The right investments can supercharge your portfolio, and exchange-traded funds (ETFs) can be a fantastic option for many people.
An ETF is a basket of securities bundled together into a single investment. When you invest in just one ETF, you're actually investing in hundreds or even thousands of stocks at once. This can make it much easier to build a well-diversified portfolio, limiting your risk with minimal effort on your part.
There are countless ETFs to choose from, and the best ones for your portfolio will depend on your preferences and risk tolerance. But there's one ETF I've owned for years and will continue stocking up on throughout 2024, and it could help make you a lot of money over time.
How the right ETF could help you build wealth
When choosing an ETF for your portfolio, it's important to consider your goals and preferences. If you're looking for an investment that can limit your risk and requires next to no effort to maintain, one option is the Vanguard Total Stock Market ETF (VTI 0.93%).
This fund is a broad-market ETF that aims to replicate the performance of the stock market, as a whole. It offers exposure to many different areas of the market within a single investment, containing a whopping 3,761 stocks across 11 industries.
It also includes stocks from large-, mid-, small-, and micro-cap stocks, providing even further diversification. An S&P 500 ETF, by comparison, only includes large-cap stocks. While that's not necessarily a bad thing, smaller stocks often have more room for growth. At the same time, this ETF is less risky than, say, a growth ETF with the potential for above-average returns that only includes stocks.
Even if you don't have much to invest, putting your money behind this one ETF can easily create a balanced portfolio. By comparison, if you were to invest in individual stocks, you'd need to buy shares of at least 25 to 30 different companies to be properly diversified.
This ETF also boasts a rock-bottom expense ratio of just 0.03% per year. In other words, for every $10,000 in assets you own, you'll pay just $3 per year in fees to manage your investments. This is far lower than many other similar ETFs (which often have expense ratios of 1% or more) and could save you thousands of dollars in fees over time.
How much could you earn with this investment?
The Vanguard Total Stock Market ETF is a fantastic investment for first-time buyers or experienced investors looking to further diversify their portfolios.
Since its inception in 2001, this ETF has earned an average rate of return of just over 8% per year. While that's slightly below the market's historic average of 10% per year, it could still help you make a lot of money over time.
Say, for example, you're investing $300 per month while earning an 8% average annual return. Here's approximately how much you could accumulate over time, depending on how many years you have to invest:
| Number of Years | Total Portfolio Value |
|---|---|
| 20 | $165,000 |
| 25 | $263,000 |
| 30 | $408,000 |
| 35 | $620,000 |
| 40 | $933,000 |
Data source: Author's calculations via investor.gov.
With enough time and consistency, you could earn hundreds of thousands of dollars or more. And if you can afford to increase your monthly investment over time, you could potentially build a portfolio worth well over $1 million.
There's no single best investment for everyone, as it will depend on your personal preferences. The Vanguard Total Stock Market ETF can be a smart option for those looking to limit their risk while easily building a diverse portfolio, and it could help you earn more than you might think over time.
