"Total Stock Market" Index Funds
A New Fad or Investment Nirvana?                   Page 2

It should come as no surprise then that over the last 30 years the annual returns of the S&P 500 and the Wilshire 5000 index are within .10% of each other. The "Total Market Index" is really a large U.S. growth index: a wolf in sheep's clothing! Here's more proof using the CRSP¹ and Fama/French² data back to 1964.
It doesn't take a high-priced financial whiz to tell me that the total market index return is closer to the large growth stock-dominated S&P 500 then it is to large value, small growth, or small value stocks.
 

Now, let's consider the second premise: that investors will stick with a total market strategy for any length of time. In order to accept this premise, you have to believe that short-term performance, or cycles in asset class returns, will not influence investors, or that the total market approach will win most of these short-term cycles. If the past is any indication of the future³, you will be wrong on both counts. We have already shown that the total market index is basically a proxy for the S&P 500. How many investors do you know who have had 100% of their stock portfolio invested in the S&P 500 for more than four years? How many do you think will be invested 100% in the S&P 500 over the next five years? My guess on both counts: Zero.

Why do I believe this? Because, out of 32 consecutive four-year cycles since 1964, the total market index won only 10 times over a diversified portfolio of 25% S&P 500, 25% large value, 25% 6-10 small, and 25% small value. One of those ten times is the last four years and the margin of victory for the total market over this period is 2.5 times its previous high margin. The diversified portfolio, on the other hand, won 22 times and its winning margin exceeded the total market's current historically high margin in five different periods.

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