Investment Options: US Stocks

This is the latest post in a series covering investment selection. Each post covers an asset class, highlighting selection factors to consider and listing filtered investment options.

“Is the market up or down today?” A question like this implicitly refers to the US stock market, not the market for German government bonds or crude oil futures, because when people think of investments and the financial markets, most naturally think of US stocks. US stocks are, and should be, a core holding for most investors.

Although the S&P 500 and the Dow Jones Industrial Average are the most popular US stock indexes–there are dozens, if not hundreds, of funds that track them–I tend to prefer indexes that are less popular to avoid market effects that can reduce performance.

When investing in US stocks, you can concentrate on large companies like the two indexes above, or you can cover the market as a whole. The funds I list below are of the total market variety.

As with other asset classes, I prefer buying index funds and ETFs that hold hundreds of stocks instead of buying individual stocks myself, keeping costs low and diversifying as much as possible. So here are some of my basic requirements when selecting an investment for a given asset class:

  • Does it represent the asset class I’m looking for? The investment I select should give me exposure to all US stocks, beyond just large companies.
  • The investment should be low-cost. Obviously looking at the expense ratio is a great start. Additionally, a high turnover ratio can indicate excessive trading that incurs unnecessary transaction costs and capital gains taxes.
  • The fund manager must be committed to the product long term. ETF’s and index funds come and go all the time, so it’s best to stick with companies with a history of managing indexed investments. At the very least, make sure the investment you select is popular enough that it is an unlikely candidate for closure.

The following is a filtered list of ETFs and index funds that satisfies the criteria listed at the end of the post. Another factor to consider is that certain investments are commission-free depending on the broker you use. For example, if you have a Fidelity account, you can trade Fidelity funds and certain iShares ETFs without a commission.

Source: Morningstar, as of 11/23/2010
Name Ticker Fund Size ($MM) Net Expense Ratio (%) Turnover Ratio % # of Holdings
Schwab U.S. Broad Market ETF SCHB 355 0.06 2 1,488
Fidelity Spartan Total Market Index F FFSMX 10,298 0.07 7 3,095
Vanguard Total Stock Market ETF VTI 144,557 0.07 5 3,377
Vanguard Total Stock Mkt Idx Adm VTSAX 144,557 0.07 5 3,377
Schwab Total Stock Market Index SWTSX 1,471 0.09 5 2,274
Fidelity Spartan Total Market Index Inv FSTMX 10,298 0.10 7 3,095
Vanguard Total Stock Mkt Idx Inv VTSMX 144,557 0.18 5 3,377
iShares Dow Jones U.S. Index IYY 553 0.20 6 1,356
iShares S&P 1500 Index ISI 301 0.20 6 1,502


  • Fund size of at least $250MM
  • At least 1,000 holdings
  • Net expense ratio of 0.25% or less
  • Turnover ratio of 25% or less
  • Minimum initial investment of $10,000 or less
  • Available to the public without an advisor

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