Better to invest in Vanguard 500 Stock Index Fund or Total Stock Market Index Fund?
Qυеѕtіοn bу Tance G: Better tο invest іn Vanguard 500 Stock Index Fund οr Total Stock Market Index Fund?
I аm a young investor interested іn investing іn a roth IRA аnԁ аm interested іn thе Vanguard family.
Currently mу IRA іѕ wіth a bank wіth a very low interest rate. I hаνе researching different funds аnԁ Ɩіkе Vanguards nο load index funds.
Whісh іѕ better tο invest іn??
1. Vanguard 500 Stock Index Fund
2. Vanguard Total Stock Market Index Fund
Best аnѕwеr:
Anѕwеr bу src50
“Better” іѕ a opinion. If уου mean thаt уου′re going tο рƖасе аƖƖ уουr IRA іntο јυѕt thе one fund, deliberate thе target-date funds. Thаt wіƖƖ аƖѕο give уου ѕοmе exposure tο international stocks аnԁ fixed-income assets.
Add уουr οwn аnѕwеr іn thе comments!
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2 would be the better choice for long term investing, although you might want to deliberate the Target Retirement Fund for your age bracket — that will give you broad, low cost stock exposure but get more conservative as you get closer to retirement age.
Tance:
Were it me, I would not drop a single dime into
this kind of market environment. It took about
four years for the market to reach a bottom after
the 1929 market crash.
The current decline is about one year, so in
time, there is more downside, and no bottom
is in sight.
What about cash?
The purchasing power of $ 10,000 in terms of
1997 dollars is about $ 3,000 today, so even
the memorable mattress is not safe.
Both gold and silver have a proven store of
value during times of fiscal uncertainty.
Why?
Because they have a world-wide recognized
intrinsic value. Paper assets do not. More,
the metals not only hold purchasing power
value, they often appreciate, as well.
Reckon about it. The Dow and S&P are at
their lowest levels in a decade. That means
all who bought in thelast 10 years is
under water.
Mutual funds are no different, and can sometimes
be worse.
Cheers!
Vanguard 500
There are a lot of crappy companies in the larger Total stock market fund.
Try second one for long term
The question is really a very fascinating question. Here is why. Both indexes are capitalization weighted. What that means to you the investor is that both on a market value basis are going to contain very nearly the same weight of stocks. What I mean by that the top 10 holdings of both will contain exactly the same stocks in nearly exactly the same proportions. Even though the total market index contains many more stocks the bonus stocks make up a very small part of the total. The top 10 holding of the 500 index make up 22% of the total but only 18.5% of the Total Market index–not all that much difference. When you compare the returns over the years of the two they again are very similar. The 10 year return for the 500 index is – 3.51% and the other – 2.57%. I guess that one might conclude that the total market index does have a better long term return but the shorter term returns are much much closer together. I suspect that the difference between the two long term returns is due to the recent near demise of several very large capitalization companies–Citigroup, AIG, GM, and Bank America. Certainly there would be slightly less risk to you the investor by investing in a portfolio containing 3500 stocks than in one containing only 500, but because of the capitalization weighting not as much as one would hope.