Total Market ETF – Diversification Without Sacrificing Returns

People will often refer to the market as the Dow Jones Industrials, the S&P 500, or even the Nasdaq Composite. 

However, the Dow only consists of 30 stocks, while the S&P 500 only has 500, and the Nasdaq Composite has about 2,500 stocks. 

Believe it or not, if you want more diversification than those it’s possible. 

For example, the Vanguard Total Stock Market ETF (VTI), has over 4,000 stocks in its fund. 

Amongst the total market funds for stocks or bonds, it garners more searches by financial pros in a month then all others in the category combined by more than 7x.

In fact, it’s the 14th most popular ETF amongst financial pros overall.

But how does it compare to those other well-known indices? And is it worth investing in right now?

Check out our thoughts below…

Vanguard Total Stock Market ETF (VTI) is one of the largest ETFs on the planet, with north of $250 billion in assets under management. 

The ETF aims to mimic the results of the CRSP U.S. Total Market Index. which has over 4,000 different stocks, consisting of mega, large, small, and micro-caps. 

The median market cap of stock in VTI is $118.9 billion.

VTI utilizes a passively managed, index-sampling strategy, allowing it to keep expenses low.

The stock style of the ETF is large, with a blend of value and growth. 

Like most of the U.S. equity market, it’s heavily weighted towards technology services, finance, electronic technology, and health technology. 

Although VTI is diversified, over 10% of the ETF weighting is in two stocks, Apple Inc. and Microsoft. Furthermore, the top ten holdings make up 23% of the weighting. 

It’s also worth noting that VTI is a U.S. focused ETF with nearly 100% of its investments.

If you invested $10K in VTI ten years ago, it would now be worth nearly $40,000. 

In fact, its results are not that far off from that of the S&P 500 Index.

However, when compared to the Nasdaq Composite Index, VTI does not perform as well over the last ten years. 

When compared to the Dow Jones Industrial Average, VTI has performed significantly better over the last ten years. 

Trading VTI

VTI sees a lot of action during the trading day. On an average session, more than 4.8 million shares are traded daily. 

It makes for a good instrument to trade if you want to play the overall market. Some may prefer it over the SPY or QQQ because it’s cheaper in price. 

Investing In VTI

One thing investors want to pay close attention to when selecting an ETF is the expense ratio. The expense ratio tells us how much the fund will be deducted annually as fees. 

A good rule of thumb is to avoid ETFs that have an expense ratio higher than 1%. In VTI’s case, the expense ratio is 0.03%, which is exceptional when you compare it to the SPY which has an expense ratio of 0.09%, and the QQQ, which has an expense ratio of 0.20%

Besides the expense ratio, investors are also concerned about earning passive income. VTI pays its shareholders an annual dividend of $2.97 per share. In terms of dividend yield, it stands at around 1.45%, which is better than the SPY and QQQ.

Our Opinion – 8/10

VTI is one of the best ETFs for investors wanting exposure to the U.S. stock market. With more than 4,000 stocks in the ETF, it is also one of the most diversified funds you’ll find. 

We love its low expense ratio, and who can argue with its performance over the last decade. 

Active traders may like VTI because it’s highly liquid, and it’s cheaper than the SPY and QQQ. 

If you are bullish on the U.S. stock market over the next 5-to-10 years, grabbing shares of VTI while it’s down 15%, seems like a no-brainer to us.

Now, if you’re looking for a more global approach to the market, you might want to consider the Vanguard Total World Stock ETF VT which holds more than 9,000 equities with only 60% focused on the U.S.