Mr. Hobo Millionaire

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):

  1. Microsoft Corp.
  2. Apple Inc.
  3. Alphabet Inc.
  4. Inc.
  5. Facebook Inc.
  6. Berkshire Hathaway Inc.
  7. JPMorgan Chase & Co.
  8. Johnson & Johnson
  9. Procter & Gamble Co.
  10. 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. Bogle

I have ownership in over 3600 US companies!!!

Mr. Hobo Millionaire

What 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!