Ultimate Guide To VTI

by on September 19, 2012 | Updated October 18, 2012

Cheap and easy diversification are two staples of the exchange-traded product structure, which have helped make this the preferred investment vehicle for investors of all walks. ETFs have made their way into countless portfolios as many have embraced the cost-efficient nature of these financial instruments, which now cover virtually every corner of the global market. As such, adding core equity exposure to your portfolio has never been easier; those looking to diversify across U.S. markets should consider Vanguard’s Total Stock Market ETF (VTI) as it offers a compelling portfolio with an attractively-low price tag [see How To Pick The Right ETF Every Time].

In A Nutshell

VTI is a veteran fund in the space as this offering has been around since May 24, 2001. This ETF is linked to the MSCI US Broad Market Index, which is comprised of U.S. common stocks regularly traded on the New York and American Stock Exchanges as well as the Nasdaq over-the-counter market [see VTI Realtime Rating].

What Makes VTI Unique

At first glance, VTI offers exposure to a strategy that is rather plain vanilla. This ETF tracks a market capitalization weighted index similar to the overwhelming majority of exchange-traded funds. However, what separates this ETF from its peer group is the sheer size of its underlying portfolio; VTI holds a basket of over 3,300 individual securities, easily making it one of the deepest funds in the ETF universe as a whole.

How It Fits

Given its attractive price tag and deep basket of securities, VTI makes for an enticing core holding for anyone looking to add broad-based U.S. equity exposure to their portfolio. Because this ETF is diversified across every sector and among companies of all sizes in the U.S. equity market, VTI can serve as a viable core holding in many long-term, buy-and-hold portfolios. Active traders looking to establish tactical, short-term exposure to this asset class may opt for SPY instead, although long-term investors will likely find VTI hard to pass up [see also 101 ETF Lessons Every Financial Advisor Should Learn].

What It’ll Cost You

The average expense ratio for the All Cap Equities ETFdb Category comes in at 0.46%, which places VTI on the “very cheap” end of the cost-spectrum as this ETF charges a mere 0.06% in annual expenses. Furthermore, cost-conscious investors will find VTI irresistible as this ETF is available commission-free on the TD Ameritrade and Vanguard platforms [see also Cheapskate ETFdb Portfolio].

Under The Hood

VTI’s portfolio is incredibly deep and well-balanced; with over 3,300 securities in total, this ETF allocates well under a fifth of its total assets to the top ten holdings alone. Given its market cap weighted methodology, it’s not surprising to see well-known companies like Apple (AAPL), Exxon Mobile (XOM), Microsoft (MSFT), General Electric (GE) and IBM (IBM) in VTI’s top holdings.

Investors should note that this ETF features a bias towards larger companies from a market capitalization perspective; giant and large cap stocks account for nearly three-quarters of total assets, while mid, small and micro caps receive fairly minimal allocations. From a sector breakdown perspective, VTI offers plenty of diversity; technology stocks account for the greatest portion of total assets, although financial services, industrials, healthcare and consumer stocks also receive fairly equal allocations [see VTI Fact Sheet].

Yield, Volatility and Performance

This ETF offers a quarterly dividend distribution and its expected volatility should fall in-line with broad U.S. markets and below that of emerging market benchmarks. From a performance perspective, VTI fell alongside major equity indexes during the 2008 slump, shedding close to 37% that year. As expected, this ETF recovered alongside major equity benchmarks in the following years; VTI managed to clinch gains of roughly 29% in 2009 and 17% in 2010. This ETF turned in a flat performance in 2011, adding 1% during an otherwise very choppy year for stock markets [see VTI Returns].

Other Options

The ETFs profiled below offer generally similar exposure as VTI, although there are a number of distinguishing characteristics to each one:

  • iShares Russell 3000 (IWV): This ETF charges a steeper price tag at 0.21%, although it is available commission free to TD Ameritrade and Fidelity account holders.
  • Charles Schwab U.S. Broad Market ETF (SCHB): This ETF costs the same as VTI, although it could appeal more to Charles Schwab account holders as it is available commission-free.
  • PowerShares DWA Technical Leaders Portfolio (PDP): This offering charges a fairly steep 0.60% expense fee, however, it employs a unique methodology that screens for securities exhibiting the most powerful relative strength characteristics.

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Disclosure: No positions at time of writing.