The Vanguard ETF That Could Set You Up for Life if You Buy It Now
Key Points
The Vanguard S&P 500 ETF (VOO) invests in U.S. large-cap stocks. The Vanguard Total Stock Market ETF (VTI) invests in all investable U.S. stocks regardless of size.
VTI has an 11% allocation to mid-caps and small-caps that VOO doesn't. That provides meaningful diversification benefits and the opportunity for additional growth.
Given the current small-cap earnings acceleration and attractive valuations, I like VTI as the ETF that could set you up for life.
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U.S. stocks could be on pace for their fourth straight year of double-digit gains if the current pace holds. The Vanguard S&P 500 ETF (NYSEMKT: VOO) has returned 26%, 25%, and 18%, respectively, over the past three calendar years, and it's up another 10% year to date in 2026.
If you follow the old saying of "if it ain't broke, don't fix it," it would be understandable to keep holding this ETF for the foreseeable future. For long-term buy-and-hold investors, it's a strategy that makes a lot of sense and is certainly defensible given its ultra-low expense ratio and long track record of success.
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I want to make the case, however, for the Vanguard Total Stock Market ETF (NYSEMKT: VTI). It has a slightly different composition than the S&P 500 (SNPINDEX: ^GSPC), one that could make it an outperformer in the years ahead. If you continue to steadily invest in it AND can manage the temptation to time the market during periods of volatility, it could set you up for a lifetime of financial independence.
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Why the Vanguard Total Stock Market ETF (VTI) is the ideal portfolio cornerstone
This ETF tracks the CRSP US Total Market Index, which is essentially a market-cap-weighted index of the entire investable U.S. stock market. With the S&P 500, you get a basket of around 500 large-cap stocks. With the Vanguard Total Stock Market ETF, you get nearly 3,500 stocks of all sizes.
Because both are market-cap-weighted, there's significant overlap. Even with those additional 3,000 stocks, there's an 88% overlap of assets. That means the correlation of performance and volatility is very high.
But that 12% weighting that the Vanguard Total Stock Market ETF has to mid-cap and small-cap stocks matters. That group's composition doesn't look like the S&P 500. The smaller-stock-focused Russell 2000 index, for example, has 16% to 19% weightings in each of the industrials, tech, financials, and healthcare sectors. That means adding this group to a large-cap portfolio provides real diversification benefits and added growth potential.
VTI: Performance and key metrics
| Metric | Value |
|---|---|
| Assets under management | $646 billion |
| Expense ratio | 0.03% |
| Dividend yield | 1.1% |
| 1-year total return | 29.4% |
| 5-year total return (annualized) | 12.9% |
| Holdings | 3,494 |
| Top sectors | Tech (39%), consumer discretionary (13%), industrials (12%) |
| Top holdings | Nvidia (6.6%), Alphabet (5.8%), Apple (5.7%), Microsoft (4.4%) |
Data source: Vanguard.
It would be easy to argue that small caps are overdue to outperform, given how they've lagged large caps for years. But there needs to be a catalyst to make it happen. Right now, it could be earnings growth. For the first time in a few years, earnings are expected to accelerate into the double-digits in 2026. When you combine that kind of earnings growth with relatively cheap valuations, the case for including small caps in your portfolio gets stronger.
That's why I chose the Vanguard Total Stock Market ETF over the Vanguard S&P 500 ETF for my core equity holding. Both will likely do just fine over the long term, but I prefer to own that modest allocation to small caps in my portfolio.
That makes it an ETF that could set you up for life.
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David Dierking has positions in Apple and Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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