Key Points
With recession worries creeping back into the headlines, it’s tempting to get clever with your money. Jump in and out, chase hedges, hunt for the one stock that will hold up. Most of the time, however, the better move is simpler and far more boring.
For long-term investors, few funds make the case for boring better than the Vanguard Total Stock Market ETF (NYSEMKT: VTI). It owns almost the entire U.S. stock market, charges next to nothing, and has recovered from every downturn it has ever faced.
Here’s why it has never let patient investors down.
What you actually own
VTI is about as diversified as an investment gets. The fund holds roughly 3,500 stocks — from the largest technology giants down to small, sleepy value stocks most people have never heard of. Buy a single share, and you own a sliver of nearly every investable company in America.
It has grown into one of the largest funds in the world, with more than $650 billion in assets. Because it weights companies by size, its biggest technology names carry real influence. But they sit alongside thousands of smaller businesses that a narrower fund would leave out.
It also happens to be one of the cheapest funds around. Its expense ratio is just 0.03%, which works out to about $3 a year on every $10,000 invested. Over decades, that low cost compounds into a meaningful edge over pricier funds.
Because it tracks the whole market, not just the large caps in the S&P 500, VTI owns slow, steady blue chips and high-flying growth stocks together, in one package.
That breadth is exactly what makes it resilient. No single company dominates it, and its holdings span every major sector. And it even pays a small dividend, currently yielding a little over 1%.
A record of bouncing back
The real reason to trust VTI in a scary market is its history. Since it launched in 2001, the fund has lived through some brutal stretches and come out the other side at new highs every time.
In 2008, VTI fell about 37% as the financial system nearly buckled. At the market’s bottom in March 2009, it had lost more than half its value from the peak, and it took close to three years to fully recover. It was a gut-wrenching stretch. But an investor who simply held on was whole again in time, and far ahead over the following decade.
The 2020 pandemic crash was faster and stranger. The fund plunged more than 30% in a matter of weeks, then finished the year up about 21%.
And when stocks slid nearly 20% in 2022, VTI came right back with a 26% gain in 2023. The pattern is remarkably consistent: the downturns have been temporary, and the recovery has always arrived.
Over its lifetime, the fund has compounded at roughly 9% a year despite every one of those scares, and it has returned nearly 15% annually over the past decade. To put that in perspective, money invested in the total market at VTI’s 2001 launch would be worth close to ten times as much today, dividends reinvested, even after living through two of the worst crashes in modern history.
Owning the whole market has simply worked, as long as you stayed in your seat. The temptation in a downturn is to sell and wait for things to feel safe again. But the all-clear usually shows up only after the rebound, which is why sitting tight has beaten trying to dodge the drops.
None of this guarantees the next downturn will be gentle, and I wouldn’t pretend to know when the next one arrives. VTI will fall in the next bear market — and probably hard. The point was never that it avoids losses.
It’s that, for anyone with a long enough horizon, those losses have always proven temporary, while the gains kept compounding.
So if recession headlines have you rattled, the answer probably isn’t to outsmart the market. It’s to own all of it, cheaply, and give it time.
For most long-term investors, a fund like VTI is less a trade than a foundation. It’s the kind of holding you buy, add to on the way down, and otherwise leave alone. It has never let patient investors down before, and I see little reason to bet against it now.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
