Why I Have My Entire Stock Market Holdings In One Single Stock (VTI)
You’ve heard the saying “don’t put all of your eggs in one basket” (because if you drop the basket, all of the eggs break, and you lose all of them). What I’m about to discuss is about having one egg in one basket… the difference is… when the egg breaks… it breaks into ~3600 little eggs. That one egg is VTI. It’s technically not a stock, but an ETF (a fund that you can buy and sell as a stock). It’s managed by Vanguard (and I use the word “managed” loosely). VTI is also known as a mutual fund under VTSAX (3K initial investment). Note there used to be a VTSMX with a 3K initial investment and slightly higher fees, but Vanguard did away with VTSMX and now there is only VTSAX (it’s all the same, and all VTSMX holdings were converted to VTSAX). Now let’s get back to discussing this one egg concept…
Please note, I am not a professional investment advisor, and I am not practicing to be one. I can’t possibly know the full details of your personal finances, so all of what I’m saying here must be treated as opinion for entertainment purposes only. I am sharing part of what I’ve personally invested in, why I’m invested in it, and I hope it’s entertaining.
Investing Basics 101
If you’ve never read my previous post titled “A Very Basic Intro To Investing and the Stock Market”, please check it out. It goes well with this post, and it’s a good beginner guide to read before reading this post.
What Is VTI?
VTI is the Vanguard Total Stock Market Index ETF/fund. VTI is an ETF which invests in approximately 3600 US companies… every publicly traded US company in the United States. 3611 companies to be exact, as of the writing of this post. It’s one big egg consisting of over 3600 companies.
Stop for a moment and think about that… by owning VTI… you own a piece of 3600 companies. 3600 companies where when they earn a profit, you earn a profit. 3600 companies working for your wealth! This is truly passive investing. You do zero work once your hard earned money is invested. Just sit back, reap dividends, and watch the value of your stock holdings grow.
I Literally Own A Piece Of 3600 Companies!
“What do you do for a living?”
“I’m a business owner.”
“Oh really? What business do you own?”
“It’s really not just one business. I’m an investor in over 3600 companies.” (Technically I would always have to +2 that count, because I also own a software company and a real estate company)
“No way! You own 3600 businesses?!?!”
“Yep! Unbelievable, huh?!”
How Does Owning VTI Mean You Have Ownership In 3600 Companies?
VTI is an index fund which literally purchases a tiny piece of all 3600 companies each time you buy a share of this stock. I know I keep using the word literally… I just want to be clear it’s not some virtual, 3rd party, “hope” that you own something… you literally, on paper, legally binding, own a piece of 3600 companies, with all the benefits that come with ownership… namely seeing the value of the company go up (or down) and receiving dividends from the company when they decide to share profits with stockholders. When you hear that [insert any public company name] made a profit and is sharing those profits via dividends… if you own VTI, you will always get a share of that dividend. Vanguard tracks all of those dividends and issues them as one single VTI dividend 4 times per year. Don’t worry, it’s all legit, and you’re getting your fair share. Vanguard does all the work track all the companies. They/Vanguard takes a tiny fee for doing all of this work, but in the grand scheme of things, it’s very tiny.
How Much Does Vanguard Keep As A Fee And What Are They “Managing”?
I mentioned at the beginning that Vanguard “manages” this fund, and I stated I use the term loosely. Technically they programmed automation that manages all of this. There is not some guy choosing to buy and sell stocks based on his feelings or what his “gut” might be telling him. There are a number of funds where stocks are bought and sold via technical data, emotions, and gut feelings… no really… I’m serious. What I like about this specific index fund investing is there are no emotions involved. All publicly traded US stocks are owned based on the size of the company. For example, since Apple, Amazon, and Microsoft are huge, multi-billion-dollar companies that you hear a lot about, when you buy a share of VTI, the portion that you own of these bigger companies is bigger than what you own of the smaller “no-name” companies. And as companies grow and shrink, the index adjusts for these changes automatically.
Oh, and when I say Vanguard keeps a small fee tracking all of this, here’s what I mean. Their fee is .03% per year. Note, that’s NOT 3%. It’s point-zero-three-percent (of 1%). That’s equal to 30 cents for every $1000 you have invested. For every $10,000 it would be $3 per year. For every $100,000 it would be $30 per year. For $1,000,000 invested they’re keeping $300. Note, dividends alone on $1,000,000 investment return to you approximately $18,000 per year. So they are taking $300 out of $18,000. It’s quite the great deal for us, the investor. Oh yeah, and this .03% fee is “baked-in” to the overall return. You do not have to write a check each year to pay for anything. For example, instead of making a 7.00% return, your return will be 6.97%.
