A lot of investors and members of the financial media talk a lot about what to buy and sell. In most cases, the idea of simply being invested is often the best one.
That's how long-term wealth is created and why low-cost, broad-market ETFs, such as the Vanguard Total Stock Market ETF (VTI +0.36%), can really stand out. It's one of the simplest, cheapest, and most effective tools for building a stable, long-lasting portfolio.
What VTI gives you
VTI tracks the CRSP U.S. Total Market Index, which covers virtually the entire investable U.S. stock market. With more than 3,500 individual positions, it includes stocks of all sizes and styles. That makes this fund perfect as the foundation of a broadly diversified portfolio.
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A lot of people will prefer to use the S&P 500 (^GSPC +0.32%) for the core of their portfolio. There's nothing wrong with that. But I like using a total market ETF because it broadens out beyond the heavy megacap tech exposure. Plus, it includes small-cap and mid-cap stocks, which often have higher return potential over time.
Long-term wealth creation should be about maximizing upside potential while mitigating downside risk. Reducing tech concentration and broadening equity exposure helps with both.
NYSEMKT: VTI
Key Data Points
The built-in buy-and-hold advantage
Studies have shown that over time, investors are often their own worst enemies. By trying to time the market, buying and selling at the wrong time, and making emotional decisions, they often generate personal returns far below what the underlying funds themselves are returning.
Owning VTI (or any other ETF) doesn't necessarily prevent that from happening, but it offers a portfolio construction where that kind of involvement isn't needed. Shareholders own virtually every stock there is, so there's no need to worry about "missing out."
Plus, its 0.03% expense ratio means that the ETF costs almost nothing to own. Fees can be a significant long-term drag on investor returns. VTI ensures that fee drag is almost nonexistent.
The benefits of long-term growth
If you're investing for the long term, stocks are the place you want to be.
In the short term, share prices can fluctuate, and there's the possibility of losses. Over the long term, history has shown that almost all of that downside risk can be mitigated if you hold on long enough.
Going back all the way to 1919, studies have shown that the S&P 500 has never lost money over any rolling 20-year period. Put another way, owning a broadly diversified portfolio and letting it do its thing over the long term has never failed to make money.
Granted, that's no predictor of the future. That streak could easily be broken at any time. The point is that diversification and time are your allies. If you take advantage of them, they can deliver powerful results.
In summary, VTI isn't exciting, but that's kind of the point. It is built to be a long-term wealth creation tool. And for many investors, boring is best.
