Congratulations on taking your first step toward building wealth over time. The stock market is a great tool for protecting and growing your hard-earned nest egg, and by deciding to take the leap, you already have an advantage. Nearly 30% of Americans don’t invest in the stock market at all, according to Gallup data.
But maybe you haven’t figured out your investing style yet. You might be a rule breaker at heart, keen to invest in tomorrow’s biggest winners today. Or perhaps you would rather stick with proven value stocks, bound to build value at a modest pace without the risks of high-octane growth stocks.
If you’re really lucky, you could have the temperament to build and maintain a balanced and diversified portfolio, getting the best of both worlds.
That’s OK. You don’t have to pick a strategy right away. There’s nothing wrong with dipping your first toe in Wall Street’s waters through a low-cost exchange-traded fund (ETF). An index-tracking ETF from a fee-averse manager such as Vanguard can get you started on the right foot.
And you can research individual stocks on the side, or simply stick with your market-matching strategy in the long run, following the footsteps of investing legend John Bogle.
Even so, you still have dozens of index-tracking strategies and hundreds of funds to choose from. Let’s keep it as simple as possible, right? You can’t go wrong with the Vanguard Total Stock Market ETF (NYSEMKT: VTI) — one of the most popular and stable ETFs on the market.
What’s an exchange-traded fund?
An exchange-traded fund is a collection of securities that you can buy or sell through a brokerage firm on a stock exchange. ETFs offer the benefits of instant diversification, low costs, and flexibility. They hold a variety of assets, such as stocks, bonds, or commodities. Some are actively updated by fund managers, while others leave the stock-picking to a standard market index. Index-tracking ETFs are designed to track the performance of a specific index, sector, or asset class.
One of the main advantages of ETFs is their ability to trade like a stock. Mutual funds update their price at the end of each market day, and they come with extra layers of tax reporting, too. But you can buy and sell ETF shares throughout the trading day at current market prices, which provides greater control over your investment decisions.
For beginners, ETFs are an excellent way to gain broad market exposure without having to pick individual stocks.
What’s special about the Vanguard Total Stock Market ETF?
The Vanguard Total Stock Market ETF is a top choice for many investors because it offers comprehensive exposure to the entire U.S. stock market. This includes large-cap, mid-cap, and small-cap stocks, representing virtually all publicly traded companies in the U.S.
One of the key advantages is its low expense ratio. Vanguard is known for its commitment to keeping costs low, and this ETF is no exception, with an annual expense ratio of just 0.03%. This is significantly lower than the average ETF (0.16%) or mutual fund (0.47%), allowing you to keep more of your returns.
Moreover, the Vanguard Total Stock Market ETF is very popular and widely traded. It also stands apart with an enormous scale, holding a massive $1.5 trillion of assets under management.
It currently reflects the performance of 3,719 stocks on the American stock exchanges. Over the last decade, the ETF has seen a compound annual total return of 12.2%, more than tripling the value of an investment made in May 2014.
It’s easy to invest in this ETF
Getting started with the Vanguard Total Stock Market ETF is simple. You can buy shares through any brokerage account, much like purchasing individual stocks. Most online brokers offer commission-free trades for stocks and ETFs nowadays, and don’t forget about that ultra-low management fee. You can start with a single share, currently priced at $260, and many brokerages even let you buy or sell fractional shares if that’s too much.
Once you have an account, simply search for the VTI ticker and place your order. You can choose to invest a lump sum or set up recurring investments to take advantage of dollar-cost averaging, which helps mitigate the impact of market volatility over time. An automatic investment plan can grow even faster if you choose to automatically reinvest dividends (currently a 1.4% annual yield) in more ETF shares.
Long story short, it’s really easy to get started with a Vanguard Total Stock Market ETF investment.
Remember: Investing is a marathon, not a sprint. By starting with the Vanguard Total Stock Market ETF, you are taking a significant step toward building a solid financial future. Regular investments, combined with the long-term benefits of compound returns, can lead to substantial growth over time. In other words, this ETF may not be incredibly exciting but it’ll let you make a significant amount of money in the long run.
Don’t be discouraged if you decide to stick with this market-tracking Vanguard fund for the long haul. The key is consistency and patience. As you grow more comfortable with investing, you might explore other opportunities, but this ETF (and others like it) can remain a reliable cornerstone of your portfolio.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
How Should a Beginner Invest in Stocks? Try This ETF. was originally published by The Motley Fool
From: Yahoo.com
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