E.g., VTI vs SCHB. VTI tracks the "CRSP US Total Market" index, while SCHB tracks the "DJ Broad US Market" index (note, this is not the same thing as the DJIA). Those indices are not comprised of disjoint subsets of the total stock market.
Additionally, large index funds have enough capital to just buy all of the components (100s-1000s) without sampling. Thirty funds doesn't really do it justice. It can also miss out on big winners, which is where lots of growth comes from.[1]
[0]: https://research.wealthfront.com/whitepapers/tax-loss-harves... [1]: http://www.efficientfrontier.com/ef/900/15st.htm
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,
2. Acquire substantially identical stock or securities in a fully taxable trade,
3. Acquire a contract or option to buy substantially identical stock or securities, or
4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.
Different ETFs tracking the same index (e.g., SWPPX and VOO) are likely to be determined substantially identical. (I don't know that the IRS issued guidance on this yet.)
Yes, they choose different indices precisely because of wash sale rules.
loeg points this out. Wealthfront doesn't do this either.
Instead of using a single ETF or Index Fund to invest in
U.S. stocks, Wealthfront's Tax-Optimized Direct Indexing
directly purchases up to 1,001 individual securities on
your behalf — up to 1,000 stocks from the S&P 500® and S&P
1500® Indices and an ETF of much smaller companies.
Analysis from bogleheads: https://www.bogleheads.org/forum/viewtopic.php?t=152903
The Dow 30 correlates highly with the S&P500 index over medium-long periods of times (approx more than a month) [1]. This correlation is due to the fact that the 30 stocks that are selected are arbitrary but not random. They are selected by a human process which considers which companies contribute an important factor to the overall market [2]. Of course this process will be imperfect because it's vague, however it gets pretty close.
Don't forget, according to findings from portfolio theory, it's possible to replicate an index with only a small subset of the components of that index [3]. There's a whole field of work describing how to do this [search google for 'replicating index'],
In fact, replicating an index with a small number of stocks is exactly how 'smart trading' companies like wealthfront and bettermint make money. They find multiple non-overlapping subsets of the S&P500 which correlate strongly with S&P500 performance. Then they buy subset A, and if a loss is incurred in any month, they sell subset A and buy subset B. Since A and B are highly correlated with each other (ideally r>.99) and with the S&P500, the investor should expect the same return in the future, however can book a capital loss which creates a tax refund. Shifting from subset A to subset B avoids a wash-sale allowing the capital loss to be recognized [4].
The Dow 30 is certainly not an optimal index, however it's a case study in showing how selecting the "top" companies for some reasonable definition of "top" will earn a return approx. equal to the market (represented by S&P500) no matter the strategy (in this case price-weighting instead of mkt cap weighting can be considered a strategy).
The reason it's cited so widely is that there's a lot of historical data on the Dow 30, whereas every other index is less reported.
[1] Yahoo Finance comparison of Dow 30 vs. S&P500 chart http://finance.yahoo.com/chart/%5EDJI#eyJjb21wYXJpc29ucyI6Il...
[2] Dow 30 index is built and maintained by a subsidiary of News Corp. https://en.wikipedia.org/wiki/S%26P_Dow_Jones_Indices.
[3] http://www.etf.com/etf-education-center/21038-how-to-run-an-...
[4] http://www.investopedia.com/terms/w/washsalerule.asp