VTI Owns Over 3,500 Stocks, Including Nvidia, Apple, and Microsoft. Is This the Smartest Way to Buy the Entire U.S. Market Right Now?

The Vanguard Total Stock Market ETF (VTI +0.16%) provides investors with access to a much larger pool of U.S. stocks than the broader S&P 500 index. While the S&P 500 tracks roughly 500 large-cap U.S. stocks across sectors, the VTI exchange-traded fund (ETF) holds a basket of 3,500 stocks, representing a majority of U.S. publicly traded companies.

VTI, which is passively managed, consists of large-, mid-, and small-cap stocks across sectors and categories, including growth and value.

Image source: Getty Images.

Like the S&P 500, VTI holds some of the world’s largest companies by market cap, including Nvidia, Apple, and Microsoft. VTI is also a market-weighted index, meaning its largest sector is technology, which accounts for roughly 36% of the ETF. It also means large stocks in the S&P 500 make up a disproportionate amount of the ETF.

For instance, Nvidia comprises over 6% of the ETF, Apple nearly 5.9%, and Microsoft roughly 4.4%. Is this the smartest way to buy the entire U.S. stock market right now?

Heavy concentration removes the diversity component

The market-weighted component of VTI means the ETF is still overweight tech stocks right now.

To be fair, large U.S. tech and artificial intelligence stocks look pretty attractive after struggles to find their footing this year. While the group has sold off, Wall Street analysts have largely raised their earnings estimates, compressing their valuation multiples. For instance, Nvidia now trades at a forward earnings multiple of 21.4. That’s not bad for a company growing earnings and revenue as much as they are.

AI concerns, such as circular financing and a potential future slowdown in AI capital expenditures, remain prevalent, but it’s hard to say the risk-reward proposition hasn’t improved.

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NYSEMKT: VTI

Vanguard Total Stock Market ETF

Today’s Change

(0.16%) $0.52

Current Price

$323.76

Key Data Points

Day’s Range

$318.23 - $324.90

52wk Range

$236.42 - $344.42

Volume

3.7M

That said, buying indexes like the S&P 500 and VTI still places too much reliance on big tech, so investors really need to think about what they want. VTI is fine to buy if you want exposure to the market, as it is currently structured, where big tech makes up a disproportionate amount. However, in doing so, investors are still living and dying on a dozen or so names and their performance.

If investors simply want exposure to a diverse basket of names in the stock market with no market-weight component applied, then they are likely better off purchasing the Invesco S&P 500 Equal Weight ETF.

This ETF will be less volatile, meaning it will experience less of a sell-off in bear markets but also less upside in bull markets. It really depends on the investor’s current position in life and overall strategy to determine which is the best way to gain exposure to the entire U.S. stock market right now.