S&P 500 vs Total US Market vs Total Global Market

The S&P 500 is a popular stock market index both for retail investors in the United States and globally. This article will compare the S&P 500 vs Total US Market and the Total Global Market.

Disclaimer: this post will make more sense to you if you have a sense of what index investing is.

sp500 total us market total global market

What is The S&P 500?

The Standard & Poor's 500 Index is an index that tracks the leading 500 companies in the United States.

This is primarily weighted according to market capitalization, but because they also have other criteria, it's not an exact list of the top 500 companies with the biggest market cap.

If you've been looking into financial freedom for a while, you've probably already come across the S&P 500 and…it's just everywhere.

Retail investors like us are talking about it, and people like Warren Buffet are talking about it and even making $1 million dollar bets.

A reason for this is that the S&P500 is one of the oldest index funds around, so there's a lot of actual historical data that people can analyze over.

(The Vanguard 500 Index Fund (with ticker VFINX) was founded in August 1976.)

And, what do you know, since its inception, this index has done really well.

growth of s&p 500 vs Total US Market

Industry Weightings

One of the S&P 500's primary weighting of including or not including a public company in the index is market capitalization.

But if they were to go just for largest market caps, their holdings would look very different from how they're looking right now.

What this index also makes sure of is that it doesn't only include companies in the same industries.

The breakdown of sectors in the S&P 500 is as follows:

  • Information technology: 27.9%
  • Health care: 13%
  • Consumer discretionary: 12.8%
  • Financials: 11.4%
  • Communication services: 10.8%
  • Industrials: 8%
  • Consumer staples: 5.6%
  • Energy: 2.9%
  • Real estate: 2.6%
  • Materials: 2.5%
  • Utilities: 2.4%

As you can see, the S&P is heavily weighted toward tech, health care, and consumer discretionary stocks. Meanwhile, there aren't as many utilities, real estate companies, or firms involved in producing and selling raw materials.

For a lot of people, predominantly United States retail investors, this is enough to buy-and-hold for the long road on their journey to financial freedom.

And if that's you as well, that's perfectly fine.

Why Should You Consider Other Indexes?

While the S&P 500 may have been the end-all-be-all for retail investors like you and I for a very long time, there are plenty of other indexes that could fit your financial goals and risk tolerance.

For example, The Dow Jones Industrial Average (DJIA), for example, is a very valuable index. It tracks 30 large-cap, publicly-traded companies: 25 from the S&P 500 and 5 from the broader Dow Jones Transportation Average (DJIA+Dow Jones Utilities Average). The Dow was invented in 1896 and represents a broad measure of the US economy.

Let's get into global economics for a bit.

United States Superpower?

Undeniably, a lot of the United States' wealth, as well as the wealth opportunities for other countries because of that wealth, came from the Industrial Revolution.

The United States was obviously already on the map, but this really put them on the map.

This benefited the US financial markets greatly from the 1950s to the pre-pandemic times.

But now, other countries are starting to put themselves on the map as well. In a big way.

Democratization of information (you could tell me all the emperors during the Ming dynasty in 10 seconds) combined with nations like China fixing a lot of where previous governments had failed is now putting the United States as a superpower to the test.

Now, look, I'm not an economist by trade. I'm sure there are some things that are flawed in how I tried to translate it with my laymen's knowledge, but I hope the point is made. And, if you've been looking around, you're seeing this, too.

The Problem with the S&P 500

Of course, there's no problem with the S&P 500 by itself.

But by only buy-and-holding this index, you may be missing out on the vast improvements, economic and otherwise, other regions of the world are taking. And even other United States companies that aren't even close to being picked up in the S&P 500.

Remember those industry weightings? Energy only includes 2.9% of it. And we all know, or should know, that this is obviously going to be playing a bigger deal.

The opportunities are out there for brilliant minds to come up with (much needed) solutions to answer some pressing renewable energy questions we as a species are facing.

These will become companies. These will attract a lot of investment money. These will make money. And they already are.

As well as other industries, like Space Exploration (ARKX), Genomics (ARKG) and much more.

The Total US Market

If you're in the United States, instead of buy-and-holding an S&P 500 ETF (like a VOO), you could bode very well with a Total US Market fund, like a VTI.

In fact, because VTI is tracking all United States companies, all the companies inside of VOO are also covered in VTI!

Currently, about 82% of VOO is the S&P 500, but this is expected to change even more.

But, the proof is in the pudding right?

Here's a chart tracking the difference in performance between these 2 funds:

Although a bit more volatile, VTI is actually slightly performing better than VOO.

s&p 500 vs total us stock market
source: PortfolioVisualizer.com

You can read more about this over on this blog post “VOO vs VTI”.

The Total Global Market

The above 2 sections were about United States funds only. But, as I've said before, other countries are starting to make some major leaps in terms of innovation, which leads to more economic growth.

Just like VTI (Total US Stock Market) also comprises VOO (S&P 500), a global stock market fund (like a VT) will also capture the entire United States stock market.

Now, if there are any major developments going on in China, Germany, the United Kingdom, literally anywhere else than the US, you'll also reap those benefits with this Total Global Market fund.

The VT fund tracks all companies in developing (countries having more or less stable growth, like Germany, the Netherlands, Austria, United Kingdom) and emerging markets.(countries that are experiencing significant growth (India, Russia, China, and others).

Currently, in July 2021, VT is about 60% US and 40% international.

Which One Is Best?

If you're in the United States, you're probably set with a United States Three-Fund portfolio, that includes some domestic, some international, and bonds.

If you're a non-US investor, your Three-Fund portfolio is probably best to be allocated towards something like a VTI + a global bonds fund.

You're Not Signing a Contract

Whichever one you choose, keep in mind that, with most brokerages, you can always close your position (for example, sell all your positions in VOO) and open a new position (for example, reallocating that money by buying VTI shares).

It's just really important that you don't pull out and then go into an period of analyzing.

Time in the market will always beat timing the market.

Where are you located, and which funds do you hold?

Disclaimer:  I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only.

This post may contain affiliate links, which means that I may receive a commission if you make a purchase using one of these links, such as from the Amazon Associates program.

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