S&P 500 Index Fund vs Total Stock Market Index Fund

[cozmopak]

Does it make sense to own both?  For instance, VFIAX and VTSAX?

[TheAbacus]

VTSAX gives you some exposure to mid, and small caps, but it is still predominantly large cap (like VFIAX) - so intentionally buying both might not be required. However, most people who perform tax loss harvesting will end up having some portion of both funds in their portfolio (VTSAX and VFIAX are considered TLH partners).

[jhwkr542]

Really only makes sense to me for tlh purposes or if that's what you're stuck with in different retirement accounts. For my money, I prefer more diversification and thus prefer vtsax. But there's so much overlap between the two that I wouldn't buy some of each unless either of the above two scenarios above apply (which they often do, especially for docs with taxable accounts).

[cozmopak]

Is there an article where I can read about tax loss harvesting and understand why owning both of these funds would aid in TLH?

[Peds]

I'm sure there is. Also lots of posts on bogleheads. You need to look up wash sales and substantially identical...Then you'll understand.

[jhwkr542]

https://www.bogleheads.org/wiki/Tax_loss_harvesting

[PHANTASOS]

I own s&p500 in pre-tax retirement accounts - and I allow dividends to reinvest.

In taxable I own total stock market and vanguard large cap index which I use as tax-loss-harvesting partners - of course I do not automatically reinvest dividends in these accounts. This works out nicely since I have access to an inexpensive s&p500 fund in retirement accounts and I feel like the vanguard large cap index is a (slightly) better tax-loss-harvesting partner with TSM than the s&p500 is.

The last time I checked, s&p500 was about 82% of total stock market, while vanguard large cap index was about 90% of tsm. Visually, if you compare charts of the three funds (tsm, s&p500, large cap index), there is virtually identical performance for years at a time.

[TheAbacus]

cozmopak wrote:

Is there an article where I can read about tax loss harvesting and understand why owning both of these funds would aid in TLH?

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The presence of both funds in a portfolio is generally the RESULT of tax loss harvesting. PoF has an excellent article on this, where he talks about a successful tax loss harvest due to market fluctuations occurring at the time of the EU-Britain referendum (ie. Brexit).

[Craigy]

On the diversification front, either one is a very broad selection of stocks, so you're well diversified holding just one or both.

But also on the diversification front, as others mentioned, you're going to see that they move more or less together.

[RetiredERdoc]

I tlh'd out of total stock market into the S&P after the 2008 crash, and  still have tsm in tax deferred accounts. Also, many do not have tsm in their 401k but have s&p, so they invest in tsm in taxable and s&p in retirement accounts.

[TheAbacus]

RetiredERdoc wrote:

I tlh’d out of total stock market into the S&P after the 2008 crash

Click to expand...

Does tax loss harvesting still help when you have no taxable gains to offset in a given year? I'm assuming that most people have little to no gains in a market crash. I might be mistaken.

[q-school]

We carried losses forward for several years if memory serves

[DMFA]

S&P 500 is about 86% large, 14% mid as per Morningstar. TSM includes the next 2500 largest stocks (Russell 3000) which is about 70% large, 20% mid, 10% small. Going by market capitalization, the 500 make up about 80% of the 3000, so holding a 4:1 ratio of a 500 fund and an extended market fund (usually about 50/50 mid/small) essentially re-creates the Russell 3000/TSM.

R² is over 98% between the two anyway.