Preferred Asset for Equities: VTI

"The Vanguard Total Stock Market ETF employs an indexing investment approach designed to track the performance of the CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks."

Fund Home Page:

Vanguard ETF Profile | Vanguard

Barchart Page:

VTI - Total Stock Market Vanguard ETF Profile -
Company profile for Total Stock Market ETF Vanguard (VTI) including business summary, key statistics, ratios, sector.

The Basics:

With just this one fund, you get the full swathe of the US stock market, from the largest companies down to the smallest. It is efficient, cheap (the expense ratio is just .03%), and a great way to build wealth. If you want to limit yourself to just one equity fund, maybe because of simplicity or because you don’t want to put too much effort and stress into deciding, then this one is a great choice. VTI is in six of the ten test portfolios,  including one of my semi-originals, the Qian portfolio, where I needed one fund to cover the entire US stock market.

That being said, if you didn’t have that restriction, there could be better ways to fulfill your allocation to equities. One might split the allocation between a S&P 500 fund and a small-cap value fund, maybe with an international equities fund, as well. Dividing up equities exposure could help boost returns through rebalancing: if you have one fund for growth (such as VOO) and one for value (such as VIOV), you might be able to benefit by buying more of the one out of fashion at that time, and then cash in by holding for the long term. But, this is just a guess and I use the words might, could, and may intentionally - I’m not sure whether the added complexity would do anything for returns going forward. Given that uncertainty, you may be better off just making VTI your one-stop fund for the equities portion, and then paying it no more mind.

A look into the correlation of VTI with other funds gives us a clue why: for all the variety of equities funds, they all basically rise and fall together. I switched over to the mutual fund versions to compare, since these have a longer timeframe, all the way back to 2002. I compared VTSAX (the mutual fund version of VTI) with several other equity mutual funds, including VFINX as the stand-in for the aforementioned VOO (its essentially a large-cap growth fund), and then VISGX for small-cap growth and VISVX for small-cap value. I threw in two international funds, one for tracking other developed markets and then one capturing the entire international market. I added in long-term and intermediate-term Treasuries as well.

For all the variety of equities funds here, there really isn’t much dissimilarity, meaning holding all of those different funds wouldn’t make you all that diversified. The correlations run from .88 up to 1. One of the core principles of Risk Parity is that investors should be on the lookout for true diversification, not just “country AND western” diversification, and running these numbers is excellent proof that one shouldn’t think they are appreciably lowering their risk simply by buying multiple versions of the same thing. Looking at the annualized returns, you can see that the Total Stock Market finished slightly behind small cap growth, but this is mainly an artifact of the chosen time period: 2002 was right towards the end of the bursting of the bubble, and small-cap growth stocks had just been hammered for two years.

Other Options:

There are a couple of competitors for VTI/VTSAX that are fine substitutes. I tend to stick with Vanguard funds out of loyalty, but essentially, the race to the bottom for fees is now over (good news: you, the individual investor, are the winner!), and various funds  all do the same thing for about the same price.

Probably the closest option is iShares Core S&P Total Stock Market ETF (ITOT) which holds almost 3700 US companies and charges the same .03% fee. Schwab’s version, SCHB, has the same expense ratio but fewer companies (around 2500). If you switch over to the mutual fund format (perhaps in your 401k), then a couple of options are FZROX and FSKAX, both of which are Total Stock Markets from Fidelity. FZROX has a 0% expense ratio, yes 0%, and FSKAX’s is just .015%. The push for a zero-fee fund is Fidelity’s attempt to get customers on to its platform, but if you can avoid being suckered by other elements of Fidelity’s business plan, then by all means, FZROX is a great choice. Another avenue is to go even bigger - if it is really a total stock market index fund you’re after, then it may be good to go with VT, Vanguard’s Total World Stock ETF (or VTWAX, in mutual fund form). VT follows the geographic distribution of equities worldwide, so it's about 62% US total stock market, 16% from Europe, 11% from Asia, and 10% from Emerging Markets. This gives you access to almost 9400 companies at the very low expense ratio of .07%.

Meanwhile, if you're keen, here is a link for my search for All-Cap/Total Market funds using the ETF Finder on Barchart:

ETF Finder -
Screen for ETFs based on Asset Classes: Commodity Sectors, Financial Sectors, Industry Sectors, Geographic Sectors, ETF Orientation.

Disclaimer: Actually, I don’t hold any VTI/VTSAX shares in real life, though I have in the past. I do own VOO and VIOV, which are mentioned above, though. Keep in mind that this site is intended for financial education, and this write-up is to explain how you might want to think about this particular asset. It's not necessarily a recommendation.