The Ultimate Index Fund Showdown: S&P 500 vs. Total Stock Market

You’ve done it. You’ve decided to start investing, and you’ve wisely chosen the simple, powerful path of index funds. But just as you’re ready to pull the trigger, you hit a new wall, the first and most common “fork in the road” for passive investors: S&P 500 vs. Total Stock Market.

You see the tickers everywhere: VOO vs. VTI. You read about FXAIX vs. FSKAX. It feels like a small, technical choice, but it’s the very core of your investment portfolio. Which one is better? Which one will build more wealth? And what’s the real difference, anyway?

Let’s settle this debate, break down the jargon, and give you the confidence to make the right choice for you.

First, What Is an Index Fund? (A Quick 60-Second Refresher)

Before we compare these two giants, we need to be on the same page. An index fund is an investment (a mutual fund or ETF) that passively tracks a specific market “index.”

Active Investing is trying to find the “needle in the haystack” (picking one winning stock).
Passive Investing (what we’re doing) is just “buying the whole haystack.”

An index fund doesn’t try to beat the market; it is the market. It’s a simple, “lazy” strategy that is proven to beat 90% of high-paid “expert” stock pickers over the long run, mainly because its fees are incredibly low.

If you are new to this concept and this sounds too good to be true, you must read our foundational guide first: What Is an Index Fund? The Simple Path to Building Wealth.

Okay, you’re back? You’re sold on passive investing. Now, which “haystack” do you buy?

Deep Dive #1: The S&P 500 Index Fund (The Blue-Chip Champion)

This is the most famous index in the world. When a news anchor says “the market was up today,” they are almost always referring to the Standard & Poor’s 500 (S&P 500).

What Is an S&P 500 Index Fund?

An S&P 500 index fund is a basket that buys and holds stock in the 500 largest and most influential public companies in the United States. Think of it as the “All-Star” team of American business.

This list includes all the names you know:

Apple (AAPL)
Microsoft (MSFT)
Amazon (AMZN)
Google (GOOGL)
NVIDIA (NVDA)
…all the way down to company #500.

These 500 companies are all considered “large-cap” stocks (meaning they are very large, stable, “blue-chip” companies).

The Critical Concept: “Market-Cap Weighting”

This is the most important concept you need to understand, and it’s simple. The S&P 500 is “market-cap weighted.” This just means the companies with a higher total value (their stock price times all available shares) have more “weight” in the index.

So, a company like Apple (worth trillions) has a much bigger impact on the fund’s performance than company #500 (worth billions).

This is a good thing! It means the fund is self-cleaning. It automatically holds more of the “winners” and less of the “losers” without you ever having to do anything.

The Pros and Cons of the S&P 500

The Pros:

Proven Performance: This index has been the single greatest wealth-building engine in modern history, returning an average of 10% per year over the long term.
High-Quality “Filter”: To get into the S&P 500, a company must be large, stable, and (most importantly) profitable for at least four straight quarters. This filters out a lot of the unproven “junk.”
The Warren Buffett Stamp of Approval: Legendary investor Warren Buffett has famously instructed that the money he leaves for his wife be put in a low-cost S&P 500 index fund. It’s the ultimate “set it and forget it” endorsement.

The Cons:

Lacks Full Diversification: This is the big one. You are only investing in 500 large U.S. companies. You get zero exposure to the thousands of medium-sized and small-sized U.S. companies.
“Is the S&P 500 diversified enough?” This is the core of the debate. You’re missing out on the potential high-growth “rocket ships” found in the small-cap and mid-cap space.

Popular S&P 500 Index Fund Tickers:

ETFs: VOO (Vanguard), IVV (iShares), SPLG (SPDR)
Mutual Funds: FXAIX (Fidelity), VFIAX (Vanguard)

Deep Dive #2: The Total Stock Market Index Fund (The “Whole Haystack”)

If the S&P 500 is the “All-Star” team, the Total Stock Market Index Fund is the entire league.

What Is a Total Stock Market Index Fund?

A Total Stock Market (TSM) index fund is a basket that attempts to buy every single publicly traded stock in the United States.

This includes:

All 500 companies from the S&P 500.
Thousands of “mid-cap” stocks (medium-sized companies).
Thousands of “small-cap” stocks (the smallest companies).

