in others the large-cap concentration of the S&P 500 leads.

From 2010 through 2024, the S&P 500 slightly outperformed the total market due to the dominance of mega-cap technology stocks, which have a higher weight in the S&P 500 than in the broader market. However, from 2000 to 2010, small-cap and mid-cap stocks outperformed large caps, giving the total market index a modest edge. The key takeaway is that the difference is so small that either choice is excellent for long-term investors.

The Diversification Argument

Proponents of total market funds argue that owning 3,700 stocks is inherently more diversified than owning 500. This is technically true but practically less significant than it appears. Because the total market fund is still market-cap weighted, the 500 largest stocks dominate the fund's performance just as they dominate the S&P 500. The 3,200 additional small and mid-cap stocks collectively represent only about 20% of the fund's total value.

However, this 20% matters over time. Small-cap stocks have historically earned a return premium over large-cap stocks, sometimes called the small-cap premium, of approximately 1% to 2% per year. This premium has been inconsistent and has diminished in recent decades, but if it persists, total market investors will benefit from the additional exposure. The diversification argument slightly favors total market funds, but the difference is not large enough to lose sleep over.

Cost and Accessibility

Both VOO and VTI charge identical expense ratios of 0.03%, making cost a non-factor in the decision. SPY, the oldest and most liquid S&P 500 ETF, charges 0.0945%, which is still very low but noticeably higher than VOO or VTI. SPLG, another S&P 500 ETF from State Street, charges just 0.02%, making it technically the cheapest option.

Liquidity is generally not a concern for buy-and-hold investors, but for those placing very large trades, SPY has the tightest bid-ask spreads in the market due to its enormous trading volume. For most individual investors making monthly purchases of hundreds or thousands of dollars, the bid-ask spread difference between these ETFs is negligible. All major brokerages offer commission-free trading for these funds, and fractional share availability is now standard.

The Bottom Line: Just Pick One

The honest answer to the VOO versus VTI debate is that it barely matters. Both are exceptional investment vehicles with rock-bottom costs, broad diversification, and strong long-term track records. Spending weeks agonizing over this choice costs you more in delayed investing than any performance difference between the two will ever amount to.

If forced to recommend one, VTI has a slight theoretical edge due to broader diversification and potential small-cap premium exposure. But VOO is equally valid and is the more recognizable benchmark. Many investors own both in different accounts without issue. The critical decision is not which one you pick but that you pick one and start investing consistently. A dollar invested in either fund today is worth more than a dollar invested in the theoretically optimal fund six months from now.

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