One of the most important benefits of investing in exchange traded funds (ETFs) is the broad diversification investors can receive from choosing these investment vehicles. There happen to be a number of secular ETF tracking specific sectors or trends, covering nearly everything possible to invest in.
However, the original ETF index funds that track various indices are the staples I think passive investors should choose to gain the level of diversification they’re looking for.
Among these, I think the Vanguard Total Stock Market Index ETF (NYSE:VTI) is one of the best vehicles for such passive investors. This ETF tracks the entire investable stock market in the U.S. This means investors get access to all large, mid, small, and micro cap companies with this ETF. This provides for the most diversification an investor could hope for, and really is a bet on the long-term growth the U.S. economy can provide.
For those who are unwilling to spend the time analyzing hundreds or thousands of stocks, this is certainly a great option.
For active investors that want to pick and choose stocks, having a core holding such as VTI to build upon is not a bad idea as well. One will more closely track the returns of the broader stock market over time, and ensure one does not underperform to a degree greater than what one may be comfortable with picking and choosing stocks. This ETF also adds diversification to stocks one might never consider owning in the small or micro cap space that tend to have higher returns over time.
Invest wisely, my friends.