A Look at the Performance of Total Stock Funds

Total stock funds are a unique type of investment that many investors have turned to. Here are the basics of the total stock fund and how they have historically performed.

Total Stock Funds

A total stock fund is a mutual fund or ETF that attempts to purchase a very large number of stocks. In fact, total stock funds try to own every single stock that is traded on a stock exchange. For example, a total stock fund might look at the New York Stock Exchange and then purchase shares of every stock that is traded there. This makes them even larger than index funds because index funds typically only invest in a certain percentage of the biggest companies in an index.

Volatility

Many investors like to invest in index funds because of their relatively low volatility. Index funds tend to move with the stock market which provides you with slow movements. With a total stock fund, you are going to get even less volatility than if you were to invest in an index fund. If you think that an index fund is still too risky or volatile for you, the total stock fund might be a good alternative.

Long-Term Implications

The total stock fund should be considered to be a long-term investment. With this type of fund, you will be able to accurately duplicate the movement of the stock market. Historically, the market has always trended upwards. If you look at the long-term performance of the stock market, it always appreciate in value. If you can accurately duplicate this performance, you will have a winning investment over the long-term. The stock market is also subject to short-term decreases in value as well. This is why trying to time the purchase of a total stock fund will usually not provide you with very good results.

Performance

This type of fund is extremely diversified. This means that you will be able to lower the risk of your overall investment. However, this is also going to lower the potential returns from investment as well. With this type of fund, you should expect slow and steady growth with occasional rapid movements. After a stock market crash, you could potentially make a substantial return when the market rebounds.

Over a period of five years, you might expect to earn somewhere in the neighborhood of 3 percent to 6 percent on your investment. Some annual returns could be significantly more than this when the stock market is moving upward rapidly.

Compared to Index Funds

The total stock fund does use some weighting in order to determine which stocks they will hold more of in the fund. They do not use the same degree of weighting that index funds do. This means that the returns will be slightly different from what an index fund will generate. Typically, the movement of a total stock fund will be less pronounced than an index fund. If an index fund loses money, a total stock fund might lose a fraction of a percent less. Likewise, when the index fund increases in value, the total stock fund will also increase but at a slightly lower percentage.

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