S&P 500 vs Total Market vs World Index: What's the Difference?

S&P 500, total US market and global index funds in plain English: what's inside each, how they overlap and what to ask yourself before choosing.

The three index types beginners see most. What's inside the S&P 500, a total US market fund and a global fund, and how to think about choosing.

If you start looking at index funds, three ideas keep showing up: the S&P 500, the total US stock market and the whole world. Each is an index, a list of companies used to measure how part of the stock market is doing, and an index fund simply copies that list. This guide explains what's inside each one, how much they overlap and what to ask yourself before choosing.

Key takeaways

The S&P 500 holds about 500 large US companies.
A total US market index adds thousands of mid-size and small US companies on top of those.
A global (world) index spreads money across the US plus other developed and emerging countries, though the US is a large share of it.
They overlap more than people think. The real question is how much you want to depend on one country and on the biggest companies.

1. What an index is

An index is a list of companies with rules for who gets in and who gets out. You can't buy an index directly. What you buy is a mutual fund or an ETF (exchange-traded fund) that copies it.

If an index rises 10% in a year, a fund tracking it rises slightly less than 10%, because the fund charges a yearly fee called the expense ratio. That's why fees matter so much: they're the main thing separating your result from the index.

Most of these indexes are market-cap weighted. Market capitalization (market cap) is a company's total stock market value. The bigger the company, the more of your money goes into it. So a handful of giant companies can make up a large share of the fund.

2. The S&P 500

The S&P 500 groups about 500 of the largest companies listed in the US. Inside are names you know, such as Apple, Microsoft, Amazon and Johnson & Johnson. A committee picks the members using rules about size, profitability and other criteria.

VOO and FXAIX are examples of the kind of fund that tracks this index (an ETF and a mutual fund, respectively). They're mentioned to show the type of vehicle, not as recommendations.

Pros: very large, closely followed companies with lots of public information. It's the index most people mean when they say "the market."
Watch out: it's large companies from one country. Mid-size and small US companies aren't included, and neither is the rest of the world.

3. The total US stock market

A total market index aims to cover nearly every publicly traded US company: the large ones from the S&P 500 plus thousands of mid-size and small companies. VTI is an example of this type of fund.

Because it's market-cap weighted, the large companies still dominate. The S&P 500 companies make up most of a total market fund's value, so in a typical year the two move very similarly. The difference is the extra slice of smaller companies, which sometimes do better and sometimes worse than the giants.

Pros: one fund covers essentially the whole US market, including smaller companies.
Watch out: it's still a single-country bet.

4. A world (global) index

A global index includes companies from the US and from other countries: developed markets such as Japan, the UK, Canada, France, Germany and Switzerland, and often emerging markets such as India, Brazil or Taiwan. VT is an example of a fund that tracks a global "all-world" index. VXUS is an example of the opposite piece: a fund of non-US stocks only, which some people pair with a US fund.

Pros: you spread your money across many countries, economies and currencies. If one country goes through a long rough patch, others can help balance it.
Watch out: because it's weighted by market value and US companies are the largest in the world, the US is still a big share of a global fund. Check a fund's current country breakdown on its fact sheet. Some global indexes include emerging markets and some don't; read what you're buying.

5. How much they overlap

More than online forums suggest. The largest holdings of a global fund look a lot like the largest holdings of the S&P 500, because many of the world's biggest companies are American. A total market fund contains the whole S&P 500 inside it.

	S&P 500	Total US market	Global (all-world)
What's inside	About 500 large US companies	Large, mid-size and small US companies	US plus international, developed and often emerging
Number of companies	About 500	Thousands	Thousands
Countries	US only	US only	Many
Example vehicles	VOO, FXAIX	VTI	VT (or a US fund plus VXUS)

Holding an S&P 500 fund and a total market fund together mostly means buying the same companies twice.

6. How to choose

There's no single "best." Ask yourself:

Do you want to depend on one country? If not, a global fund, or a US fund plus an international fund, spreads things out more.
Do you want smaller companies? A total market fund includes them; the S&P 500 doesn't.
What's the expense ratio? Between two funds tracking the same index, the cheaper one starts ahead.
Mutual fund or ETF? Both can work. Mutual funds make automatic dollar-amount investing easy; ETFs trade during the day and work well if your brokerage offers fractional shares.
Which account? In a taxable account, ETFs are often more tax-efficient, meaning they tend to pass fewer taxable capital gains to you. Inside a 401(k) or IRA, that matters less. Your 401(k) may also offer only a short list of funds, so you choose from what's on the menu.

Whichever you choose, what matters most is holding it for many years and keeping your contributions going.

Common mistakes

Choosing based on the last five years of returns, as if they'll repeat.
Buying two or three overlapping funds and thinking you've diversified.
Looking at the name of the index and not the fund's expense ratio.
Switching between them every time one does better, often selling in a taxable account and paying taxes along the way.

Checklist

I know which index the fund tracks and which countries and company sizes it includes.
I've compared expense ratios across a few options.
I know whether it's a mutual fund or an ETF and which account I'll hold it in.
I plan to hold it for years, not months.

Frequently asked questions

Can I own more than one?

You can, but much of what you buy repeats. If you want to spread things out, adding something different, such as an international fund, makes more sense than doubling up on US large companies.

Which one has done better in the past?

It depends on the period you look at. US stocks have had stretches of beating the rest of the world and stretches of lagging. What happened before doesn't mean it will keep happening.

Do I need a lot of money?

No. Many brokerages offer fractional shares or low minimums, so you can start with small amounts in any of these.

Is an S&P 500 fund "diversified enough"?

It holds hundreds of companies across many industries, so it's far more diversified than a few individual stocks. But it's all large US companies. Whether that's enough is a personal decision about how much single-country risk you're comfortable with.

An index isn't a bet on one company; it's a way to own a small piece of many at once. This article is educational and is not investment advice.

See it with real companies

Each of these pages shows the company's dated figures and how it compares with its sector:

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An article from the Fintols blog, adapted for US investors. Educational content, not investment advice.