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Key Points
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VTI offers broad market exposure, reducing the risk of individual stock investments.
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Short-term fluctuations are expected, but that doesn’t mean a fund can’t come roaring back.
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Longer investment periods typically provide better yield outcomes.
There are plenty of good reasons why the Vanguard Morningstar Total Stock Market ETF(NYSEMKT: VTI) continues to draw investors. In addition to providing exposure to virtually the entire U.S. stock market across 11 sectors, VTI investors have enjoyed impressive returns.
Since its inception in 2001, the exchange-traded fund (ETF) has provided an average annual return of 9.48%.
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Here’s how that breaks down over specific time frames:
|
Time Frame |
Return |
|---|---|
|
10 years |
14.53% |
|
5 years |
11.75% |
|
3 years |
18.82% |
|
1 year |
19.80% |
|
Year to date |
10.50% |
Data Source: Vanguard.
Value fluctuations
While history can’t guarantee the future, it does offer a useful guide to how much a $1,000 VTI investment might be worth in 20 years. However, no matter how good the investment, it’s unrealistic to believe that any asset won’t fluctuate in value. Despite how many years VTI has enjoyed positive returns, there have also been down years.
For example, the fund finished 2022 down 20.81%, and during the 2008 financial crisis, VTI ended the year down 38.35%.
How much your money could grow
Because not every year is a winner, let’s assume you invest $1,000 and leave it alone for 20 years. However, instead of being overly optimistic, you do the math with the average return rate of 9.48%, the precise annual return since the fund’s inception.
After 20 years, your $1,000 investment could be worth $5,427. While $5,427 may not be a life-changing amount, it illustrates the power of compound growth.
A $1,000 foundation
There’s a misconception, particularly among new investors, that it takes a huge sum of money to build a healthy nest egg. The reality is that you can make relatively modest contributions to your investment and still end up with an impressive return. For example, here’s what could happen if you made the initial $1,000 investment and then added money to it each month.
|
Amount Added Monthly |
20 Years |
25 Years |
30 Years |
|---|---|---|---|
|
$100 |
$70,919 |
$118,793 |
$194,088 |
|
$200 |
$135,720 |
$227,961 |
$373,039 |
|
$300 |
$200,520 |
$337,130 |
$551,990 |
|
$400 |
$265,320 |
$446,298 |
$730,941 |
|
$500 |
$330,120 |
$555,467 |
$909,892 |
Data source: Author’s calculations using Investor.gov compound interest calculator.
It won’t all be smooth sailing. VTI has experienced years with losses exceeding 20%, and there will be periods of market turbulence in the future. The lesson is, despite volatility, it can pay to remain invested in a broad, low-cost index fund like VTI. And the more time you give it, the greater the growth potential.
Should you buy stock in Vanguard Morningstar Total Stock Market ETF right now?
Before you buy stock in Vanguard Morningstar Total Stock Market ETF, consider this:
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Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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