Markets

3 ETFs For True Total Market Coverage

ETF investors often spend an inordinate amount of time trying to find the best spot in the market. They love focusing on specific sectors, factors, or tactical strategies that are showing a promising edge. However, there is often a fundamental need for simple and diversified stock exposure at the lowest possible cost.

This type of core foundation is the essence behind total stock market funds. They allow you to stay correlated with the broadest possible indexes and charge expenses that are so fractional as to be almost non-existent. They embody the true spirit of the ETF philosophy in their liquidity, tax efficiency, and transparency.

The largest and most well-known of this group is the Vanguard Total Stock Market ETF (VTI). Over the years, I’ve lost track of how many awards and commendations this fund has received. Its true value proposition is the simplicity of a single vehicle for complete U.S. stock market coverage with the lowest possible tracking error.

VTI owns a basket of 3,592 publicly traded securities across the large, mid, and small-cap verticals. You can’t get much more diversified than that. The fund is market-cap weighted to give the largest stocks a greater share of its $70 billion asset base. Nevertheless, the top holding, Apple Inc (AAPL) only accounts for 2.5% of the total portfolio. That leaves a large swath of exposure to be distributed through the thousands of remaining holdings.

One of the highly touted advantages of VTI is its ultra-low expense ratio of 0.05%. That’s just $50 for every $100,000 invested on an annual basis. The minimal expenses ensure this fund is appropriate as a long-term position in virtually any type of equity portfolio.

The next largest fund by size is the Schwab US Broad Market ETF (SCHB), which has $7.7 billion under management. This ETF tracks a basket of 2,000 stocks domiciled in the U.S. through all market-cap segments.

SCHB claims one of the lowest industry expense ratios at just 0.03% annually. This fee has been incrementally lowered multiple times over the years, which adds to its attractiveness for long-term investors. It’s even conceivable that one day this ETF will charge as low as one basis point per year for access to its diversified stock portfolio.

Last, but certainly not least, is the iShares Core S&P Total U.S. Stock Market ETF (ITOT). This fund shares traits of both VTI and SCHB in its overall makeup. It charges an expense ratio of 0.03% and contains more than 3,600 underlying holdings. ITOT has $6.7 billion in assets under management and has been in place since 2004.

While all three of these funds have minor differences in their structure, they must ultimately be judged on their results. The 5-year price chart below shows that the returns for all three are almost indistinguishable from each other.

That level of correlation is a dependable statistic for those that are agonizing over which is the best fund to pick. There really is no wrong answer here. Although, the decision may be made easier if one of these options is available transaction-free from your brokerage platform. That would truly minimize total costs and allow you to scale in or out of any shares with the lowest possible friction.

The Bottom Line

Total market ETFs are solid tools for both experienced investors and those who are just starting out on this journey. They provide a truly simple path to a diversified stock allocation without having to agonize over various investment styles. Removing complexity from the equation can result in better execution and a much greater chance for long-term success.

Disclosure: At the time this article was written, the author owned shares of ITOT.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

ITOT VTI SCHB AAPL

Other Topics

ETFs Investing