It commands more than $1 trillion in assets under management.
Exchange-traded funds (ETFs) are hugely popular with investors. One of the most recognized names in the ETF space is Vanguard, the company behind several of the biggest funds in the world in terms of assets under management.
It has several huge ETFs to fit any investing style, including those that seek to replicate the return of the S&P 500. The Vanguard S&P 500 ETF (VOO 0.87%) holds $1.1 trillion of assets, for example. There's an even bigger fund that in practice accomplishes the same goal. The Vanguard Total Stock Market Fund (VTI 0.77%) is, like VOO, an index ETF that's popular because of the diversification it provides at an unbeatable price.
Let's look at the fund that many investors use when they want exposure to the wider U.S. stock market and three things investors need to know about this wildly popular ETF.
1. VTI is focused on large tech
The Vanguard Total Stock Market ETF isn't as diverse as you might think. Sure, the fund owns 3,700 stocks that span small-cap, mid-cap, and large-cap companies. It delivers exposure to essentially all market sectors, too, including healthcare, real estate, and financial stocks.
Yet the Total Stock Market ETF is mostly about tech stocks, and just a few tech stocks at that. A full 33% of the fund's assets are invested in the tech sector, with consumer discretionary stocks landing in a distant second place at 15%.
The ETF is highly exposed to the largest, most successful tech giants, often lumped together and labeled as the "Magnificent Seven." Members of this group constitute six of the fund's top 10 holdings. Magnificent Seven stocks account for roughly 25% of all the Total Stock Market ETF's assets. In other words, for every $1 you invest in it, about $0.25 lands in this popular investing segment.
2. Efficiency is king with VTI
The Total Stock Market ETF is about the most efficient way an investor can gain exposure to the market. Just how close does it come to tracking the market? It has a beta of 1.0, meaning it moves in lockstep with the S&P 500.
Shares trade at about $250 as of this writing, and so you can own pieces of thousands of stocks, including some that trade for many multiples of this price, for less than $300.
The fund charges investors almost nothing for this access. Its expense ratio, which covers operating costs like marketing and portfolio management, is 0.03% while its peers can charge closer to 0.8%. That might seem like a small difference, but over an investing lifetime, this expense gap can make a huge impact on your asset base.
3. VTI is not the only game in town
While the Total Stock Market ETF is a great default option when you're seeking a cheap way to match the market's return, there are many other impressive ETFs, even within the Vanguard family of financial products.
Two others to consider are the Vanguard High Dividend Yield ETF (VYM 1.63%) and Vanguard Growth ETF (VUG -0.08%). The former focuses on large dividend-paying stocks that tend to be growing more slowly, making it a great counterpoint to the Total Stock Market's growth focus. It's excellent for those seeking income (the yield is currently 2.8%).
The latter of these two, on the other hand, takes the Total Stock Market's growth focus and doubles down on these expanding businesses. Rather than a 33% weighting toward tech, Vanguard's growth ETF allocates 56% of its assets in the tech sector. All seven of the Magnificent Seven are among the fund's top 10 holdings, and at higher levels than the Total Stock Market ETF.
Ultimately, you might decide to use a mix of these ETFs that reflects your personal investing style and the level of risk that you're comfortable with. However, the Vanguard Total Stock Market ETF stands apart for its ability to deliver efficient exposure to the wider market.
Demitri Kalogeropoulos has positions in Vanguard Index Funds-Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Growth ETF, Vanguard Index Funds-Vanguard Total Stock Market ETF, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.
