Ben Gran, The Motley Fool
6 min read
A big part of investing is psychological. It’s not just about math; it’s about managing your mindset, your moods, your attitude. I wish I could teach all investors to have an attitude of humility about the stock market.
I try to be humble in my approach to investing. No one knows the future. No one knows for sure which stocks will do best, which industries will grow faster, which companies or countries will outperform the rest.
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It’s good to have convictions. It’s good to believe in what you’re investing in. And some of the best investors have a certain dash of ambition and healthy ego that drives them to succeed in the first place. But investors need to guard against arrogance and overconfidence.
As a humble investor, I try to own a well-diversified portfolio that includes basically all the stocks in the U.S., and some international stocks. With a well-diversified portfolio, even if I’m wrong about some of my ideas about the future, even if some stocks or sectors disappoint or underperform, my money can keep growing.
Let’s look at two exchange-traded funds (ETFs) that could be a good fit for this humble-investor approach.
Vanguard Morningstar Total Stock Market ETF: 3,531 U.S. stocks of all sizes
This fund is a foundational piece of my portfolio. It’s how I invest in U.S. stocks — all of them. That’s right: The Vanguard Morningstar Total Stock Market ETF (NYSEMKT: VTI) lets you own pretty much the entire publicly traded U.S. stock market. It holds 3,531 U.S. stocks, including large caps, mid-caps, and small caps. It’s delivered powerful annualized returns of almost 15% during the past 10 years, and just shy of 12% during the past five years.
Why do I own this fund instead of an S&P 500 index ETF? There’s nothing wrong with buying S&P 500 ETFs. But I want even more diversification. I’m not confident that the biggest names in the stock market will always deliver better results than the smaller companies.
What if mid-caps and small-cap stocks outperform the large-caps of the S&P 500 for the next 10 years? Sometimes underrated companies and underdog stocks end up surprising people who counted them out. This total stock market ETF lets you own the underdogs and overlooked sectors of the stock market, as well as the big names that get lots of glory and praise.
