A total stock fund is an exchange-traded fund or mutual fund that attempts to include shares of stock that represent every security traded on a given exchange, or focuses on all stock offerings associated with a given nation or region of the world. The idea behind this type of investment approach is that the broad range of securities included in the fund help to insulate investors from losses that may be incurred by some of the holdings with gains that are produced by other holdings. Considered a long-term investment strategy, the total stock fund is usually anticipated to provide consistent and equitable returns over the years.
Proponents of the total stock fund approach see this strategy as an excellent way to limit the overall volatility associated with investing in a given fund. Since the securities connected with the fund are so varied, the potential for sustaining a loss is greatly minimized. Outside of a global economic collapse that brings all types of businesses to a halt, this type of broad-based index fund is highly likely to earn some type of return, even if several industry groups represented in the fund’s assets are performing under par for extended periods of time.
The relative stability of the total stock fund makes it attractive to investors who want steady, incremental growth over the years, without the need to manage their investments closely. Since there is some expectation of fluctuation from one period to the next, investors are usually prepared to see their holdings post higher returns at times, and lower returns at other times. Over the long-term, the average return is likely to be significant, although not especially spectacular.
While acknowledging the somewhat lower volatility of the total stock fund, not all investors see this as the most prudent approach. Just as the potential for loss is minimized, the possibility for earning higher returns is also impacted. For this reason, investors who are willing to assume more risk will often prefer other investment strategies that do carry more volatility, but also offer the chance to earn greater profits for their efforts.
While the goal of a total stock fund is to acquire shares of all the securities traded on a particular exchange, or shares of all businesses operating within a specific region, this is not always possible. Generally, a fund can manage to secure a high percentage of available securities. It is not unusual for a total stock fund to represent at least 95% of the securities traded within the targeted marketplace, with that percentage fluctuating based on the availability of securities not currently included in the fund’s portfolio.