Potentially Outshining the S&P 500 in 2025, Wide-Ranging Vanguard ETF with Rich Diversification
This year has been quite remarkable for the financial markets, with the S&P 500 seeing a surge of approximately 27%. Many booming stocks are nearing their peak prices as well. However, some investors are expressing concerns about the market being overheated, especially with tech stocks and those profiting from advancements in artificial intelligence (AI) being excessively valued.
If you share these apprehensions, you might find an ETF more appealing. One such ETF is the Vanguard Total Stock Market Index (VTI -0.35%). This ETF promotes substantial diversification and may outperform the S&P 500 in the coming year.
A cushier landing for investors?
Historically, the Vanguard Total Stock Market Index exhibits a performance similar to the S&P 500. However, its significant edge lies in its extensive stock collection of over 3,600 holdings. This diversity is particularly crucial in a year when some high-priced stocks may be due for a correction, yet the overall market continues to thrive.
Although economic conditions are favorable and a recession isn't imminent, a slowdown might still occur. If it does, the tech sector, where AI investment spending has inflated stock valuations, could be the most susceptible. Moreover, crypto stocks have been skyrocketing due to Bitcoin surpassing $100,000.
By incorporating a variety of stocks, the Vanguard fund becomes more resilient to adverse conditions. The benefit of increased diversity is enhanced stability, although premiums may result in lower returns during market upswings compared to a more focused portfolio. With the possibility of a market downturn in 2025, some investors might be comfortable with such a trade-off.
The Vanguard fund boasts fewer top-tier investments
Several ETFs that have been successful this year have large investments in Apple, Microsoft, and Nvidia, the top three most valuable stocks in the market. While these stocks are commendable, having too much investment reliance on them may not be ideal.
In the Vanguard fund, these three tech giants account for 16.7% of its total weight. This is less than the SPDR S&P 500 ETF, which tracks the S&P 500, where these three stocks make up 20.2% of its holdings. Although the disparity might not appear considerable, it does make this Vanguard fund less susceptible to a possible correction in its high-valued assets.
Investing in the total stock market can help mitigate risk
If you're uncertain about your current investment choices, the Vanguard Total Stock Market Index could be an excellent fit for you due to its wide-ranging diversity and low fees -- it features an expense ratio of only 0.03%. The passively managed fund provides investors exposure to not only prominent market players but also lesser-known investments, such as small-, mid-, and large-cap stocks.
Even if you're not overly concerned about a market crash in 2025, this Vanguard ETF can still be a wise investment to include in your portfolio. It can be the ideal long-term investment to purchase and hold for a lifetime, with periodic additions made over the years. By investing broadly in the entire stock market, you can be well-positioned to grow your portfolio, regardless of how individual sectors fare.
If you're worried about potential corrections in high-priced stocks, investors might find comfort in the Vanguard Total Stock Market Index's extensive diversity, which could help mitigate losses. With its large number of holdings, this ETF may perform similarly to the S&P 500, but its spread of investments offers a buffer against the decline of individual stocks.
Additionally, given the possibility of a market downturn in 2025, especially in tech and crypto stocks, investing in a diversified fund like the Vanguard Total Stock Market Index could provide stability and help protect your portfolio from significant losses. Its widespread investment in various sectors and companies can help ensure growth, even if certain sectors underperform.
