The Vanguard Total Stock Market ETF (VTI +0.53%) is one of the largest and most popular exchange-traded funds (ETFs). With over $483 billion in assets under management (AUM), it's the fourth largest ETF.
The big draw of VTI is that it provides investors with broad exposure to the entire U.S. stock market through one single investment vehicle. That enables investors to capture the returns produced by the whole U.S. equity market, which have been good over the long term. For example, the Vanguard Total Stock Market ETF has produced an average return of 8.75% since its inception in the middle of 2001. At that rate, a $1,000 investment in VTI could turn into $12,385 in 30 years.
Here's a closer look at this ETF and why it's a great fund to buy and hold long-term.
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Holding the whole stock market in one fund
The Vanguard Total Stock Market ETF aims to track the performance of the CRSP U.S. Total Market Index. That index seeks to represent the entire investable U.S. equity market. It includes companies that trade on the New York Stock Exchange, Nasdaq, and other smaller exchanges. The companies range in size from mega-large-cap stocks to tiny microcap stocks. The index comprises more than 3,500 stocks, all of which VTI holds.
The fund provides investors with very broad and diversified exposure to the U.S. equity market. It holds stocks across all industries, led by technology, at 34.5% of its holdings. That diversification helps reduce risk.
However, while the fund has more than 3,500 holdings, it weighs its holdings by market cap, giving the largest companies in the country a more significant portion of its holdings. Its top holding is tech titan Microsoft at 6%. Overall, its top 10 holdings account for nearly 30% of the fund's assets. So while it provides broad exposure to the U.S. stock market, its largest holdings do a lot of the heavy lifting in driving returns.
Solid returns
The U.S. stock market has produced healthy returns over the years. That has driven the performance of the Vanguard Total Stock Market ETF, which has been a solid long-term investment:
|
ETF |
1-Year |
3-Year |
5-Year |
10-Year |
Since Inception |
|---|---|---|---|---|---|
|
VTI |
12.8% |
13.7% |
15.2% |
12.1% |
8.8% |
Data source: Vanguard.
The ETF's returns since its inception in mid-2001 are pretty good. They align well with the average stock market return (as measured by the S&P 500) over the past 30 to 50 years.
Its returns in more recent years are even higher. At its annualized rate over the past decade, the fund has grown a $1,000 investment into $3,134 during that period. If it kept up its higher return pace, VTI would turn a $1,000 investment into $30,773 in 30 years, compared with $12,385 if it maintained its rate of return since its inception. That shows the power of compounding a higher return over long periods of time.
However, while the fund has delivered strong returns over the years, there's no guarantee it will continue producing returns at its historical levels. A prolonged future economic downturn would probably affect the stock market's returns and those generated by this fund.
A great ETF to buy and hold for the long term
The Vanguard Total Stock Market ETF aims to match the returns of the entire U.S. stock market, which has delivered a high-single-digit return over the very long term. It does that for a notably low cost: VTI has a meager 0.3% ETF expense ratio. These features make it an ideal ETF to buy and hold forever to steadily grow your wealth. It can anchor any portfolio as a core holding.
