What are total stock market index funds?


Quick Answer

Total stock market index funds are mutual funds or exchange-traded funds, or ETFs, that replicate the exposure to every stock or security held on a particular exchange, country or particular threshold, known as a market cap, explains Investopedia. A common example is the Vanguard Total Stock Market Index Fund.

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Full Answer

Total stock market index funds, or total stock funds, are baskets of securities represented through either a mutual fund or an ETF that duplicate the portfolio of an investor holding every single stock within a certain exchange, according to Investopedia.

A total stock fund allows an investor to invest in the overall stock market of a country without having to buy every single stock within that country, notes Vanguard. For example, the Vanguard Total Stock Market Index Fund is a security that allows investors to buy the complete U.S. equity market using a single price, which includes small, mid, and large-cap companies in the United States. Such funds are significantly larger than the commonly known benchmark of the S&P 500 index, as they cover a much broader number of securities.

Investing in total stock market index funds allows an investor to have broad diversification, lower costs and a potential for tax efficiency, which are among a few of the benefits that an investor can face, Forbes states.

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