The main goal of investing is simple: Put your money to work and let it (hopefully) make money for you. And while there are no guarantees in the stock market, doing so has been proven much easier than many people may assume. Instead of investing in individual companies hoping to find the “next big thing,” consistently investing in a broad exchange-traded fund (ETF) is simpler and just as effective in many cases.
The most common ETF people invest in is an S&P 500 ETF. The Vanguard Total Stock Market ETF (NYSEMKT: VTI) is often overlooked, yet it produces strong long-term returns. If you’re looking to set yourself up for life, look no further; it can do the trick.
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The one-stop stock market shop
VTI is the most straightforward way to get exposure to the entire U.S. stock market. While the S&P 500 contains only large-cap stocks, VTI includes companies of all sizes, sectors, and regions across the country. With 3,484 stocks in the ETF, it covers as much ground as you could reasonably expect.
VTI provides the best of both worlds. On one hand, it’s weighted by market cap, so larger companies account for a larger share of the ETF. This gives you good exposure to the large tech companies that have driven much of the stock market’s gains over the past decade (the tech sector accounts for over 42% of the ETF).
On the other hand, exposure to mid-cap and small-cap stocks lets you hedge a bit against big-tech concentration and take advantage of periods when those smaller companies outperform the market (as we’ve seen so far this year through July 9).
How VTI’s returns have played out over the years
VTI has been a productive investment since it hit the market in May 2001, but especially so over the past five and 10 years. Here are its average annual total returns (which include dividends) in that time:
Data source: YCharts.
Past results don’t guarantee future performance, but if we assume, for the sake of illustration, that VTI averages 10% annual returns, it’s well-positioned to help build wealth for long-term investors. At that average, $500 monthly investments could grow to over $587,400 in 25 years; $1,000 monthly could grow to over $1.17 million; and $2,000 monthly could grow to over $2.34 million.
