When most investors think about buying "the market," they probably have the S&P 500 index (SNPINDEX: ^GSPC) in mind. But that's not the market -- it's just 500 or so hand-selected large and economically representative companies. If you want to own the market, you'll have to consider an exchange-traded fund (ETF) like the Vanguard Total Stock Market ETF (NYSEMKT: VTI) or the SPDR Portfolio S&P 1500 ETF (NYSEMKT: SPTM). They are not interchangeable, and in the end, one may be even better than the S&P 500 index.

The best way to buy "the market"

It would be virtually impossible for most investors to go out and buy 500 stocks, let alone 1,500 or 3,598 (more on this strangely precise number in a second). So the only real option for buying the market is to buy a pooled investment vehicle like a mutual fund or an ETF. Given the many benefits of exchange-traded funds, including ultra-low costs and all-day trading, ETFs are likely to be the go-to option.

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Image source: Getty Images.

But when you are looking to buy "the market," you have to actually decide what that means. The S&P 500 index is a good starting point, but it is a list of roughly 500 companies that have been selected by a committee to be representative of the U.S. economy. The stocks in this index, which can be bought via the Vanguard S&P 500 ETF (NYSEMKT: VOO), make up around 80% of the market cap of all U.S. stocks. That's a lot of the market, but it isn't all of the market.

The rest of the market is largely made up of small and medium-sized companies. However, there will also be large companies that didn't make it past the committee process for some reason, which often includes financial troubles of some sort. But all of these companies add diversification for investors who truly want to own "the market." This is where the Vanguard Total Stock Market ETF and the SPDR Portfolio S&P 1500 ETF come in.

Extending the theme and just buying it all

The SPDR Portfolio S&P 1500 ETF is basically a cousin to the S&P 500 index. It owns the S&P 500, plus the S&P MidCap 400 Index and the S&P SmallCap 600 Index. Add it all up, and you get roughly 1,500 stocks that account for around 90% of the market cap of all U.S. stocks. All three of these indexes follow the same basic committee approach, though the S&P 500 gets the most scrutiny.

Still, that's not all of the market. The Vanguard Total Stock Market ETF gets you much closer, with 3,598 holdings. That said, there's no screening process here other than the stock being traded on a U.S. exchange. Like the S&P options, the Vanguard Total Stock Market ETF is market cap weighted, so the largest stocks have the most effect on the ETF's performance. However, adding in those extra 2,000 or stocks has made a big difference on the performance front.

SPTM Total Return Price data by YCharts.

As the total return chart above highlights, the Vanguard Total Stock Market ETF has outperformed both the S&P 500 index and the S&P 1500 index over the longer term. In other words, when you buy the market, all of those extra stocks -- around 20% of the overall market cap of the U.S. market -- appear to add value. Notably, cherry-picking stocks with a committee doesn't appear to help all that much.

If you want "the market," think bigger

If you say you own the market and you only own the S&P 500 index, you don't actually own the market. If history is any guide, owning as much of the market as possible appears to have a performance benefit. That's why index investors should probably take a closer look at the Vanguard Total Stock Market ETF. You may decide to stick with the S&P 500 and its committee approach, but you should at least look at your other, and possibly more attractive, options.

Should you invest $1,000 in Vanguard Total Stock Market ETF right now?

Before you buy stock in Vanguard Total Stock Market ETF, consider this:

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Could investing in a simple, low-fee S&P 500 index fund today set you up for life? You may not want to know the answer. You may prefer to hunt for exciting growth stocks instead. But I'm here to tell you that regularly plunking meaningful sums in an S&P 500 index fund can do wonders over long periods.

Even Warren Buffett has endorsed S&P 500 index funds, stipulating in his will that much of what he leaves his wife should go into one. Here's a look at why you might consider investing in an S&P 500 index fund, too.

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Image source: Getty Images.

Meet the S&P 500 index

An S&P 500 index fund is an index fund that tracks the S&P 500 -- an index (a grouping) of 500 of the biggest companies in the U.S. The fund will hold roughly or exactly the same stocks in roughly the same proportion, aiming for roughly the same performance -- less fees. And there are some very low fees out there.

Here are the recent top 10 components in the index by weight:

Data source: Slickcharts.com, as of April 16, 2025.

It's worth noting that this index is a market-capitalization-weighted one, meaning that the biggest companies in it will move its needle the most. For example, you can see in the table above that Microsoft's weighting is about four times that of Tesla, so Microsoft's stock-price moves will make a much bigger difference in the index than will Tesla's. Of course, these are still the top 10 components. General Mills is also in the index, recently in 255th place, and with a weighting of just 0.07%. Toy company Hasbro, in 488th place, recently had a weighting of 0.02%.

Altogether, these 500 companies make up about 80% of the total value of the U.S. stock market. Thus, the S&P 500 is often used as a proxy for the market. It's mainly made up of giant, large, and medium-sized companies, though. If you want a more accurate proxy, you might opt for a broader index fund, such as the Vanguard Total Stock Market ETF (NYSEMKT: VTI), which aims to include all U.S. stocks, including small and medium-sized ones, or the Vanguard Total World Stock ETF (NYSEMKT: VT), encompassing just about all the stocks in the world.

Why invest in an S&P 500 index fund?

Here's a top-notch S&P 500 index fund to consider -- the Vanguard S&P 500 ETF (NYSEMKT: VOO). Its expense ratio (annual fee) is a mere 0.03%, meaning that for every $1,000 you have invested in the fund, you'll pay an annual fee of... $3.

Why invest in such a fund? Well, because it can perform really well over time and it's way easier to just keep adding money to it than to spend time studying investing and scouring the stock market for the best investments. Instead of looking for a few needles in a haystack, buy the haystack!

Owning shares of an S&P 500 index fund means you'll quickly own (small) chunks of 500 of the biggest companies in America -- and as some companies grow and others shrink over time, the index will be adding and dropping components accordingly.

The table below shows how big a nest egg you might build over time in an S&P 500 index fund, if your money grows at 8%. For context, the S&P 500 has averaged annual gains of around 10% over many decades -- including dividends and not including the effect of inflation. So using 8% is a mite conservative.

Source: Calculations by author.

If that's not convincing enough, know that you probably can't do as well with some other, managed large-cap stock mutual fund. The S&P 500 index has actually outperformed most such funds, which tend to be run by highly trained financial professionals working hard to outperform the index. Over the past 15 years, for example, the S&P 500 bested 89.5% of all large-cap funds.

Whether you opt for a low-fee S&P 500 index fund or not, be sure to have a solid retirement plan, and to be saving and investing in order to have a comfortable financial future.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Selena Maranjian has positions in Alphabet, Amazon, Apple, Berkshire Hathaway, Broadcom, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard S&P 500 ETF, and Vanguard Total Stock Market ETF. The Motley Fool recommends Broadcom and Hasbro and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.