If I could only buy and hold one stock, this would be it.
A disciplined, long-term approach is wise if you want to build wealth in the stock market.
Investors should maintain a diversified portfolio to limit volatility and avoid being dependent on one stock or sector for returns.
The Vanguard Total Stock Market ETF offers an all-inclusive investment option, providing exposure to more than 3,500 U.S. stocks across a variety of sectors.
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Investing in the stock market is a great way to build long-term wealth. While short-term trading is tempting, the real power of investing lies in a disciplined, patient approach. By focusing on a diversified portfolio of stocks with different characteristics, investors can smooth out volatility and ensure that no one company or sector dominates their returns.
However, for many investors, especially those just getting started, the sheer number of choices can feel overwhelming. With thousands of publicly traded companies and countless strategies to consider, it's easy to get lost in the noise.
That's where broad index funds like the Vanguard Total Stock Market ETF(NYSEMKT: VTI) can help. This ETF provides exposure to the entire US stock market through a single, low-cost investment. Therefore, if I could only invest in one stock, this would be it.
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The Vanguard Total Stock Market ETF is an exchange-traded fund (ETF). ETFs are investment vehicles that trade on stock exchanges just like regular stocks. Unlike mutual funds, ETFs can be bought and sold throughout the trading day, providing flexibility and liquidity.
Investing in ETFs brings a number of important benefits. First, they tend to be cheap, with expense ratios much lower than those of actively managed funds. ETFs also provide diversification and are tax efficient due to their unique structure, which minimizes capital gains distributions. Finally, they are transparent, positions are published daily and are easily accessible through most investment accounts.
The Vanguard Total Stock Market ETF appeals to me because it gives investors broad exposure to the entire U.S. stock market. Unlike funds that track only a segment of the market, this particular ETF includes large, mid-market and small companies from all sectors and owns more than 3,500 stocks.
The S&P500 index tracks the 500 largest U.S. companies, primarily large-cap stocks Apple, MicrosoftAnd JPMorgan Chase. While the S&P 500 provides a strong representation of the core of the U.S. economy, it skips smaller stocks.
The Nasdaq-100on the other hand, is highly concentrated. It includes 100 of the largest non-financial companies listed on the Nasdaq, with a strong bias toward technology and growth stocks. While this can lead to outsized gains during bull markets, it also introduces higher volatility and a greater risk of sector concentration.
Another advantage of this ETF is its low costs. Low costs are key when investing in ETFs, and the expense ratio is an important metric to keep an eye on.
The expense ratio represents the annual cost of owning a fund, expressed as a percentage of your investment. For example, this ETF has an expense ratio of 0.03%, which means you'll pay $3 in fees (which cover fund management and operating costs) annually for every $10,000 invested.
Expense ratios matter because high costs can eat into your returns over time, especially in long-term investments where compounding plays an important role. While passive funds like the Vanguard Total Stock Market ETF have low expense ratios, some more actively managed funds can charge as much as 0.5% or even 1%, eating into your long-term returns.
The Vanguard Total Stock Market ETF offers investors a highly diversified portfolio with minimal effort. This makes it ideal for investors looking for broad market exposure. Because it only invests in shares, this ETF is also more suitable for investors with a long-term horizon of ten years or longer.
If you have a long time horizon and are looking for a hands-off approach to investing, the Vanguard Total Stock Market ETF may be just what you're looking for.
Before purchasing shares in Vanguard Total Stock Market ETF, consider the following:
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Courtney Carlsen holds positions in Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
If I could only buy and hold one stock, this would be it. was originally published by The Motley Fool
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