Where an S&P 500 fund holds ~500 stocks, a TSM fund (like VTI or FSKAX) holds 3,000 to 4,000+ stocks.

The Market-Cap Weighting Is Still Key

This fund is also market-cap weighted. This is the “big secret” that confuses most beginners.

Even though a TSM fund holds 3,500 more stocks than the S&P 500, those extra stocks are tiny. They are small- and mid-cap companies, so they have a very small “weight” in the fund.

Here is the simple breakdown:

A Total Stock Market Index Fund = [The S&P 500 (about 80-85% of the fund)] + [The Small/Mid-Caps (about 15-20% of the fund)]

When you buy a Total Stock Market fund, you are still putting 80-85% of your money into the same S&P 500 companies. The only real difference is that you’re also buying a 15-20% sliver of the “rest of the market.”

The Pros and Cons of the Total Stock Market

The Pros:

The Ultimate U.S. Diversification: This is it. You are buying the entire U.S. haystack. You are perfectly diversified across large, mid, and small companies. You are the U.S. market.
Captures Small-Cap Growth: You get exposure to those small, innovative companies that could one day become the next Apple or Amazon.
The “Purest” Passive Investment: This is the preferred fund for investing “purists” and the Bogleheads community (a non-profit forum dedicated to Bogle’s investing philosophy). Even Jack Bogle, who invented the S&P 500 fund, later said the Total Stock Market fund was the “one true index” and his preferred choice.

The Cons:

You Own… Everything: That 15-20% slice of small/mid-cap stocks isn’t “filtered” for profitability like the S&P 500. You own the “junk” stocks right alongside the “gems.” (Though, because of market-cap weighting, the truly bad companies have almost zero impact).

Popular Total Stock Market Index Fund Tickers:

ETFs: VTI (Vanguard), ITOT (iShares)
Mutual Funds: FSKAX (Fidelity), VTSAX (Vanguard)

S&P 500 vs. Total Stock Market Performance: The Head-to-Head Battle

Okay, this is the main event. You’re giving up 15-20% of your portfolio to small/mid-caps. What does that do to your long-term investment returns?

The answer is… shockingly little.

The 99% Correlation

Look at any 10- or 20-year chart comparing VOO vs. VTI performance. They look identical.

The performance correlation between the S&P 500 and the Total Stock Market is over 99%. They move in lockstep. Why? Because, as we learned, the S&P 500 makes up over 80% of the Total Stock Market fund.

The “engine” of both funds is the exact same: the performance of Apple, Microsoft, Google, and the other large-cap giants.

**So, When Does the Difference Matter?**

The tiny gap in performance comes from that 15-20% sliver of small- and mid-cap stocks.

When S&P 500 “Wins”: In some years (like the late 2010s), large-cap “Big Tech” stocks (like Apple, Google, Meta) were on a tear. During these times, the S&P 500 slightly outperformed the Total Stock Market because its high-flying “winners” weren’t “dragged down” by the thousands of average small-cap stocks.
When Total Stock Market “Wins”: In other years (like the early 2000s), small-cap stocks had a massive “breakout” period. During these times, the Total Stock Market slightly outperformed the S&P 500 because it captured that small-cap growth.

What Is a “Small-Cap Tilt”?

There is a long-standing academic theory that, over very long periods (30+ years), small-cap stocks should outperform large-cap stocks (this is called the “size premium”). If you believe this, then the Total Stock Market fund gives you a slight “tilt” toward this growth.

However, as a Morningstar analysis often points out, the performance is so similar that it’s nearly impossible to predict which will be “better” in your specific lifetime.

Crucial Strategy: Portfolio Traps to Avoid

This is the “advanced” part of the guide. This is where most beginners make a critical mistake that adds complexity and costs them money.

The #1 Mistake: “Should I Own Both VOO and VTI?”

No. Please, no.

This is the most common mistake in building a simple portfolio. People think, “I want the S&P 500 and the Total Stock Market, so I’ll buy both!”

Remember our formula:

Total Stock Market = [S&P 500] + [Small/Mid Caps]

If you buy both VOO (S&P 500) and VTI (Total Stock Market), you are not more diversified. You have just bought the S&P 500 twice. You are massively overlapping your funds.

