Over long periods of time, investing in stocks has enabled ordinary people build substantial amounts of wealth. A key problem with stock picking, however, is that not every stock turns out to be a winner, and you often can't tell which ones will turn out to be duds before it's too late to do anything about it. Populate your portfolio with too high a proportion of losers, and the money you hoped to accumulate by the time you retire simply won't be there for you.
That's what makes the Vanguard Total World Stock Index ETF (VT 0.10%) such a compelling potential investment. By buying shares in a broad, globally diversified pool of stocks from nearly every corner of the globe, that exchange-traded fund takes away the need to try to separate the winners from the losers. Investors in that ETF will get returns about in line with the global stock market in general, rather than individual stocks in particular. That's how investing in this ETF right now could make you a millionaire retiree.
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Low cost, decent potential returns
The Vanguard Total World Stock Index ETF sports a modest 0.07% expense ratio, which means its investors get nearly all the potential returns of owning the underlying stocks, for far less effort. Indeed, since the ETF's inception in 2008, investors have seen an average annualized return around 7.75%, which is in line with the benchmark it attempts to track.
Returns like that are never guaranteed, but it if they continue, they can provide many investors with a path to millionaire status by the time they retire. The table below shows how many years it will take to reach a $1 million nest egg starting from scratch, depending on the rate of return you earn and the amount you can sock away each month.
|
Monthly Investment |
8% Annual Returns |
6% Annual Returns |
4% Annual Returns |
|---|---|---|---|
|
$1,500 |
21.3 |
24.5 |
29.3 |
|
$1,250 |
23.1 |
26.9 |
32.5 |
|
$1,000 |
25.5 |
29.9 |
36.7 |
|
$750 |
28.7 |
34.0 |
42.4 |
|
$500 |
33.4 |
40.1 |
51.0 |
Calculations by author.
Each of those dollar amounts represents an amount that can be contributed by an employee in a typical 401(k) plan. For people under age 50, the limit in 2022 is $20,500 per year -- or just over $1,700 per month.
If history is any guide, this means that making regular investments in the Vanguard Total World Stock Index ETF can help ordinary people become millionaires by the time they retire. The key, though, is to get started soon. Notice that for any given return rate in that table, the longer your time frame, the less you need to invest each month to reach millionaire status.
In addition, socking away more each month could still help you reach that target in a reasonable time, even if future returns aren't as strong as past returns have been. If you're not able to save as much as you would like right away, getting started with what you can save is a better idea than waiting. After all, the sooner you get started, the more time you'll have on your side to let the market's compounding work its magic over time.
Why buy the world?
The biggest advantage that the Vanguard Total World Stock Index ETF offers is the fact that as an investor in it, you're not trying to separate the winners from the losers. You're not making an overly outsize bet on a particular sector, company, or even country for that matter. You're betting on long-term economic growth and innovation, and total returns over time. Virtually no matter where those returns come from, you can benefit from them.
Of course, there still is no such thing as a free lunch when it comes to investing. One key potential issue with this ETF is that, like most index-related ETFs, it is market-capitalization weighted. That means the biggest publicly traded companies out there have the biggest impact on the fund's performance.
The risk that brings is that the fund's top 10 holdings collectively represent a whopping 13% of the EFT's total capitalization, and nine of those 10 holdings are U.S.-based businesses. As a result, the fund may not give you quite as strong a diversification play as you would have hoped, particularly if the rest of your investing is already heavily weighted in large, American companies.
Another potential issue you might find with this ETF is that it invests virtually everywhere. That means if you buy it, you can't pick and choose which industries or countries you invest in, and you might end up with a stake in a company or country you don't personally approve of.
Still, if you want an easy way to build a broad-based portfolio, the Vanguard Total World Stock ETF is worth considering. It's a simple-to-buy, one-stop shop that lets you get access to the world's stock market for an incredibly low overhead cost.
Start your investing journey today
No matter how you ultimately choose to invest, the time you have between now and when you retire is the most important asset you have on your journey. The sooner you begin investing, the better your chances are of reaching retirement as a millionaire. So get started now, and take that all-important first step to a stronger financial future.