Why Do Fees Matter?
Understand, for comparison’s sake, some funds change 1%-2% to manage the fund. On a $1,000,000 portfolio, that’s $1,000-$2,000 $10,000-$20,000* per year compared to $300 for Vanguard. While I’m sure you can see a big difference in those numbers… this will also put it into perspective. If you’re making a 7% total return on your money per year, you’ll roughly double your money every 10 years. If the fund is taking a 1% fee (which means you’re only getting 6% return), it will take 12 years (two more years to double your money)!
* Thank you RE@54 for pointing out some incorrect math on my 1%-2% calculations.
Why Are Vanguard Fees So Cheap?
While Vanguard is technically a for-profit company, it’s structured in a way that we, the owners of Vanguard funds like VTI/VTSAX, are treated as owners of Vanguard. And by that I mean Vanguard basically charges wherever it needs to run the business, but there’s not some guy at the top raking in an extra hundred million a year as CEO (not that there’s anything wrong with that). If there’s a profit at Vanguard, they look for ways to reduce fees. They basically try to “break even” every year.
You can read about Vanguard VTI fees here.
Tell Me More About The Top Companies Owned At The Top Of VTI…
At the time of writing this post, here are the top 10 companies held in VTI (what ~20% of every dollar invested will buy):
- Microsoft Corp.
- Apple Inc.
- Alphabet Inc.
- Amazon.com Inc.
- Facebook Inc.
- Berkshire Hathaway Inc.
- JPMorgan Chase & Co.
- Johnson & Johnson
- Procter & Gamble Co.
- Visa Inc.
That means for every $100 you invest, ~$20 will go to investing in those 10 companies. For each $1,000,000 invested, ~$200,000 will be invested in those 10 companies.
You can see the top 10 companies and an overview of VTI here.
Side Note: For what it’s worth, sometimes I wish there were an ETF/fund where I could purchase VTI, but exclude up to 10 companies from the investment. For example, I wish I could exclude Facebook going forward. They are currently the 5th largest holding in VTI, and I do NOT believe they are going to last over time. The way the company is being run and the lack of privacy is a big deal, and I do not believe they are going to be the same company 10 years from now. I think people are going to flee the Facebook platform over time. We will see…
What About The “Why”?
Now that you know what VTI is, let me get to the “why”. I have all of my stock investments in VTI. Why would I put all of my investments in this one stock/ETF? The answer for me is simple. I get “good enough” returns and I can’t imagine being any more diversified than this. By “good enough” I mean I can expect an average yearly return of 7%-10% over my lifetime. No, past results are no guarantee of the future, but I feel pretty good that return will be really close. Understand, there are a lot of ups and downs on the return (for example this year we’re up about 25% — last year was a negative return of about -5%). Over time though, the stock market will always head up. If it ever stops heading up or not recovering and staying down, well… the world has probably ended. And if that doesn’t happen, well my money should double in value every 7-10 years. Nothing is “can’t lose”, but I feel investing in VTI is about as “can’t lose” as you can get in the stock market over time. I might “lose” some money over a year or two, but over 10-20 years I should always win. And 3600+ companies is a lot of diversification compared to picking 20-50 stocks. 20-50 random stocks CAN go to zero in value… 3600 can not. That helps me sleep quite well at night. I really do not worry about having all of my eggs in one basket. In fact, I honestly can’t believe it’s possible to have ownership in 3600 companies, but I do.
One other note about the “why”. My VTI holdings are not my only assets. I also own a small software company and a real estate company. And as you’ll read below, I am not living off of my VTI investment at this time, and I will not be for at least another 10 years, and it will probably be closer to 20 years.
Will You Always Stay 100% Invested In VTI?
As of the writing of this post, my answer is yes. Long term, I’m planning on a 2%-3% withdrawal rate. And because I’m only going to be doing a 2%-3% withdrawal rate (and dividends alone will cover a very large portion of that), I don’t believe I’m going to diversify into bonds. And for the sake of discussion, I’ll have income producing real estate, too, but I don’t plan on living off of that income — I plan to keep reinvesting that income to purchase more real estate.
When Will You Start Drawing Off Your VTI Investment?
I’m in my early 50’s at the moment, and I don’t expect to need to draw anything until mid-60’s at the earliest (because my software company will be providing income for the foreseeable future). More than likely, it will be closer to 70. And of course RMDs are required at 70 for my pre-tax holdings, so I’ll start drawing at that time for sure.
Why Do You Invest In The VTI ETF Instead Of The VTSAX Mutual Fund?
