My employer informed us our 401k plan added a new index fund to the lineup. It used to have only an S&P 500 index fund. Now it added Fidelity’s Spartan Extended Market Index Fund.
100% of my money in the 401k plan is in the S&P 500 fund because it was the only index fund in the plan until this recent change. Now I’d like to move some of my money to this new fund to make my 401k holdings mimic the entire U.S. stock market (I have bonds and other investments elsewhere).
How much should I move?
The Spartan Extended Market Index Fund tracks the Dow Jones U.S. Completion Total Stock Market Index. This completion index tracks the total U.S. stock market minus what’s already in S&P 500. Therefore if I mix the S&P 500 fund with the extended market fund, I will get the total US stock market.
It shouldn’t be 50:50. Although there are only 500 stocks in the S&P 500 and there are more than 3,000 stocks in the extended market index, the 500 stocks in S&P 500 are large company stocks. Those 500 large company stocks make up a much larger part of the market than the large number of smaller company stocks. That’s why the S&P 500 index is often used as the benchmark for the US stock market. They are not quite the entire market, but the bulk of it.
The fact sheet for the Dow Jones Completion index says its total market capitalization is $2,967 billion. That means the values of all the stocks in the index add up to $2,967 billion. I then went to S&P’s website and found the market capitalization of the S&P 500 index, which is $12,092 billion. Altogether, S&P 500 makes up 12,092 / (12,092 + 2,967) = 80% of the total market.
I’m moving 20% of my money in the S&P 500 fund to the extended market fund. I’m also changing the allocation for future contributions to 80% to the S&P 500 fund and 20% to the extended market fund.
See All Your Accounts In One Place
Track your net worth, asset allocation, and portfolio performance with free financial tools from Personal Capital.