Key Points
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The Vanguard Morningstar Total Stock Market ETF (VTI) was launched in May 2001.
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In the past 25 years since then, VTI has delivered average annual returns of 9.44%.
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$300 per month invested in VTI starting 25 years ago would be worth more than $325,000 today.
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It’s easy to get distracted by daily news headlines and stressful events in the world and social media noise about the stock market. It’s harder to stay focused on the long-term.
But in the long run, most negative news headlines don’t matter much for the stock market. The broader U.S. stock market tends to keep growing and delivering strong returns — if you can hold on for the long-term.
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What does “long-term” investing mean? How about 25 years. That’s how long the Vanguard Morningstar Total Stock Market ETF (NYSEMKT: VTI) has been available to investors. That’s a longer track record than many investment firms. Many publicly traded companies don’t even stay in business for 25 years.
Here’s the most impressive fact about VTI: for the past 25 years since the fund’s inception in May 2001, this same total stock market ETF has delivered average annual returns of 9.44%. In the past five years, VTI has done even better, with annualized returns of about 12.6%.
Just by owning this one ticker that holds roughly “all the stocks” of the U.S. market for the past 25 years, just by patiently, consistently investing in this one low-cost index fund, investors could have built life-changing wealth.
Here’s why this one fact is so powerful: that 9.44% annualized return includes major stock market crashes that have happened in the past 25 years, like the global financial crisis in 2008 and the Great Recession. It includes the bear market that happened after the dot-com bubble. If you were a long-term investor in this fund, you still made great money despite those terrible problems in the short term.
Let’s look at what the 25-year history of the Vanguard Morningstar Total Stock Market ETF means, and why it matters for your investing choices today.
VTI: 3,519 stocks of all sizes
The Vanguard Morningstar Total Stock Market ETF (VTI) might be the best index fund for owning the most diversified mix of U.S. stocks. VTI holds a portfolio of 3,519 stocks, which includes small-caps and mid-caps, along with large-caps like the S&P 500 (SNPINDEX: ^GSPC). These smaller companies held by VTI don’t always outperform the big names of the S&P 500, but they might have more upside potential for the future.
Because VTI owns “all the stocks” and not just the largest companies, it sometimes underperforms the S&P 500. In the past 10 years, VTI has underperformed that large-cap index, as well as the tech-heavy Nasdaq-100 index.
^NDX data by YCharts
But that’s OK. Even with “only” 9.44% annualized returns, lots of everyday people could have made massive gains by investing only in VTI for the past 25 years. Here’s how the math looks.
VTI: investing at 9.44% annualized returns for 25 years
What if you had started investing in VTI 25 years ago? A one-time $1,000 investment in VTI in 2001 would have grown to $9,537 today. Your money would have multiplied by about 9.5 times.
But most people don’t invest in the stock market only once. Many investors keep putting money into stocks on a regular basis. What if you could steadily keep investing $300 per month, starting 25 years ago to today, earning VTI’s 9.44% average annual return?
After 5 years, you’d have $21,735. After 10 years, you’d have $55,857. After 20 years, you’d have $193,525. And after 25 years of investing in VTI, today you would have $325,555.
What if you could have invested even more, and put $500 per month into VTI for the past 25 years? A $500 monthly investment in VTI earning a 9.44% average annual return from 2001 to today would have grown to $542,592 after 25 years.
Why buy VTI
The Vanguard Morningstar Total Stock Market ETF doesn’t have to be your only investment. But it can be a great way to start investing, and a solid piece of your portfolio. Few other ETFs have such a long-term track record of strong performance for 25 years.
There’s no guarantee that VTI or any other stock or ETF will keep delivering the same returns that it has in the past. But if you believe that the U.S. stock market is likely to keep growing, and you want to own companies of all sectors and sizes, VTI is a low-cost, simple way to bet on the future of America’s economy. America’s publicly traded companies tend to keep figuring out new ways to solve problems, sell products, and earn profits. Index funds like VTI let you share in that success.
It won’t help you get rich quick. But if VTI keeps delivering 9.44% annualized returns in the future, it could help you build significant wealth with steady, consistent investments and a long-term perspective.
Should you buy stock in Vanguard Morningstar Total Stock Market ETF right now?
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Ben Gran has positions in Vanguard Morningstar Total Stock Market ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
