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Broadly diversified, low-cost ETFs may not be exciting, but they can deliver the best long-term results.
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Studies have shown that investors usually damage long-term returns by buying and selling at the wrong time.
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The Vanguard Total Stock Market ETF (VTI) provides one of the best tools for long-term wealth creation.
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10 stocks we like better than Vanguard Total Stock Market ETF ›
A lot of investors and members of the financial media talk a lot about what to buy and sell. In most cases, the idea of simply being invested is often the best one.
That’s how long-term wealth is created and why low-cost, broad-market ETFs, such as the Vanguard Total Stock Market ETF (NYSEMKT: VTI), can really stand out. It’s one of the simplest, cheapest, and most effective tools for building a stable, long-lasting portfolio.
VTI tracks the CRSP U.S. Total Market Index, which covers virtually the entire investable U.S. stock market. With more than 3,500 individual positions, it includes stocks of all sizes and styles. That makes this fund perfect as the foundation of a broadly diversified portfolio.
A lot of people will prefer to use the S&P 500 (SNPINDEX: ^GSPC) for the core of their portfolio. There’s nothing wrong with that. But I like using a total market ETF because it broadens out beyond the heavy megacap tech exposure. Plus, it includes small-cap and mid-cap stocks, which often have higher return potential over time.
Long-term wealth creation should be about maximizing upside potential while mitigating downside risk. Reducing tech concentration and broadening equity exposure helps with both.
Studies have shown that over time, investors are often their own worst enemies. By trying to time the market, buying and selling at the wrong time, and making emotional decisions, they often generate personal returns far below what the underlying funds themselves are returning.
Owning VTI (or any other ETF) doesn’t necessarily prevent that from happening, but it offers a portfolio construction where that kind of involvement isn’t needed. Shareholders own virtually every stock there is, so there’s no need to worry about “missing out.”
Plus, its 0.03% expense ratio means that the ETF costs almost nothing to own. Fees can be a significant long-term drag on investor returns. VTI ensures that fee drag is almost nonexistent.
If you’re investing for the long term, stocks are the place you want to be.
In the short term, share prices can fluctuate, and there’s the possibility of losses. Over the long term, history has shown that almost all of that downside risk can be mitigated if you hold on long enough.
