Remember that the stock market is a manic depressive. - Warren Buffett
Global stock markets went haywire when the COVID-19 pandemic struck. The event is proof that no one can time the market. Fortunately, stock markets are rallying and paring down the losses since the market selloff. Now would be a good time to rebalance your portfolio, seek investment protection, and gain maximum diversification. Vanguard Total Stock Market Index Fund Admiral Shares (MUTF:VTSAX) employs an indexing investment approach. VTSAX tracks the performance of the CRSP US Total Market Index.
Since it represents nearly 100% of U.S. equities in both the NYSE and NASDAQ, from small to large-cap stocks, the Fund has a broad, diversified collection of securities. The advantage of the indexing investment approach is that it shows the market's key characteristics as well as specific financial measures.
Investors will get a snapshot of weightings and market capitalization, including price per earnings (P/E) ratio and dividend yield. The most attractive feature to thousands of investors is that VTSAX can help you lower the investment risk.
Portfolio composition
VTSAX mirrors the CRSP US Total Market Index or Benchmark when it comes to equity sector diversification. As of April 30, 2020, the Fund's total net assets are $822.4 million, consisting of 3,513 stocks. The net assets of the ten largest holdings comprise 22.9% of the entire portfolio.
Microsoft (MSFT) and Apple (AAPL) are the top two holdings, while Procter & Gamble (PG) and UnitedHealth Group (UNH) round up the Top-10 list.
Risk factors to consider
While VTSAX is broadly diversified, its risk classification is moderate to aggressive. The mutual fund is subject to wide share price fluctuations because the assets are in common stocks.
Losses are inevitable in case of another market crash or correction. You might have to bite the bullet and carry the losses over short or even long periods. Sometimes, the index sampling is also a risk if it does not provide investment performance that matches that of the index. For VTSAX, however, this index sampling risk has been very low over time.
Investment takeaway
VTSAX is suited for investors with long-term financial goals with investment horizons of ten years or more. Historically, the ten-year average annual return is 12.81%. In 2019, the annual total return was 30.8%. The massive roster of stocks makes VTSAX a low-risk mutual fund compared with other equity funds.
Investing in several individual stocks and managing the portfolio can be cumbersome and stressful. In VTSAX, you have instant exposure to the total stock market with a single investment. Also, the fund is not limited to large-cap stocks only.
Aside from the benefits of diversification, there is cost-benefit to the investor. Your out-of-pocket expense is only $4 for every $10,000 investment or an extremely low expense ratio of 0.04%. The minimum initial investment, however, is $3,000.
As of this writing, VTSAX is trading at $73.89 or 35.6% higher than when the price shrunk to $54.49 at the height of the panic in March 2020. The market is now stabilizing.
Industry stalwart
VTSAX is an industry stalwart and the largest mutual fund in the world. Where can you find a cheap fund that virtually covers the entire U.S. stock market? If you're not touching your money yet and pursuing long-term growth, VTSAX is the logical choice.
Generally, the long-term performance of the ETF has often beat actively-managed funds. The minimum investment might be prohibitive to regular investors. But if you can save enough, it's worth investing in VTSAX. Once you hurdle the minimum, the subsequent investments are only $1. Furthermore, you pay less for your investments.
Smart investing is the key to mitigating the risks when you think volatility will remain high for a prolonged period. VTSAX is popular to long-term investors, and with this mutual fund, you're buying for long-lasting performance. When the market fully recovers, you have a better chance while being well-positioned to beat the market. Investing often comes down to positioning yourself the best, and having the greatest odds to succeed - VTSAX gives you a set-and-forget portfolio at extremely low costs.
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