Good question. Mainly because when I first opened my SEP account at Scottrade for investing, the fees were higher to make a Vanguard mutual fund transaction than it was to buy the VTI ETF ($30 vs $7). Scottrade (which has now been acquired by TDAmeritrade) charged a lot more for mutual fund transactions (and I could still “DRIP” dividends to buy more shares just like a mutual fund buys more mutual funds when dividends are issued). And now I have even more reason to stay in the ETF, because stock trades are now free instead of $7. Once I am retired and have no more income coming in from my business, I’ll probably transfer the entire VTI holdings to Vanguard and move it all to VTSAX for simplicity.
Don’t look for the needle in the haystack. Just buy the haystack!
John C. BogleI have ownership in over 3600 US companies!!!
Mr. Hobo MillionaireWhat Do You Think About Me Holding Everything In VTI?
What are your stock investments in? What do you think about what I’m doing? Tell me what you think!
Thoughts on the counterparty risk you take with Vanguard? If Vanguard goes poof, how do you access your VTI, I know its uncharted waters, but have any ETF fund managers gone out of business and how soon are investors able to recover their funds, or have some even been misappropriated.
I would think with the trillions under management the fraud risk is more than zero to the company, even if it meant 100 employees needed to collude.
Good question, Bob. I have thought a little about this, but the risk is so tiny (but not zero) I haven’t taken action. By the time I’m 70, I *might* take the extra protective step of splitting the funds 50/50 between say Vanguard and Fidelity (they have the total stock market fund FSKAX).
My understanding is the underlying securities are in one’s name. Vanguard is simply the “keeper” of the information. There are rules and regulations that ensure this is done properly. It’s all digital of course. I have no doubt that Vanguard is doing things properly (as compared to a Bernie Madoff). If Vanguard didn’t have the solid, public history they had, and operate as essentially a non-profit company, I would be more leery.
The truth is we live in a world now where most every asset is digital. All the credit/debit card transactions… all digital… real money hardly changes hands anymore. Again, no risk is zero, but I feel as safe as one can with Vanguard.
Thank you for your question!
“Understand, for comparison’s sake, some funds change 1%-2% to manage the fund. On a $1,000,000 portfolio, that’s $1000-$2000 per year compared to $300 for Vanguard.”
Double check me, but at 1% fee would be $10,000 for $1,000,000. 1,000,000 x .01.
Same thing for 2%, $20,000 fee.
Now that is significant difference with the management fees.
Thank you, RE@54. You are correct! I have fixed it above and given credit where credit is due. I won’t try to explain how I got that wrong. I knew the fees were large. I was doing some quick math in my head and botched it up. I’m more embarrassed I didn’t catch it. It is staggering to see the difference between $300 and $10,000 in fees.
No credit needed. I must have re-calculated the results four or five times before I posted to be sure myself. Ha ha.
Regarding your topic, I have five Vanguard mutual funds. One is VTSAX. The other Vanguard index funds are midcap and large cap that have overlap with since VTSAX is the total market. I do have an international index. I guess they call it diversifying. ha ha.
Your way seems to work for you, so why mess with it.
I, too, am a fan of low cost index funds. I choose to invest in the SPDR, the S&P 500 ETF and a very low cost S&P 500 mutual fund.
Based on my own investing history, I find this “boring” investment of S&P 500 index to outperform some of my more exciting trades (such as investing in internet stocks back in the 1990s).
Is there a reason why you decided on investing in VTI vs the S&P500?
>>Is there a reason why you decided on investing in VTI vs the S&P 500?
In the past decade, total stock market has had slightly better returns. This can obviously change back and forth over time, but I like being “extra” diversified in 3600+ companies vs 500 companies. I don’t believe it matters greatly… just a personal preference.
That said, my son invests in the S&P 500 because that’s what Warren Buffett said to do. Haha.
Pretty hard to argue against Warren Buffett.
I recently moved my IRA funds into Fidelity’s ZERO Total Market Index Fund (FZROX).
It has a 0% expense ratio. Seems like everyone chooses Vanguard over Fidelity and I wasn’t sure why… Especially with the zero expense options that Fidelity has.
That’s perfectly fine, Melanie. I’m about to move my HSA account to Fidelity, because they offer a zero fee personal option on that, too.
Many stay put at Vanguard because the fees are SO tiny, and since Vanguard is non-profit, they are trusted to keep fees low. Some folks, not necessarily me, do not trust Fidelity to keep fees at zero. They are a for-profit company, and some figure they will figure out a way to make money from you being there. For sure, they will advertise other stuff that has fees built-in (even if it’s something like a retirement fund they may get you to switch to later in life).
