Hands down, one of the best ETFs when it comes to following the US market is Vanguard’s VTI. But if you’re new to investing in an ETF or you’re only partly invested in this index fund, then you might not be sure if you should go all-in and put all of your money in it.
Well, here it is: you should put all your money in VTI and not look back. But only under one condition which we’ll address in a second.
In this article, I will help you understand why investing all your money in VTI is not only a great idea but the most logical one if you’re like most people.
In particular, we will examine how VTI is great when it comes to:
- Diversifying your money more than adequately,
- Making frequent and irregular contributions,
- Building wealth for the future while sleeping just fine at night, and
- Reaping the benefits of the lowest fees offered
But first, let’s see exactly when it’s appropriate to invest all of your money in VTI…
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Before you put all of your Money in VTI
A lot of people are very engaged with building wealth but lack some basic knowledge when it comes to managing their finances. So, I’ll have to make something clear.
If by “all your money” you literally mean every penny, then hold on for a minute. You need to make sure that all of that money you’re thinking about investing doesn’t include some cash for emergencies.
You should have at least enough cash to cover expenses for 6 months without income before we can talk about investing. But depending on the safety of your income, this could be either a guideline too strict or too loose. Here’s a guide by Vanguard for determining the right amount for you.
Now, you might object, “well, I could simply withdraw money from my investment fund if I ever need it”. After all, it’s become way too easy to do nowadays.
Well, this might work if you’re out of a job, but if an emergency strikes that will require you to get cash immediately, this is simply not an option. An emergency fund is supposed to be set for any unexpected circumstance; not just temporarily losing your income.
Now once you have taken care of your emergency fund, you’ll be ready to go all-in with VTI. Let’s see why though…
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4 Reasons that you Should Put all your Money in VTI
- Over-Diversification
VTI is one of Vanguard’s ETFs that allow you to invest in the US market by spreading your money across 3,500 US businesses. In other words, you invest $100 in VTI, you own a part of each one of those companies.
That’s a ridiculous level of diversification. So if you’re concerned about safety, don’t. You will be so broadly diversified that buying another ETF or picking individual stocks becomes overkill.
Besides, even if you’re considering hedging against the market by buying some other securities like bonds, the market has proven that it goes up over-time. Since I’m assuming you’re in for the long-term, this becomes irrelevant at the end.
- Frequent Contributions
Like most of the brokers today, Vanguard doesn’t charge any commission for buying and selling ETF shares. This makes VTI an ideal investment vehicle for people who want to be investing in the market on the regular.
It becomes even more ideal if we’re talking about retirement. An ETF like VTI will help you reach your retirement goals no matter how frequently money comes in (or how much). Storing cash in your bank account with non-existent interest rates is such a no-go.
- Sustainable Long-term Returns
With an annual average return of 8.33% from 2001 till now, VTI is simply tough to beat as a wealth-building machine.
A proven record of sustainable long-term returns is all you need to feel safe enough to invest all of your money in just an ETF like that.
Adding other securities or ETFs to your portfolio could deviate your returns from what has happened in the past and blur causation. In other words, unless you want to risk worse returns than VTI’s historical ones and cause confusion about what went wrong, there’s no reason to spice up your portfolio.
- Low Fees
Vanguard is famous for its low-cost ETFs and mutual funds. But VTI’s expense ratio of only 0.03% takes the cake here…
If you’re unfamiliar with what the expense ratio is, it’s simply the portion of your fund’s value that will be taken as a fee for managing that fund. Index funds have generally low expense ratios; they can be as little as 0.05% and as high as 0.7%.
So, an expense ratio of 0.03% is truly irregular, but there are a couple of ETFs like Vanguard’s VTI that have been charging no more than that for many years now.
You will simply struggle to find lower management fees. And again, if you’re in for the long ride, the fees are very important and should not be ignored.
Let’s not forget that over time, these fees compound and can amount to significant expenses that cut into your returns. Besides those expenses will grow as your fund does. No need to spread your money across other investment vehicles if you’re all about maximizing your returns.
Conclusion
Vanguard has indeed many great ETFs, but none can beat VTI for those who want to have a little bit of everything that is publicly traded.
I hope I helped you see how putting all your money in VTI is the best decision when it comes to investing for the long-term. It can simply provide you with everything you need to achieve your retirement goals and then some.
No matter what you’re concerned about; diversification, costless contributions, steady returns, low management fees… VTI has you covered.
Thank you for reading this article and please, take the time to share it if you found it helpful. Also, ask me anything you want down in the comments and I’ll try to get back to you as soon as possible.
Take care for now…
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