VTSAX lets investors own some of everything. Is it a good strategy?

There are plenty of ways to diversify a portfolio, but few are as straightforward as Vanguard Total Stock Market Index Admiral Shares. The single fund offers exposure to virtually the entire US stock market.

Such breadth can be attractive when macro conditions are uncertain, but it doesn’t include the promise of smooth sailing.

Knowing the risks and potential

Where does VTSAX fit into today’s investing landscape? With a stake in roughly 3,500 small-, mid-, and large-cap stocks across sectors, the fund is built for efficiency and long-term growth. And those are characteristics many investors are looking for these days.

A few compelling factors are working in its favor:

• An expense ratio of just 0.04% is far below the roughly 0.89% industry average
• 14.3% annualized returns over the past decade implies consistent performance
• Turnover of around 2% keeps trading costs and tax drag to a minimum

The flip side of that coin, however, includes risks including a beta of around 1.0 that leaves no cushion if the broader market stumbles. And with Mag 7 names like Apple, Microsoft, and Nvidia making up a sizable chunk of the fund’s returns, analysts warn of concentration risk.

Plus, by its nature the VTSAX is riskier than active funds because it stays fully invested even in downturns.

Some investments seek to outsmart the market, but VTSAX essentially takes the “if you can’t beat them, join them” approach, allowing investors to own a little bit of it all.

How it stacks up against other options

A close cousin to the VTSAX is the Vanguard Total Stock Market ETF. Both track the same index, but they’re structured differently.

As a mutual fund, the VTSAX trades based on end-of-day pricing while the VTI trades like a stock. The former mandates a $3,000 minimum investment vs. no minimum for the latter beyond the price of shares.

These differences can make a big difference depending on an investor’s goals. The VTSAX is ideal for those making automatic contributions and/or patient investors with long-term discipline. The VIX, on the other hand, appeals to active traders by providing more flexibility.

History shows that, over a long enough horizon, markets tend to rise higher … and that’s when the VTSAX thrives. And institutional sentiment leans positive, with a consensus rating in “moderate buy” territory and upside potential linked to continued US equity strength.

But just as rising markets boost the fund, inevitable downturns have an equal and opposite impact. For investors who are able to stay consistent and ignore the short-term noise, however, the tradeoff has a long track record of paying off.