The stock market is notoriously unpredictable, especially in the short term. A news item, a natural disaster, or changes in the geopolitical climate can cause sudden, unexpected swings. However, historical patterns demonstrate that no matter how dramatically the market plunges, it has always comes out ahead in the end. It’s just a matter of time.
That’s not the case when it comes to individual companies. There is far more risk for investors because individual companies are subject to the same factors that create market volatility, as well as additional factors related to individual growth strategies, financial practices, and management expertise.
In some cases, a simple failure to adapt to changing consumer expectations and advances in technology are enough to push a company out of its market leadership position. In worst-case scenarios, those companies go out of business, leaving shareholders with nothing to show for their investment. Examples include Kodak, Blockbuster, Toys R Us, and MySpace.
The risk associated with individual companies’ stocks has prompted many investors to seek out an alternative type of asset – one that has increased odds of generating long-term returns. Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is one such solution.
Through VTSAX, investors get exposure to the entire stock market, which means if historical patterns track, what goes down will always come up.
Here’s what to know when it comes to whether and how to buy VTSAX stock.
What Is VTSAX?
The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX ) is a mutual fund that was created in 1992. Its goal is to give investors exposure to the full US equity market, including small, mid, and large-cap growth and value stocks.
The VTSAX fund has total net assets of $1.3 trillion as of November 30, 2021. Those assets are invested in a manner that mirrors the market itself – 4,156 total stocks, with the ten largest holdings making up 26 percent of the fund’s portfolio.
The ten largest holdings include the following companies:
- Apple
- Microsoft
- Alphabet
- Amazon.com
- Tesla
- NVIDIA
- Meta Platforms
- Berkshire Hathaway
- Home Depot
Like the US market, VTSAX is most heavily invested in the technology sector (29.50 percent). The next-highest sector is Consumer Discretionary (16.50 percent). Other sectors that have double-digit representation in this fund include Industrials (12.60 percent), Health Care (12.40 percent), and Financials (11.10 percent).
What Is VTSAX Stock’s Investment Potential?
On a scale of one to five, VTSAX is rated a four, which means higher risk and higher reward potential. However, the investment horizon plays an important role in assessing risk vs. reward.
VTSAX has succeeded in consistently matching its benchmark, the Spliced Total Stock Market Index, with historical average annual returns as follows:
- 10-Year – 15.95 percent
- 5-Year – 17.55 percent
- 3-Year – 20.24 percent
- 1-Year – 26.49 percent
While an economic downturn may temporarily disrupt this growth, it is likely that VTSAX will continue to deliver long-term.
Does VTSAX Stock Fit Into Your Portfolio?
Generally speaking, there is no specific downside – other than an overall economic downturn – to holding VTSAX. Each share offers automatic diversification, and because it is passively managed, the expense ratio is a low 0.04 percent. Investors find the simplicity of owning VTSAX helpful if they don’t have the time, experience, and expertise to research and select individual securities.
While there is risk associated with VTSAX, that risk is limited to the performance of the market as a whole, rather than single companies.
Of course, there is no guarantee that the stock market will rise long-term, but most economists are confident that historical patterns will remain consistent over time though there could be ups and downs along the way.
With that in mind, there is a place for VTSAX in nearly every portfolio. In fact, many investors make VTSAX the centerpiece of their portfolios as a core equity holding or their only domestic stock fund.
How Much Should You Invest In VTSAX Stock?
The beauty of VTSAX stock is that it offers instant diversification and extensive exposure to the US stock market. Those factors, coupled with low fees and almost no need for research and oversight, make this investment particularly attractive for those who prefer a hands-off approach to portfolio management.
Some shareholders have elected to put most of their holdings into VTSAX in an effort to generate healthy returns with minimal effort. Your total investment depends on your financial goals and your level of confidence in your ability to choose individual securities.
With that said, remember that VTSAX is not risk-free, and experts agree that it is best to avoid investing any funds you will need over the next five years in stocks.
The key to profiting from the stock market is selling shares at the best possible moment. If you put everything into VTSAX – or any other stock – you may be forced to sell at a loss if you have unexpected or emergency expenses.
How To Buy VTSAX Stock
In terms of how to buy VTSAX stock, the process is straightforward. VTSAX is available for trade through any online brokerage firm that deals in mutual funds.
If you don’t already have an account, you can open one by completing a short enrollment form and verifying your identity. Then, it’s a simple matter of funding your account through an electronic transfer from your bank so that you can begin trading.
Most brokerage firms make buying and selling stock easy. Do a quick search using the fund name or ticker symbol, then choose the button marked “Buy” or “Trade.” You will be asked to enter the number of shares you wish to buy, along with the type of order you wish to place.
While there are a number of options for order type, the two to keep in mind are “market order” and “limit order.” With a market order, you buy or sell at the market price in place at the time of the trade.
A limit order allows you to create a maximum price (for purchases) and a minimum price (for sales).
If the market price is outside the limits you set, the trade will not be processed. Limit orders protect you from sudden changes in price while your order is in process. This is most important when you place an order while the market is closed.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
