Is the Vanguard Total Stock Market ETF the Best Buy for Long-Term Investors?

Because it includes 500 or so large and profitable American companies, the S&P 500 index gets what seems like all the attention from investors seeking a hassle-free approach to the stock market. But there are other ways to allocate your capital.

The Vanguard Total Stock Market ETF (NYSEMKT: VTI) provides more comprehensive exposure to the U.S. economy. And it comes with a very attractive expense ratio of 0.03%, something Vanguard clients have come to appreciate.

Is this exchange-traded fund (ETF) the best buy for long-term investors?

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Know what you own

Compared to the S&P 500 index, the Vanguard Total Stock Market ETF is more diversified, with nearly 3,500 holdings. Not only are all sectors represented, but companies of all sizes, including tiny small-cap stocks, are a part of this ETF. If someone were looking for the easiest way to invest in corporate America, it would be difficult to come up with a better choice than this ETF.

While there are thousands of stocks, the concentration among the most valuable businesses is notable. The top 10 positions combined make up 34% of the portfolio. Nvidia, Apple, and Microsoft represent 17%, slightly lower than their share of the S&P 500 index.

Investors should understand that the performance of these technology stocks will still heavily influence the ETF's overall performance. Lately, it's been driven by the artificial intelligence craze.

Investors can do worse

In the past decade, the Vanguard Total Stock Market ETF produced a total return of 294% (as of June 8). This gain effectively quadrupled an investor's starting capital. Earnings growth and valuation expansion were two important tailwinds.

This ETF currently trades less than 3% below its record high, so investors might be hesitant to buy right now. Waiting for a dip is a sensible way to think. But it's hard to time the market. Consider dollar-cost averaging to invest at various starting valuations.

It's not exactly clear if the Vanguard Total Stock Market ETF is the best buy for long-term investors. The answer depends on your own individual goals. Time horizon, risk tolerance, and return objectives also come into play.

However, this is a great option for investors who want to put money to work into U.S. businesses through a single vehicle. While they can still be bullish on the American economy and the innovation and growth that occur here, most people don't care to pick individual stocks. They might not have the time or skills. That's why this ETF is a valuable choice.

Neil Patel has positions in Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.