Is the Vanguard Morningstar Total Stock Market ETF Still the Best Long-Term Core Holding for Most Investors?

One of the first bits of advice that most people hear when they start investing is "diversify." Buying a diversified portfolio with lots of different stocks can help manage your risk and improve your chances of growth and success as a long-term investor.

But what's the best way to diversify for the long run? For me, it's the Vanguard Morningstar Total Stock Market ETF (NYSEMKT: VTI). This fund owns 3,531 stocks of all sizes (small, mid, and large cap). It represents basically the entire U.S. stock market. And it charges a rock-bottom low-price expense ratio of 0.03%.

This is my "set it and forget it" U.S. stock ETF. It's the largest piece of my portfolio. I buy more shares of it every month on every payday.

But over the past 10 years, this total stock market ETF has been outperformed by the S&P 500 index, which tracks the 500 largest companies in America.

VTI Total Return Level data by YCharts

Which is better, owning VTI or an S&P 500 ETF? I'm going to keep buying the Vanguard Morningstar Total Stock Market ETF, because I believe owning 3,531 U.S. stocks will be a better bet than "only" 500 stocks in the long run.

Let's look at why I'm sticking with VTI for the long run.

Image source: Getty Images.

Vanguard Morningstar Total Stock Market ETF: Just buy all the stocks

The Vanguard Morningstar Total Stock Market ETF doesn't make you choose between the S&P 500 and other smaller companies. It lets you own basically the entire U.S. stock market. Since the 500 largest companies make up such a large share of the VTI portfolio, this fund tracks the performance of the S&P 500 closely. The top stock holdings in VTI are the same major tech names you'd see in an S&P 500 ETF:

• Nvidia: 6.3% of the fund
• Apple: 5.8%
• Alphabet: 5.15% combining Class A and Class C shares
• Microsoft: 3.8%
• Amazon: 3.2%

But because the Vanguard Morningstar Total Stock Market ETF also owns thousands of smaller companies, it doesn't deliver exactly the same returns as the S&P 500. In the past year, VTI has outperformed the S&P 500. What if that trend continues?

I believe it's a good idea to own all these other mid- and small-cap stocks. In case different parts of the stock market outperform the S&P 500 in the future, this fund will ideally capture those gains.

Why buy VTI or an S&P 500 ETF?

In the big picture, buying S&P 500 ETFs like the Vanguard S&P 500 ETF (NYSEMKT: VOO) is often a great move for long-term investors. Even if those are the only stocks you own, you might be fine and see strong investment returns.

But I believe in owning "all" the stocks, not just the 500 largest companies. I want to own mid-cap, small-cap, value, and growth stocks. I want to own a mix of high-flying stocks and "boring" stocks from slower-growing industries that investors might be undervaluing. I want it all! This low-cost total stock market ETF can do that.

That's why I believe the Vanguard Morningstar Total Stock Market ETF is the best long-term bet on the future of the U.S. stock market for me. I could be wrong. I'm a humble investor, and this ETF might underperform other investments, but I'm going to keep buying it.

Ben Gran has positions in Vanguard Morningstar Total Stock Market ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.