Dow Jones U.S. Completion TSM Index

The Dow Jones U.S. Completion TSM Index is a broad stock market index that represents all U.S. stocks not included in the famous `S&P 500`. Think of it as “the rest of the U.S. stock market.” While the S&P 500 tracks the 500 largest American companies, this index picks up where it leaves off, covering thousands of `mid-cap` and `small-cap` companies. The “TSM” in its name stands for Total Stock Market, and it's called a “completion” index because when you combine it with the S&P 500, you get a comprehensive view of the entire U.S. equity market, as measured by the `Dow Jones U.S. Total Stock Market Index`. It's a powerful tool for investors looking to diversify beyond the well-known mega-corporations and tap into the performance of smaller, often more nimble, American businesses.

The construction is brilliantly simple. The index provider, `S&P Dow Jones Indices`, starts with its universe of all investable U.S. stocks (the Dow Jones U.S. Total Stock Market Index). From that massive list, they simply remove every company that is currently a member of the S&P 500. What's left over—typically over 3,000 stocks—forms the Completion Index. Like most major indexes, it is weighted by `float-adjusted market capitalization`. This means that within the index, the larger mid-cap companies have a greater impact on its movements than the smaller small-cap companies. This method ensures the index accurately reflects the collective value of the “other” part of the market.

Many investors' portfolios are dominated by the `large-cap` giants of the S&P 500. While these are fantastic, stable companies, they don't represent the full story of the American economy. The Completion Index offers a one-stop-shop for investing in the thousands of smaller public companies that are often more dynamic and have greater potential for growth. These are the businesses that might be the blue chips of tomorrow. By tracking this index, you gain exposure to a different segment of the market, which can behave differently from the large-cap segment, providing valuable `diversification`.

For a `value investing` practitioner, the Completion Index is more than just a passive investment vehicle. It offers several strategic advantages:

• A Rich Hunting Ground: The companies in this index receive far less attention from Wall Street analysts than the Apples and Amazons of the world. This lack of scrutiny can lead to market inefficiencies, creating a fertile environment for diligent investors to find `undervalued` businesses trading below their `intrinsic value`. You can use the list of the index's holdings as a starting point for your research.
• An Honest Benchmark: If you specialize in picking small- and mid-cap stocks, how do you know if you're any good at it? You can use an `Exchange-Traded Fund (ETF)` that tracks this index as a `benchmark`. If your hand-picked portfolio consistently outperforms the Completion Index, you're genuinely adding value. If not, you might be better off just buying the index itself.
• Smarter Diversification: Legendary value investor `Benjamin Graham` stressed the importance of a “margin of safety.” While typically applied to individual stocks, the concept can extend to portfolio construction. Diversifying beyond the 500 largest companies into the thousands of smaller ones adds a different kind of safety net, reducing your reliance on a relatively small number of mega-cap stocks.

You can't purchase an index directly, but it's easy to invest in it through funds designed to replicate its performance. The most common way is by purchasing an `index fund` or an ETF that tracks either this specific index or a virtually identical one (like the S&P Completion Index). A popular and widely available example is the Vanguard Extended Market Index Fund (available as both a mutual fund or an ETF with the ticker VXF). Buying a share of such an ETF is as simple as buying a stock, and it instantly gives you ownership in thousands of U.S. mid- and small-cap companies, putting the power of broad market diversification to work in your portfolio.