I can’t remember if I’ve mentioned it in a previous blog post or not, but Fidelity was the last company I worked for before going out on my own. I was there for almost 3 years. I quit in May 2000, and I haven’t been employed by another company since.
Any thoughts about holding VT and being diversified globally? With VT you have ownership of 8,423 companies spread across the world. The only downside is that the fee is slightly higher at 0.09%.
I have noticed that a lot of Americans tend to focus only on the US market, so interested to hear your thoughts here (I’m not American).
Hey Backpack! Honestly, I don’t have a super big opinion on this, and I’m not one to make up one for the sake of looking smart. I wouldn’t think negatively of anyone choosing VT over VTI. It is more diversified. I would say for those who want to hold US and International, it might be a more simple solution than maintaining two separate funds. Other than that, I’m not sure. On what some might consider a silly note, it seems Vanguard would have much more ability to find/enforce any “money” problems with US companies than what it would outside the US. While I don’t believe this to be a deep problem to worry about per se, I’m not sure how much power any US fund, firm, or government agency would have to “fix” any issues with money or stock outside the US. And the bottom line for me is I’m super happy with the risk/reward I get from VTI. I’m not trying to maximize one way or the other. This is all about diversification and making sure my money is growing and working for me. While we would all love to get the highest returns possible, I’m happy whether that’s 6, 7, 8, 9, or 10+ percent. In recent years, VTI has had better returns than VT, but I know that could flip at any moment. I’m OK with that. Thanks for dropping by!
Thanks for your post on remaining 100% in equities market. I am at the following at 53 with a six figure retirement pension and working in semi-retirement:
403(b)
VTSAX (48%)
VWUSX (27%)
VFIAX (12%)
Roth (and wish it was more)
VWUSX (13%)
With the market crazy hot right now, I have considered sliding most of the above into a target retirement fund and just not worrying about it?
Thoughts?
Thanks!
Are you retiring now or in 10-15 years? If you’re still working for the next 10 years I’d keep it where it’s at (or simply it into something like VTI). I don’t care of Target Date Funds as I find them all to be too “safely” aggressively bond heavy. If you want more bonds at retirement no biggie, move more to bonds at retirement, but I wouldn’t give up another 10-15 years of growth right now. Always remember, whatever the stock market high is right now, that high will most likely look super cheap in 10-15 years.
Thoughts on VT (world) vs VTI? Any reason to focus on the US versus the world? Seems taking domestic bias – and in the last 10 years that worked out well for US investors – but over other periods it has been dreadful in the US versus other markets?
Why not just have exposure to global equities, and if China grows or Europe grows then at least that’s captured?
I’m speaking from the point of view of someone who isn’t based in the US, so I’ve kept my allocation in terms of market size, so US is around 60% of my portfolio.
Hi Charlie,
For me it comes down to simplicity. I’m super happy with what I get from VTI, and I’m not trying to ultra-maximize my stock investments. And all I mean by that is if someone dies with 5M, but they could’ve had 6M… does it really matter? And you can use whatever numbers you want… dies with 2M and not 3M, 10M and not 13M, 20M and not 25M… it’s all relative. I’m not saying it doesn’t matter at all, but once you get a few million in net worth, unless you’re trying to get to 50M or 100M, I don’t see that much difference in lifestyle.
That said… I have considered putting 10% into VT for a little more diversification, but again, I can’t get past what I just typed above.
(I apologize for the delayed reply, too — I’m in Texas and things have been a bit crazy here with power — power is going out whether you are broke or a multi-millionaire — or even a multi-billionaire like Elon Musk who lives in Texas now too)
Yes, that makes sense – especially for a domestic market that has done well like the US where it’s a case of a satisfactory result versus earning far more.
I’ve seen cases though where domestic has been an issue (Zim/Venezuela) where you get wiped out, or for instance in Turkey and my own market where a devaluation of the currency has reduced your assets by more than 50% versus being more diversified. I guess if the US ever went the route of becoming another Turkey/Argentina/bond default, the world itself is in trouble in any case. Perhaps that’s the difference I’m looking at.
Good luck with Texas! Cold and no power/water sounds like an unpleasant experience. At least when our power goes out regularly, the weather is still pleasant outside =). A quick trip to somewhere warmer might be in order!
Charlie, we were without power here a lot of 4 days on 30 minutes, off 3 hours, a lot of random power outages. It was pretty weird. Never lost water or natural gas though. Considering how some folks had nothing for about 4-5 days, we were quite fortunate.