With the rise of ETFs, it’s sometimes easy to forget about mutual funds, but there’s nothing forgettable about the $1.5 trillion juggernaut known as the Vanguard Total Stock Market Index Fund (NASDAQ: VTSAX), which has grown into by far the largest mutual fund in the market over the years since its launch all the way back in 1992.
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Let’s take a moment to appreciate this $1.5 trillion market titan which has endured over three decades of market cycles, including both bull markets and bear markets. Much of the massive mutual fund’s popularity can be attributed to its rock-bottom expense ratio, its extensive diversification, and the consistent returns it has generated for its many holders over the years.
While investing in the broader market isn’t necessarily anything revolutionary or off the beaten path, the very attributes that define VTSAX — its time-honored track record of consistent returns, broad diversification, and ultra-low fees — are the reasons I remain bullish on VTSAX for the long term.
What Is the VTSAX Fund’s Strategy?
According to index fund giant Vanguard, VTSAX is “designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks. The fund’s key attributes are its low costs, broad diversification, and the potential for tax efficiency.”
VTSAX Sports Over 3,700 Holdings
True to the “total” in its name, VTSAX offers investors incredible diversification by investing across the total U.S. stock market. The fund holds an eye-popping 3,723 stocks, and its top 10 holdings account for just 26.5% of assets.
Below, you can check out an overview of VTSAX’s top 10 holdings using TipRanks’ holdings tool.
As you can see, VTSAX’s top holdings don’t look all that different than the broader market or the S&P 500’s (SPX) top holdings. The Magnificent Seven — Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Meta Platforms (NASDAQ:META), and Tesla (NASDAQ:TSLA) — occupy prominent spots within the top 10.
However, the key difference here is that VTSAX expands beyond the S&P 500 to include thousands of other mid- and small-cap stocks that aren’t included in that index.
Because of the massive appreciation in some of these tech stocks in recent years, the technology sector accounts for the largest weighting within VTSAX, making up just under a third of the fund’s assets (32.1%), but this is still a well-diversified fund. After technology, consumer discretionary has the next largest weighting at 14.2%, followed by industrials at 13.1%, healthcare at 11.9%, and financials at 11.0%. No other sector accounts for a double-digit weighting.
So, VTSAX isn’t necessarily doing anything particularly revolutionary, but holding the breadth and depth of the U.S. stock market has served it (and its holders) very well over time, as we’ll discuss next.
Consistent Performance
As of the end of April, VTSAX has generated an annualized total return of 12.3% over a five-year period and 11.8% over a 10-year period.
You can’t necessarily say that VTSAX “beat the market” because, well, it is the market. But what you can say is that it has generated excellent returns over time and created significant wealth for its holders.
Looking at things on a cumulative basis, an investor who put $100,000 into the fund five years ago would have $178,900 today, while an investor who bought it 10 years ago would have about $203,000 today, more than doubling their money. Going all the way back to November 13, 2000, an investor who put $100,000 into the fund would now have $510,290.
While it’s always important to remember that past performance is never a guarantee of future results, this long track record of consistent returns is certainly encouraging.
Favorable Expense Ratio
In addition to these consistent double-digit annualized returns, the other part of what has made VTSAX a great fund, and what leads me to continue to be bullish on it, is its extremely cost-effective expense ratio. VTSAX charges just 0.04%, meaning that an investor in the fund will pay just a measly $4 in fees for each $10,000 invested annually.
Assuming that the fund returns 5% per year going forward and maintains this 0.04% expense ratio, an investor putting $10,000 into VTSAX will pay just $51 in fees over a 10-year timeframe.
It’s hard to find fault with an expense ratio that low, especially for a fund producing the types of returns that VTSAX has.
Does VTSAX Pay a Dividend?
VTSAX also pays a dividend. Although its current dividend yield of 1.55% isn’t compelling in and of itself, it does help increase the fund’s total returns over time.
Other Considerations
One other thing that investors should keep in mind is that unlike buying a typical stock or ETF, VTSAX has a minimum $3,000 investment. Investors who are new to mutual funds and who are accustomed to the liquidity provided by ETFs should also be aware that unlike ETFs, which can be traded on exchanges throughout market hours, mutual funds can only be bought and sold at the end-of-day NAV (net asset value) price.
Investors should also be aware that buying VTSAX through certain brokerages that compete with Vanguard may involve a significant transaction fee.
Is VTSAX Stock a Buy, According to Analysts?
Turning to Wall Street, VTSAX earns a Moderate Buy consensus rating based on 2,330 Buys, 1,308 Holds, and 86 Sell ratings assigned in the past three months. The average VTSAX stock price target of $141.49 implies 14.7% upside potential.
The 800-Pound Gorilla in the Mutual Fund Room Looks Good
In conclusion, VTSAX has grown into a $1.5 trillion behemoth, making it the proverbial “800-pound gorilla in the room” as it is the market’s largest mutual fund by far. And this success and popularity has come for a good reason — the fund’s favorable expense ratio, which keeps more money in the pockets of its investors, and its strong and steady total returns over a long time frame.
This consistent track record, low fee, and the fund’s ample diversification make me bullish on VTSAX, going forward. Additionally, an average analyst price target that implies 14.7% upside from current levels adds to VTSAX’s investment appeal.
