Dow Jones Completion Index: Guide to Extended Market Investing

For many individual investors, the S&P 500 is the default proxy for the United States stock market. It is home to massive, household-name multinational corporations like Microsoft, Apple, and Nvidia. However, the S&P 500 only represents roughly 80% to 85% of the total U.S. equity market capitalization. By investing solely in it, you completely miss out on thousands of small-cap, mid-cap, and micro-cap companies that represent the remaining share of the American economy.

This is where the Dow Jones Completion Index comes into play. Often referred to as an "extended market" index, this benchmark is designed to capture everything in the U.S. stock market except the constituents of the S&P 500.

Understanding how the Dow Jones Completion Index works, how it differs from other benchmarks, and how to invest in it can help you construct a truly comprehensive, diversified equity portfolio.

What is the Dow Jones Completion Index?

The Dow Jones U.S. Completion Total Stock Market Index is a float-adjusted, market-capitalization-weighted index. Its primary objective is simple: to measure the performance of all actively traded U.S. common stocks, excluding those included in the S&P 500 Index.

Historically, this index has deep roots. Many seasoned investors still refer to it by its legacy name: the Dow Jones Wilshire 4500 Completion Index. In 2009, Dow Jones Indexes and Wilshire Associates ended their partnership, leading to the creation of the independent Dow Jones index family we use today. Despite the name changes over the decades, the core philosophy remains identical: it is the "rest of the market."

Because it excludes the mega-cap giants of the S&P 500, the index is naturally composed of:

Mid-Cap Stocks: Established mid-sized companies with market capitalizations typically between $2 billion and $10 billion.
Small-Cap Stocks: Growing businesses with market capitalizations between $300 million and $2 billion.
Micro-Cap Stocks: Highly volatile, early-stage companies with market capitalizations under $300 million.

By tracking the Dow Jones Completion Index, you gain exposure to the innovators, regional leaders, and emerging disruptors that are too small to be included in the S&P 500 but are vital components of the broader economic landscape.

S&P 500 vs. Dow Jones Completion Index: The Mathematical Relationship

To understand the Dow Jones Completion Index, you must look at it as one half of a complete puzzle. The other half is the S&P 500. Together, they form a complete picture of the U.S. investable equity market.

$$\text{S&P 500} + \text{Dow Jones Completion Index} = \text{Dow Jones U.S. Total Stock Market Index}$$

If you own a fund that tracks the S&P 500 and another fund that tracks the Dow Jones Completion Index in their appropriate market-cap proportions, you effectively own the entire U.S. stock market. This mathematical relationship allows investors to build a synthetic "Total Stock Market" portfolio using two distinct building blocks.

Feature	S&P 500 Index	Dow Jones Completion Index
Market Cap Focus	Large-Cap & Mega-Cap	Mid, Small, and Micro-Cap
Approx. Market Coverage	~80% to 85% of U.S. market cap	~15% to 20% of U.S. market cap
Number of Holdings	500 (approx. 503 share classes)	3,000+ constituent stocks
Volatility Profile	Moderate / Standard	Higher / Elevated
Primary Purpose	Large-cap core exposure	Extended market completion
Popular Fund Tracker	Vanguard S&P 500 ETF (VOO)	Fidelity Extended Market Index Fund (FSMAX)

The "Feeder System" Mechanics of the Index

One of the most fascinating aspects of the Dow Jones Completion Index is its role as a "feeder system" for the S&P 500.

When a company is small or mid-sized, it resides in the Completion Index. As the company grows, increases its market capitalization, and meets the strict profitability criteria required for S&P 500 inclusion (such as four consecutive quarters of positive GAAP earnings), it may be selected by the S&P Index Committee to join the flagship index.

When a company is added to the S&P 500, it is simultaneously removed from the Dow Jones Completion Index.

The Historical Example of Tesla

Tesla (TSLA) spent years as a major constituent of the extended market index. As the company’s valuation soared, investors who held a completion index fund captured that massive run-up from a mid-cap entity to an absolute giant. When Tesla was finally added to the S&P 500 in December 2020, it graduated out of the completion index.

By holding a completion index fund, you ensure that you own the "next Tesla" or the next major market disruptor during its high-growth, pre-S&P 500 phase.

Why Investors Utilize a Completion Index Strategy

There are several strategic reasons why institutional and retail investors allocate capital specifically to the Dow Jones Completion Index rather than simply buying a pre-packaged Total Stock Market fund.

1. Avoiding Overlap and Redundancy

Many employer-sponsored retirement plans, such as 401(k)s, offer limited investment options. Frequently, these plans will feature an S&P 500 index fund as their primary equity option, but will lack a true Total Stock Market fund.

If you want to diversify into small and mid-caps, adding a generic small-cap or mid-cap fund can lead to messy overlaps. A completion index fund is surgically designed to have exactly 0% overlap with the S&P 500, ensuring clean portfolio construction without redundant holdings.

2. Customizing Market-Cap Tilts

A standard Total Stock Market index fund weights everything by market capitalization. Because mega-caps are so dominant today, your exposure to small and mid-caps in a total market fund is relatively small (around 15%).

By holding the S&P 500 and the Dow Jones Completion Index in separate funds, you can customize your exposure. If you believe small and mid-cap stocks are undervalued and want to "tilt" your portfolio toward them, you can increase your allocation to the completion index (e.g., a 70/30 split instead of the market-weight 80/20 split).