The Venn diagram of VOO and VTI isn’t two separate circles. It’s one big circle (VTI) with a slightly smaller circle inside it (VOO) that takes up 85% of the space.

Rule: You choose one or the other as your “core” U.S. stock holding. You do not need both.

The “Advanced Builder” Strategy: Why Some Prefer the S&P 500

So if the TSM is more diversified, why would anyone still buy the S&P 500?

Because the S&P 500 is a better “building block.”

If you are an advanced investor (or just a tinkerer), you might not like the 80/20 large/small split that the Total Stock Market fund forces on you.

You might want a bigger “small-cap tilt.”

The “TSM” Way (Simple): 100% in a Total Stock Market Fund. (Your allocation is ~80% Large, 20% Small/Mid).
The “Building Block” Way (Advanced):
- Put 70% in an S&P 500 Fund (like VOO).
- Put 30% in a Small-Cap Index Fund (like VB).

By using the S&P 500 fund as your “large-cap” base, you get to precisely control how much small-cap exposure you want. This is a popular strategy for investors who want to intentionally tilt their portfolio toward a factor (like “size”) that they believe will outperform.

The Final Verdict: How to Choose the Best Fund for You

We’ve established they are 99% similar. We’ve established you shouldn’t buy both. So, how do you make the final S&P 500 vs. Total Stock Market decision?

It comes down to your personal philosophy.

You Should Choose an S&P 500 Index Fund (like VOO or FXAIX) IF:

You are a pure beginner and want the simplest, most proven, Warren Buffett-endorsed option.
You like the idea of your investment being “filtered” for profitability.
You are a “builder” and want to use the S&P 500 as your “large-cap” block so you can add your own small-cap and mid-cap funds later.
This is the only good, low-cost option in your 401(k). (This is very common! If your 401(k) only offers an S&P 500 fund, just use it and be happy. It’s a fantastic choice.)

You Should Choose a Total Stock Market Index Fund (like VTI or FSKAX) IF:

You are an investing “purist” and a Boglehead at heart.
You want the maximum possible diversification for the U.S. market in a single fund.
You believe in the long-term growth story of small-cap stocks and want to guarantee you have exposure to them.
You want the ultimate “set it and forget it” U.S. stock fund and never want to think about adding a small-cap fund later.

The Real Winner (The Secret They Don’t Tell You)

The real secret? It just doesn’t matter that much.

The difference in long-term performance between these two funds is likely to be so small that it will have almost no impact on your retirement.

The real “win” is not in picking VOO over VTI. The “win” is:

Saving money (by having a Zero-Based Budget).
Avoiding high-interest debt.
Choosing any low-cost index fund instead of a high-fee, “expert” active fund.
Investing consistently for decades.

The cost of indecision is far higher than the cost of picking the “wrong” of these two excellent choices.

How to Buy Your Fund: A 3-Step Action Plan

You’re ready. Here’s how to do it.

Step 1: Have Your Financial Foundation in Place

Investing is not your first step. It’s your third or fourth. Before you invest a single dollar, you must have:

A Budget: You need to know where your money is going.
An Emergency Fund: Do not invest money you might need in the next 3-5 years. That cash belongs in a safe, high-yield savings account. This is your “firewall” against a recession or job loss. If you haven’t done this, stop and read Why You Need an Emergency Fund (And How to Build One Fast).
No High-Interest Debt: If you have credit card debt at 25% APR, paying that off is a guaranteed 25% return. That’s a better deal than anything the stock market can promise.

Step 2: Open the Right Account at a Low-Cost Broker

To buy a fund, you need an account. The “Big 3” low-cost brokers are all fantastic: Fidelity, Vanguard, or Charles Schwab.

For Retirement: Open an IRA (Individual Retirement Account). A Roth IRA is the best place for most people to start.
For Your 401(k): Log in to your employer’s 401(k) and look for the “S&P 500” or “Total Market” index fund in your options.
For Other Goals: Open a taxable brokerage account.

For an authoritative guide on investment accounts, the U.S. Securities and Exchange Commission (SEC) is your best, most trusted resource.

Step 3: Pick ONE Fund and Automate It

That’s it. Log in, find the ticker, and buy it.

At Fidelity, choose FXAIX (S&P 500) or FSKAX (Total Market).
At Vanguard, choose VOO (S&P 500) or VTI (Total Market).

