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Low-cost, broadly diversified ETFs may not be interesting, but they may offer the best long-term results.
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Studies have shown that investors often hurt 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 the Vanguard Total Stock Market ETF ›
Many investors and members of the financial media talk a lot about what to buy and sell. In most cases, the idea of ​​simply investing is the best.
This is how long-term wealth is created and why low-cost, broad-market ETFs, like the Vanguard Total Stock Market ETF (NYSEMKT: VTI)can really stand out. It is one of the simplest, cheapest and most effective tools to create a stable and long-lasting portfolio.
VTI tracks the US Total Market CRSP Indexwhich covers virtually the entire US stock market in which you can invest. With over 3,500 individual positions, it includes stock of all sizes and styles. This makes this fund perfect as the basis of a broadly diversified portfolio.
Many people will prefer to use the S&P 500 (SNPINDEX: ^GSPC) for the core of your portfolio. There is nothing wrong with that. But I like using a total market ETF because it expands beyond the heavy tech exposure of megacaps. Additionally, it includes small- and mid-cap stocks, which often have greater return potential over time.
Long-term wealth creation should be about maximizing growth potential while mitigating downside risk. Reducing technology concentration and expanding equity exposure helps in both cases.
Studies have shown that, over time, investors often become 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 well below what the underlying funds themselves are returning.
Owning VTI (or any other ETF) doesn’t necessarily prevent that from happening, but it does offer a portfolio construction where that kind of ownership isn’t necessary. Shareholders own virtually every stock in existence, so there’s no need to worry about “missing out.”
Plus, its 0.03% expense ratio means the ETF costs almost nothing to own. Fees can be a significant long-term drag on investor returns. VTI ensures that the tariff burden is almost non-existent.
If you’re investing for the long term, stocks are where you want to be.
In the short term, stock prices may fluctuate and there is a possibility of losses. Over the long term, history has shown that almost all of that downside risk can be mitigated if held long enough.