This Low-Cost ETF Is Not the Same as "Buying the Dow." It Might Be Better.

If you're trying to follow the latest stock market news, the Dow Jones Industrial Average is one of the most common benchmarks. Known as the Dow, the DJIA is a collection of 30 U.S. stocks from a range of industries. The components of the Dow are generally considered to be "blue chip" stocks of large companies that are important to the overall U.S. economy, and their performance is a widely used barometer of the stock market.

If you want an easy way to buy the Dow, you might want to consider investing in the SPDR Dow Jones Industrial Average ETF Trust (NYSEMKT: DIA). This fund holds all 30 stocks from the Dow and charges a modest expense ratio of 0.16%. But the Dow doesn't always beat the market. Over longer-term timeframes of the past five and 10 years, this Dow ETF has underperformed the S&P 500 index.

DIA Total Return Level data by YCharts

Instead of buying the Dow in the form of the 30 stocks of the DJIA, a smarter choice for long-term investors might be the Schwab U.S. Broad Market ETF (NYSEMKT: SCHB). This is one of the best total stock market ETFs. Instead of only 30 stocks, the Schwab ETF lets you track the performance of the 2,500 largest publicly traded U.S. companies that make up the entire Dow Jones U.S. Broad Stock Market Index.

Let's look at these two U.S. stock ETFs and see if the Schwab U.S. Broad Market ETF is a better choice for your money than buying the Dow.

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SPDR Dow Jones Industrial Average ETF Trust: 28 years of 9.13% annualized returns

Buying blue chip stocks can be a smart strategy. Those companies tend to be stable and steadily profitable and pay good dividends. The SPDR Dow Jones Industrial Average ETF owns a portfolio of 30 well-known U.S. companies. Its top 10 stock holdings include major names like Goldman Sachs (11.6% of the fund), Microsoft (4.4%), Alphabet Class A shares (4.1%), Visa (3.99%), and Home Depot (3.98%).

This Dow Jones ETF has been around since January 1998. In the 28 years since its inception, the SPDR Dow Jones Industrial Average ETF Trust has delivered average annual returns (by net asset value) of 9.13%. That's a solid return, but it has slightly underperformed the S&P 500 index since its inception, and in the past five years.

The Schwab U.S. Broad Market ETF: 2,354 stocks, 16 years of 14.54% annualized returns

One drawback of buying the Dow Jones Industrial Average ETF is that it only holds 30 stocks. There's no guarantee that any portfolio of 30 stocks will outperform the broader U.S. stock market in the long run. Instead, buying the Schwab U.S. Broad Market ETF could be a better bet for many long-term investors.

This Schwab ETF holds a portfolio of 2,354 stocks across a broad range of industries. The top five sectors are information technology (31.06% of the fund), financials (12.91%), industrials (10.3%), healthcare (9.94%), and consumer discretionary (9.87%). That broad diversification has helped this index fund slightly outperform the S&P 500 in the past year.

The SCHB fund's top 10 stock holdings are all major tech names. The top five stocks in the portfolio are:

• Nvidia: 6.5% of the fund.
• Apple: 6.25%.
• Alphabet: 5.23%, combining Class A and Class C shares.
• Microsoft: 4.00%.
• Amazon: 3.27%.

The Schwab fund hasn't been around as long as the Dow Jones Industrial Average ETF. The Schwab U.S. Broad Market ETF was established in November 2009. In the 16 years since its inception, the Schwab fund has delivered average annual returns of 14.54% (by net asset value). And it charges a rock-bottom expense ratio of 0.03%.

In the past 10 years, this Schwab fund has outperformed the SPDR Dow Jones Industrial Average ETF Trust but has underperformed the S&P 500 index.

SCHB Total Return Level data by YCharts

Why buy SCHB instead of DIA?

Buying the Dow can be a solid choice if you want an easy way to own a mix of well-known blue chip stocks. But there's no guarantee that this widely watched stock market benchmark will outperform the rest of the stock market. Buying the Schwab U.S. Broad Market ETF offers a much more diversified portfolio of more than 2,300 stocks, instead of just 30.

The Dow is worth paying attention to, and the SPDR Dow Jones Industrial Average ETF Trust owns some great stocks. But based on its broader diversification and lower fees, buying the Schwab U.S. Broad Market ETF could be a better choice for most long-term investors.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Goldman Sachs Group, Home Depot, Microsoft, Nvidia, and Visa. The Motley Fool has a disclosure policy.