Financial Well-being

Vanguard Total Stock Market Index etf (VTI) is ETF based on CRSP Total stock market model developed by top UChicago economists. It is a combined index of top 2500 stocks (based on market cap) representing almost 95% of the market cap of total stock market. Vanguard Total Stock Mkt Idx Adm (VTSAX) is underlying mutual fund for this ETF. If one wants to do automatic periodic monthly investment, one should buy VTSAX instead (as most of brokerage allow periodic investment in mutual fund only ). Money invested in a given company is proportional to their market cap weightage and so giant and large cap ones get most of money (70%) and rest goes to mid caps and small caps. S&P 500 based large cap stocks represent approx 70-75% of total domestic stock market capitalization and so investing into a mutual fund/etf based on this index provides a broad large cap  coverage for sure. However remaining 25-30% domestic stocks fall into mid cap (15-20%) and small cap (10-15%) market cap. ...

Well known passive indices, such as Total Stock market index, seem to outperform active  funds by following one simple concept: Follow the leaders  in stock equities and allocate money proportional to how good they are doing. One of the simplest measure of success for a company is it's market cap . Accordingly, most indices allocate money to top n (as measured by market cap) companies in proportion to their market cap. Since industries (and it's associated leaders) change with time , it's pertinent to not get emotionally attached to any company. Investors tend to hang onto their losses from past leader holdings due to sunken cost fallacy. Similarly they tend to chase high flyers during boom times due to investor psychology called herd investing.  An emotionless data driven  index does not become victim to any of these investor psychology and keeps recalibrating  itself as leaders become laggards and new leaders emerge. There are several indices representing suc...