With the U.S. stock market still pushing toward new all-time highs, the temptation might be to continue going all in on growth and tech stocks. If you have years or decades to invest, that might make sense. After all, these stocks tend to have higher upside potential, and a long-term time horizon gives you a chance to ride out the highs and lows.
However, I'd take a different approach and stick with the Vanguard Total Stock Market ETF (VTI +0.31%). It gives you the benefit of broad diversification with a growth tilt and helps prevent you from becoming too concentrated. Plus, it invests in some corners of the market that appear quite undervalued at the moment.
If I had $100,000 to invest today, here's the case for VTI.
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The Vanguard Total Stock Market ETF (VTI) is a cornerstone investment
VTI is the kind of fund that has a place in almost any portfolio. It invests in roughly 3,500 different U.S. companies of all sizes. And with an expense ratio of just 0.03%, it costs almost nothing to own.
This makes it the prototypical buy-and-hold ETF. If you've got $100,000 and simply want to let long-term compounding do its thing, VTI is an ideal choice.
NYSEMKT: VTI
Key Data Points
The inclusion of small caps
While there's nothing wrong with choosing a U.S. large-cap fund, such as the Vanguard S&P 500 ETF (VOO +0.19%), for a core portfolio holding, I think VTI works better because of its all-cap exposure.
Mid- and small caps have underperformed large caps for a while, but small caps have the potential to improve absolute and risk-adjusted returns over time. Plus, their unique dynamics can actually help reduce overall portfolio risk.
Even though they've lagged lately, that doesn't mean they should be avoided.
A rotation out of tech
The tech/growth rally has been going on nearly interrupted for three years. That's a lengthy streak by historical standards. While it doesn't prevent those stocks from continuing to outperform, it does suggest that maybe it's time to consider looking beyond that group for leadership.
VTI provides exposure to sectors, such as financials, healthcare, and industrials, in a way that tech and growth ETFs don't. Plus, the approximately 25% exposure to smaller companies means it derives some of its upside potential from different areas of the market.
VTI still has the heavy tech exposure, but its broader take on the market makes it less reliant on a narrow rally.
In summary, if I had $100,000 to put to work now, VTI would be my choice. Its broad diversification helps spread out its investment, while the addition of small caps creates a value opportunity that could begin working again long-term.
