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

The Two Most Popular Choices

When most Americans start investing in index funds, they quickly face a fundamental question: S&P 500 or Total Stock Market? Both are outstanding choices — but understanding the difference will make you a more confident investor.

What's in the S&P 500?

The S&P 500 tracks the 500 largest publicly traded U.S. companies, selected by a committee based on market cap, liquidity, and profitability. It covers roughly 80% of the total U.S. stock market by value. Top holdings include Apple, Microsoft, NVIDIA, Amazon, Alphabet, Meta, and Tesla.

What's in a Total Stock Market Fund?

A Total Stock Market fund holds nearly every publicly traded U.S. stock — around 3,500 to 4,000 companies. That includes all S&P 500 stocks plus mid-cap and small-cap companies not large enough to qualify for the S&P 500.

The bottom line: Because large-cap stocks dominate, the S&P 500 makes up ~80% of a Total Market fund's value. The two funds have performed nearly identically over long periods — the historical return difference is typically under 0.5% per year.

Key Differences

Holdings: ~500 stocks vs. ~3,500+ stocks
Small-cap exposure: None in S&P 500 / Included in Total Market
Long-term returns: Nearly identical over 10+ year periods
Expense ratios: Both extremely low (0.03%–0.04%)

Which Should You Pick?

Honestly, either is an excellent choice. Most financial academics agree that the difference is negligible for long-term investors. The more important decision is simply to invest consistently — either fund will likely serve you well over decades.

If you want the broadest possible diversification, choose Total Market. If you prefer simplicity and the most widely recognized benchmark, go S&P 500. Then automate contributions and stop worrying about the difference.

Disclaimer: Educational content only. Past performance does not guarantee future results. Consult a licensed financial advisor for personalized advice.

← Back to All Guides