Then, the most important part: Set up automatic investing. Tell your broker to pull $100 (or whatever you can afford) from your bank account every two weeks, the day after you get paid.

This is dollar-cost averaging. It’s how you build real, “boring” wealth.

Frequently Asked Questions (FAQ) About S&P 500 vs. Total Stock Market

1. What are the best S&P 500 index fund tickers?

ETFs: VOO (Vanguard), IVV (iShares), SPLG (SPDR).

Mutual Funds: FXAIX (Fidelity), VFIAX (Vanguard).

2. What are the best Total Stock Market index fund tickers?

ETFs: VTI (Vanguard), ITOT (iShares).

Mutual Funds: FSKAX (Fidelity), VTSAX (Vanguard).

3. Is VTI or VOO better for long-term growth?

Their long-term performance is almost identical (99%+ correlated). VTI may have a slight edge in years when small-cap stocks do well, while VOO may have a slight edge when large-cap tech does well. It is not a big enough difference to worry about.

4. Can I own both VOO (S&P 500) and VTI (Total Stock Market)?

You should not. This is the most common beginner mistake. The S&P 500 (VOO) is already inside VTI, making up about 85% of it. Owning both is redundant and just makes you “overweight” in large-cap stocks for no reason. Choose one or the other.

5. What is the performance difference between the S&P 500 and the Total Stock Market?

Historically, the performance is so close that it’s almost identical. The “biggest” difference in recent history was in 2020, but over 10-20 year periods, the difference in average annual return is often just 0.1% or 0.2%.

6. Does the Total Stock Market index (VTI) include the S&P 500 (VOO)?

Yes! This is the key concept. A Total Stock Market fund holds all 500 stocks from the S&P 500, plus thousands of additional small- and mid-cap stocks.

7. Why does Warren Buffett recommend the S&P 500 instead of the Total Stock Market?

Buffett recommends the S&P 500 because it’s simple, powerful, and a bet on America’s 500 best, most profitable, “blue-chip” companies. It’s a “no-brainer” investment that’s easy to understand.

8. Is an S&P 500 fund “diversified enough”?

For most people, yes. You are diversified across 500 of the world’s largest companies in every major industry (tech, healthcare, finance, etc.). However, it is not diversified by company size (it’s only large-caps) or geography (it’s only U.S. companies).

9. What is a “small-cap tilt” and how do I get one?

A “small-cap tilt” is an intentional strategy to hold more small-cap stocks than the market average, based on the theory they will grow faster. The best way to do this is to buy an S&P 500 fund AND a separate small-cap index fund (e.g., 70% VOO, 30% VB).

10. What percentage of VTI (Total Market) is the S&P 500?

The S&P 500 (large-cap stocks) makes up approximately 80-85% of the total value of the Total U.S. Stock Market.

11. Which has a lower expense ratio, VOO or VTI?

At Vanguard, their expense ratios are identical (as of this writing, 0.03%). The same is true for Fidelity’s mutual funds (FXAIX and FSKAX are both 0.015%). Cost is not a deciding factor between them.

12. What is the best index fund to have in my 401(k)?

Look for the lowest-cost index fund in your plan. This is often an S&P 500 fund (it’s the most common). If your 401(k) offers both an S&P 500 and a Total Stock Market fund, just pick the one you prefer (or the one with the lower fee).

13. What is the difference between VTSAX and VTI?

They are the same fund. VTSAX is the mutual fund version, and VTI is the ETF version. They both track the Total U.S. Stock Market. The only difference is how they are traded.

14. Should I buy an S&P 500 or Total Market fund during a recession?

A recession doesn’t change this strategy. Long-term investors should continue to buy (a practice called dollar-cost averaging) straight through the recession. You are simply buying more shares “on sale.”

15. Is there a “Total World” index fund?

Yes! If you want to own the U.S. and the rest of the world (Europe, Asia, etc.) in a single fund, you can buy a Total World Stock Index Fund (like VT or VTWAX). This is the ultimate “one-fund” simple portfolio.

16. Which fund is better for a Roth IRA?

Both are excellent choices for a Roth IRA. Because the difference is so small, just pick one and stick with it. The Total Stock Market (VTI/FSKAX) is arguably slightly more diversified, making it a great “one-fund” choice if you’re just starting.