This broad market index offers a glimpse into areas beyond just the S&P 500.
Even Warren Buffett, often regarded as the best stock picker in history, suggests that most individual investors benefit from low-cost, diverse index funds and exchange-traded funds. This recommendation stems from the reality that many investors simply lack the time to deeply analyze individual stocks. Generally, broader market indices can yield average returns of about 8% to 10% over the long haul.
Major banks were the pioneers in establishing index funds for institutional clients, but it was Vanguard that made diversified index funds available to the public back in 1976. Today, Vanguard stands out as one of the few large asset managers that provides easily accessible and remarkably low-cost index funds, typically charging only a tiny fraction in fees.
With the market’s robust recovery following April’s “Liberation Day” tariff debacle, here are some Vanguard funds I recommend right now:
Exploring the Whole Market
Currently, technology stocks, particularly those related to AI, are seeing incredibly lofty valuations. It’s interesting to note that some of the fastest-rising stocks appear to challenge traditional metrics, overshadowing larger indices like the Nasdaq-100 or S&P 500. Such concentration hasn’t been seen in recent memory.
There’s a clear reason behind the surging prices of major tech stocks over the last several months, and indeed, the past few years: it’s all about artificial intelligence. The potential of generative AI has the capacity to trigger the next industrial revolution. However, it’s mainly the largest and most technologically advanced companies that are likely to compete effectively. Hence, it’s no surprise that the so-called ‘Magnificent Seven’ stocks continue to gain traction.
That being said, valuation is crucial, and the divide between the largest tech stocks and smaller players in other sectors is expanding. Moreover, as AI technology advances, it’s expected that companies across various sectors will also begin to benefit from generative AI.
So, while investors shouldn’t just abandon AI tech stocks en masse, it might be wise to explore other sectors that haven’t received as much attention. And that’s where this Vanguard ETF really shines.
Vanguard Total Stock Market Index Fund
For those looking to invest right now, I recommend the Vanguard Total Stock Market Index Fund. As the name implies, it tracks the entire stock market ecosystem, covering large-cap, mid-cap, small-cap, and even micro-cap stocks — basically the whole U.S. investment landscape.
However, broad market indexes lean more heavily toward large-cap tech stocks, as mentioned earlier. Investing in a total market index fund still allows exposure to the AI boom, but those tech stocks will have a smaller footprint compared to others like the Vanguard S&P 500 ETF. For instance, in the Vanguard Total Stock Market Index Fund, Nvidia comprises about 6.5%, whereas its weighting is higher—around 7.8%—in the S&P 500, and an even larger 9.9% in other tech-specific indices.
Meanwhile, the total market index has a greater allocation to smaller stocks within undervalued sectors, which could outperform should there be any market corrections. We saw a similar scenario in the early 2000s, where tech stocks hit a slump, while value stocks in various other sectors thrived.
Currently, VTI trades at an average earnings multiple of 27.2 and offers a dividend yield of 1.14%. Since the start of the year, it’s gained about 13.9%. While this performance isn’t quite as strong as VOO or QQQ, it still stands out favorably. Plus, with an expense ratio of just 0.03%, investing here is almost cost-free.
Balancing Momentum and Value
Ultimately, VTI offers a nice compromise for those bullish on the potential of AI technology but wary of the elevated valuations in the tech sector compared to cheaper stocks in other areas. Therefore, it’s a solid option for investors looking to allocate their funds this October as part of their overall investment strategies.
