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That's a great point. I've always bought VTSMX, on the assumption that it's as close to "total US market" as one can get. Is anyone aware of downsides of VTSMX

That's a great point. I've always bought VTSMX, on the assumption that it's as close to "total US market" as one can get. Is anyone aware of downsides of VTSMX (excluding downsides of indexing in general)

jonknee 10y ago
The 5 year performance of VTI (the ETF version of that mutual fund) and SPY is .44% in favor of VTI. There is a better dividend yield on SPY though so you would have been better off there. Large companies dominate so adding in small caps doesn't really change things a ton. The two funds haven't diverged in a meaningful way in a very long time.
Kadin 10y ago
This may fall into the category of "downsides of indexing in general", but even VTSMX, which is based on the CRSP index, isn't necessarily getting you the entire stock market in the U.S., which is something to be aware of, I suppose. The criteria for inclusion in the CRSP index specify "a minimum total market capitalization of more than $10 million with a float that more than 10 percent of the total shares outstanding". So there is sub-micro stuff 'beneath' the index that's not included due to the $10M minimum, and others that aren't included because of the float requirement. Do you care? Probably not, but you might. Also, I've periodically heard arguments against market-cap weighting, which is what indexes do (this is probably one of those "downsides of indexing" arguments). If you are not careful, with a couple of index funds you can end up really exposed to a handful of very large, and therefore highly-weighted, blue chips. But I can't think of another way of weighting within a whole-market index that would make sense. The other thing that comes up a lot, mostly in tech circles, is that index funds (of course) don't give you exposure to the private market, and it seems that more and more tech companies are waiting a long time until they go public, such that at any given time a lot of growth is happening where most investors can't get in on it. The argument is that, if you are financially qualified, there are more opportunities out there for qualified/accredited investors on the private market. I don't personally agree with this if you're looking for an investment rather than a job as an investor, but you'll sometimes hear the argument get made.
- deleted 10y ago
  [deleted]
- JamesBarney 10y ago
  I think people routinely over estimate the amount of money that VC funds are making.
- shoover 10y ago
  No love for equal weight? RSP has some interesting performance characteristics. There is the Wilshire 5000 Equal Weight Index, but, alas, no fund tracks it.
- tcoppi 10y ago
  I highly recommend most people, at least when they are young, don't put all their eggs into market cap weighted total market funds by getting at least some direct exposure to mid and small-caps. You can potentially leave a lot of growth on the table by being too heavily weighted towards the more conservative big boys(and conversely, lose a lot by not being so weighted towards them, but that's why you do it when you are young).
  - loeg 10y ago
    Not really? Go to http://quotes.morningstar.com/chart/fund/chart?t=VITSX&region=usa&culture=en-US http://quotes.morningstar.com/chart/fund/chart?t=VITSX&regio... and click on "Maximum" and compare to VFINX. The total market and S&P500 indices have tracked really closely for a long time. You're not missing out on much, if anything, by holding only the S&P500.
    - deleted 10y ago
      [deleted]
    - mortehu 10y ago
      tcoppi is arguing against market cap weighting, which is the reason why VITSX is so close to VFINX despite containing other stocks. If the total market is outperforming S&P 500, that means the companies not in S&P 500 perform better overall, so giving them greater weight than suggested by their relative market cap would have been beneficial.
RestlessMind 10y ago
One downside of VTSMX is 0.16% expense ratio, compared to 0.05% for VTSAX (same fund, different class).
- prostoalex 10y ago
  Which is still more expensive than SCHB.
Spooky23 10y ago
It's too broad. When you buy everything, you buy the downsides of everything.

jonknee 10y ago

The 5 year performance of VTI (the ETF version of that mutual fund) and SPY is .44% in favor of VTI. There is a better dividend yield on SPY though so you would have been better off there. Large companies dominate so adding in small caps doesn't really change things a ton. The two funds haven't diverged in a meaningful way in a very long time.

Kadin 10y ago

This may fall into the category of "downsides of indexing in general", but even VTSMX, which is based on the CRSP index, isn't necessarily getting you the entire stock market in the U.S., which is something to be aware of, I suppose. The criteria for inclusion in the CRSP index specify "a minimum total market capitalization of more than $10 million with a float that more than 10 percent of the total shares outstanding". So there is sub-micro stuff 'beneath' the index that's not included due to the $10M minimum, and others that aren't included because of the float requirement. Do you care? Probably not, but you might. Also, I've periodically heard arguments against market-cap weighting, which is what indexes do (this is probably one of those "downsides of indexing" arguments). If you are not careful, with a couple of index funds you can end up really exposed to a handful of very large, and therefore highly-weighted, blue chips. But I can't think of another way of weighting within a whole-market index that would make sense. The other thing that comes up a lot, mostly in tech circles, is that index funds (of course) don't give you exposure to the private market, and it seems that more and more tech companies are waiting a long time until they go public, such that at any given time a lot of growth is happening where most investors can't get in on it. The argument is that, if you are financially qualified, there are more opportunities out there for qualified/accredited investors on the private market. I don't personally agree with this if you're looking for an investment rather than a job as an investor, but you'll sometimes hear the argument get made.

deleted 10y ago
[deleted]
JamesBarney 10y ago
I think people routinely over estimate the amount of money that VC funds are making.
shoover 10y ago
No love for equal weight? RSP has some interesting performance characteristics. There is the Wilshire 5000 Equal Weight Index, but, alas, no fund tracks it.
tcoppi 10y ago
I highly recommend most people, at least when they are young, don't put all their eggs into market cap weighted total market funds by getting at least some direct exposure to mid and small-caps. You can potentially leave a lot of growth on the table by being too heavily weighted towards the more conservative big boys(and conversely, lose a lot by not being so weighted towards them, but that's why you do it when you are young).
- loeg 10y ago
  Not really? Go to http://quotes.morningstar.com/chart/fund/chart?t=VITSX&region=usa&culture=en-US http://quotes.morningstar.com/chart/fund/chart?t=VITSX&regio... and click on "Maximum" and compare to VFINX. The total market and S&P500 indices have tracked really closely for a long time. You're not missing out on much, if anything, by holding only the S&P500.
  - deleted 10y ago
    [deleted]
  - mortehu 10y ago
    tcoppi is arguing against market cap weighting, which is the reason why VITSX is so close to VFINX despite containing other stocks. If the total market is outperforming S&P 500, that means the companies not in S&P 500 perform better overall, so giving them greater weight than suggested by their relative market cap would have been beneficial.

RestlessMind 10y ago

One downside of VTSMX is 0.16% expense ratio, compared to 0.05% for VTSAX (same fund, different class).

prostoalex 10y ago
Which is still more expensive than SCHB.

Spooky23 10y ago

It's too broad. When you buy everything, you buy the downsides of everything.