Founded in 1975, Vanguard is highly regarded as a leading investment firm. It pioneered low-cost investment vehicles, which helped to democratize access to the stock market for individuals. With trillions of dollars in assets under management and a long list of exchange-traded funds (ETFs) to choose from, though, investors might struggle to find the right product for their needs.
Maybe it’s a good idea to start with one of the most popular offerings, the Vanguard Total Stock Market ETF (VTI +0.64%). Is it the best buy for long-term investors right now?
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Investors are betting on all U.S. equities
Investors are familiar with the S&P 500 index, which tracks the performance of 500 large and profitable businesses in the U.S. But most might not know about the Vanguard Total Stock Market ETF. This portfolio contains more than 3,500 stocks in total. As that indicates, its objective is to provide direct exposure to the entire American stock market.
Companies in all sectors and of all sizes are included. At the top of the list are the high-powered tech titans. Nvidia, Apple, and Microsoft combine to make up 16.7% of the fund’s asset base. At the other end of the spectrum are obscure and unfamiliar names, which have tiny market caps.
Unsurprisingly, the technology sector has the highest weighting at 36.3%, followed by consumer discretionary and industrials. This is representative of the broader U.S. economy.
In the past decade, the Vanguard Total Stock Market ETF generated a total return of 287% (as of April 23). Investors reaped the rewards by paying a low expense ratio of 0.03%.
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Know the bull and bear cases
The bull case for investing in the Vanguard Total Stock Market ETF right now is clear. Investors might be skeptical that the largest businesses, primarily the “Magnificent Seven” stocks, will continue their stellar performance over the next five or 10 years. Perhaps the worries stem from elevated valuations and extreme concentration.
This ETF ensures you gain adequate exposure to small-cap and mid-cap stocks, something the S&P 500 doesn’t offer. There’s a chance that these companies will contribute to strong gains in the future.
The bear case deserves attention as well. Investing in shares of the most dominant companies has worked out extremely well. And given that these are typically high-quality businesses with unrivaled access to capital markets, global customer bases, huge profits, and sustainable competitive advantages, it makes sense to remain focused on such companies.
I sit somewhere between the bull and bear cases. While I wouldn’t say that Vanguard Total Stock Market ETF is absolutely the best opportunity right now given current market conditions, it’s certainly worth considering as part of a diversified portfolio.
Neil Patel has positions in Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
