The ETF That Gives You the Best of Both Worlds

The S&P 500 is one of the best-performing indexes in 2024. Yet, just a few stocks drive most of its value, giving it a lot of company-specific risk.

The Vanguard Total Stock Market ETF (VTI) keeps you invested in those major players while diversifying your portfolio beyond 500 stocks.

As we know, diversification often leads to a lower overall return. But it can also reduce your drawdowns during market corrections.

And with stocks in what many would call ‘frothy’ territory, maybe it’s time to consider the VTI for your portfolio.

Key Facts About VTI 

• Net assets: $445 billion
• 12-month trailing yield: 1.3%
• Inception: May 24, 2001
• Expense ratio: 0.03%
• Number of holdings: 3621

Over 6,000 stocks are traded on major U.S. market exchanges.

The VTI holds over 3,500 U.S. based companies, excluding ADRs and ADSs on stocks like Alibaba.

This market-cap weighted ETF holds small, medium, and large-cap stocks. However, it does not hold micro or nano-cap stocks.

Its top holdings match what you’d see in the S&P 500. However the proportion of each company to the total portfolio is smaller.

Source: Vangaurd

Because its top holdings match those of the S&P 500, the VTI is heavily weighted towards technology companies.

Source: Vangaurd

What makes the VTI particularly attractive to investors is the rock-bottom expense ratio of 0.03%.

That’s about as cheap as they come.

Performance

Source: Vangaurd

You might expect the VTI to underperform the SPY significantly. However, its 5-year annual average return of 15.2% is below the SPY’s 15.7%.

While the ETF comes with more diversification, the weighting method helps it maintain a higher level of performance.

Competition

We looked at other popular Total Market ETFs for both U.S. equities and abroad to give you some points of comparison.

• Vanguard Total World Stock ETF (VT): Offering global exposure, VT tracks the FTSE Global All Cap Index, spanning U.S. and international markets. With market-cap weighting, it includes both developed and emerging economies, making it a one-stop solution for global diversification.
• Vanguard Total International Stock ETF (VXUS): Designed for international exposure, VXUS follows the FTSE Global All Cap ex US Index, focusing on non-U.S. stocks across developed and emerging markets. This market-cap-weighted ETF excludes U.S. companies, providing diversified foreign exposure.
• iShares Core S&P Total U.S. Stock Market ETF (ITOT): ITOT is iShares version of the VTI, tracking the S&P Total Market Index. Market-cap weighted, it includes companies of all sizes—large, mid, small, and micro-cap—for comprehensive domestic exposure.
• iShares MSCI World ETF (URTH): With a focus on developed markets, URTH tracks the MSCI World Index. This market-cap-weighted ETF excludes emerging markets, appealing to those seeking diversified access to established economies worldwide.

It’s worth noting that the two U.S.-focused ETFs have roughly the same performance despite one having 1,000 fewer stocks, implying the majority of the return is still driven by the large-cap companies.

Our Opinion 10/10 

With a rock-bottom cost structure and a diversified portfolio, you can’t do better than the VTI for a total U.S. market ETF.

Its performance comes very close to matching the S&P 500. Yet, you aren’t as closely tied to those largest companies, making it great when you want to invest money when markets are fairly valued.