Total Stock Market ETFs

October 22nd at 2:27pm by Tom Lydon

Investors who want to buy the total U.S. stock market with one trade can purchase a diversified ETF and pay nearly zero percent fees.

Morningstar for its part highly recommends the Vanguard Total Stock Market (NYSEArca: VTI) as a broad-based holding for U.S. equity exposure. The exchange traded fund has a low expense ratio, diversification and a decent track record.

“Holding a total market index fund is more efficient than holding separate funds for large-cap and small-cap exposure because the broad fund has to incur less turnover as stocks move up and down in size. VTI is an ideal fund for passive investors who believe in the benefits of index investing and for active investors who wish to follow a core-and-explore approach,” Michael Rawson wrote for Morningstar. [Morningstar on How to Build a 'Core' ETF Portfolio]

VTI is the most diversified total stock ETF available. It holds about 3,300 stocks and has returned about 8.71% per year for the past decade. The SPDR S&P 500 (NYSEArca: SPY) in comparison, holds the top 500 stocks in the Standard and Poor  Index and has returned about 7.91% on average, over the same time period, reports Rawson. VTI is also one of the lower cost funds, at 0.06%, while SPY costs about 0.09%. [ETF Chart of the Day: U.S. Total Stock Market]

In the U.S. total earnings growth has slowed, but improvements in key areas of the economy are encouraging. Growth is forecast to pick up about 10% in 2013, so investors are encouraged to keep some U.S. equity exposure in their portfolios. [ETF Spotlight: VTI]

VTI tracks the MSCI US Broad Market Stock Index, which encompasses all but the most illiquid U.S. stocks. The 0.06% expense ratio held the record as the cheapest U.S. stock market ETF, but it has since been displaced by the Schwab U.S. Broad Market ETF (NYSEArca: SCHB) which costs .04%. SCHB has about $1.1 billion in assets which pales in comparison to the $23.3 billion that VTI has collected. SCHB does not hold any micro-cap companies, but it does hold 2,500 stocks in the index it tracks.

Another comparable ETF is the iShares Russell 3000 ETF (NYSEArca: IWV) which costs 0.20% and has $3.7 billion in assets. The fund holds 3,000 stocks, close to the number VTI represents.

VTI was the retail winner in the recent Morningstar Awards for ETFs.

Vanguard Total Stock Market

 

 

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.