3. Capturing the Small-Cap Premium

Academic financial research, pioneered by Eugene Fama and Kenneth French, suggests that over long time horizons, smaller companies tend to outperform larger companies to compensate investors for taking on higher volatility and liquidity risk. This is known as the "size premium." The Dow Jones Completion Index is a highly efficient vehicle for capturing this premium across thousands of diversified holdings.

How to Invest: FSMAX vs. VXF

Because the Dow Jones Completion Index is an index, you cannot invest in it directly. Instead, you must use mutual funds or Exchange-Traded Funds (ETFs) designed to replicate its performance.

There are two primary heavyweights in this space that investors utilize. While they track slightly different underlying completion benchmarks, they are functionally equivalent for retail portfolios.

1. Fidelity Extended Market Index Fund (FSMAX)

Underlying Index: Dow Jones U.S. Completion Total Stock Market Index
Expense Ratio: 0.035%
Structure: Mutual Fund
Suitability: Excellent for Fidelity brokerage accounts, IRAs, and 401(k) plans where mutual fund trading is preferred.

FSMAX is a direct tracker of the Dow Jones index. With an incredibly low expense ratio, it represents one of the cheapest ways to gain exposure to the entire extended U.S. market.

2. Vanguard Extended Market ETF (VXF)

Underlying Index: S&P Completion Index
Expense Ratio: 0.06%
Structure: ETF (also available as a mutual fund, VEXAX)
Suitability: Ideal for taxable brokerage accounts due to ETF tax efficiency, and for investors who prefer intraday trading.

Note on Nuance: VXF tracks the S&P Completion Index rather than the Dow Jones Completion Index. However, the correlation between these two indexes is virtually 1.00. The S&P Completion Index also tracks U.S. equities excluding the S&P 500. The minor differences in their optimization methodologies have historically resulted in negligible performance variations.

Building and Rebalancing a Synthetic Total Market Portfolio

If you want to construct your own Total Stock Market portfolio using an S&P 500 fund and a Dow Jones Completion Index fund, you must determine the correct allocation ratio and establish a disciplined rebalancing routine.

Step 1: Determine Your Target Allocation

As of recent market valuations, the S&P 500 makes up roughly 82% of the total investable U.S. market, while the extended market makes up the remaining 18%.

To replicate the total market, you would allocate:

82% of your U.S. equity portion to an S&P 500 fund (e.g., FXAIX, VOO, or SPY).
18% of your U.S. equity portion to a Completion Index fund (e.g., FSMAX or VXF).

Step 2: Choose a Rebalancing Schedule

Because small-cap and large-cap stocks perform differently over time, your allocation will drift. If small-caps have a spectacular year, your completion index allocation might rise to 22%. If large-caps dominate, it might fall to 14%.

To keep your risk profile aligned with your goals, choose one of two rebalancing methods:

Calendar Rebalancing: Check and adjust your portfolio back to your target weights once or twice a year (e.g., every June and December).
Threshold Rebalancing: Rebalance only when the allocation drifts by more than a set percentage (e.g., a 5% absolute drift from your target).

Step 3: Implement Tax-Efficient Rebalancing

If you are doing this in a taxable brokerage account, selling winners to buy losers can trigger capital gains taxes. To avoid this, try to rebalance "dynamically" by directing new retirement contributions or dividend reinvestments toward the underweighted fund until the target ratio is restored.

Risks and Drawbacks of the Completion Index

While the Dow Jones Completion Index offers superb diversification benefits, it is not without risks. Investors should be aware of several factors before making a significant allocation:

High Volatility

Smaller and mid-sized companies generally have less diversified revenue streams, smaller cash reserves, and higher debt-to-equity ratios than mega-cap multinationals. Consequently, during market downturns or economic recessions, the Dow Jones Completion Index will typically experience deeper drawdowns and higher volatility than the S&P 500.

Reconstitution Drag and Index Front-Running

When a large, successful company is added to the S&P 500, index-tracking funds are forced to buy billions of dollars of its stock. Simultaneously, completion index funds are forced to sell their holdings of that company. Because these additions and deletions are announced in advance, active traders sometimes front-run these trades, potentially creating a minor transaction drag on the index's performance.

Quality and Profitability Variance

Unlike the S&P 500, which requires companies to be consistently profitable before they can be added, the Dow Jones Completion Index includes many early-stage, unprofitable companies, biotechnology startups, and speculative SPACs (Special Purpose Acquisition Companies). This means you are buying a basket that includes some fundamentally weak businesses alongside high-growth winners.

Summary: Should You Add a Completion Index Fund to Your Portfolio?

The Dow Jones Completion Index is an exceptional financial tool for investors seeking comprehensive exposure to the U.S. economy. If your current investment strategy is heavily concentrated in the S&P 500—whether by choice or due to the limitations of an employer-sponsored 401(k) plan—incorporating an extended market fund like FSMAX or VXF is one of the easiest, most cost-effective ways to immediately diversify into thousands of mid, small, and micro-cap companies.

By systematically pairing large-cap stability with extended-market growth potential, you build a resilient, forward-looking portfolio poised to capture the full spectrum of American corporate innovation.