Why Vanguard Total Stock Market Index Is a Strong Choice for Investors

Key Morningstar Metrics for Vanguard Total Stock Market Index

• Morningstar Medalist Rating: Silver
• Process Pillar: High
• People Pillar: Above Average
• Parent Pillar: High

Vanguard Total Stock Market Index VTSMX

offers cost-efficient, well-diversified exposure to the entire US stock market while charging rock-bottom fees—a recipe for success over the long run.

The fund tracks the CRSP US Total Market Index, which represents nearly the entire investable US stock market. The index weights constituents by market cap after applying liquidity and investability screens to ensure the index is easier to track.

Market-cap-weighting forms the bedrock of this strategy. It harnesses the market’s collective wisdom on each holding’s relative value with the added benefit of low turnover and trading costs. It’s a sensible approach because the market tends to do a good job pricing the large-cap stocks that make up the bulk of this portfolio. Large-cap stocks attract widespread investor attention, so prices quickly reflect new information.

The index includes small- and micro-cap stocks, which improve the end portfolio’s diversification and can provide a modest performance edge when small caps rally, as they did in the fourth quarter of 2020. They tend to be more volatile than large-cap stocks but have minimal impact at less than 10% of the portfolio.

Total-market funds mitigate transaction costs because they don’t target specific segments of the market and aren’t forced to buy or sell stocks when they enter or exit a market segment. Still, a small amount of turnover can occur at the lower rungs of the portfolio. The index implements buffer rules around its lower market-cap bound to limit unnecessary turnover. That’s a key feature since dealing in thinly traded small caps and micro-caps can increase transaction costs. The index further reduces trading costs by rebalancing over several days to limit market impact costs.

Market-cap-weighting may expose the fund to stock- or sector-level concentration risk when a few richly valued companies or sectors power most of the market gains. However, this fund is less concentrated than its average peer in the large-blend Morningstar Category. At year-end 2024, the fund held around 32% of its assets in the top 10 stocks compared with 50% for its average peer. No sector deviated more than 2 percentage points compared with peers. The fund’s heavy allocations to the technology sector could present some risk, but that is not a fault in the index’s design. The CRSP US Total Market Index simply reflects the market’s composition. In the long run, its broad diversification, low turnover, and low fee outweigh periodic concentration risks.

Vanguard Total Stock Market Index: Performance Highlights

This fund accurately represents the investable US equity market, allowing it to leverage its cost advantage and drive sound category-relative performance. It outperformed its average peer in the large-blend category by 1.49 percentage points over the 10 years through February 2025.

The fund has typically performed better than its average peer when the market is in an upswing and has lost slightly more than peers in downswings. Over the long term, the fund has gained more than it has lost and earned higher risk-adjusted returns than peers over most periods. At certain points in 2020 and 2022, the fund’s value dropped around 21% and 25%, respectively, from its previous all-time highs. It recovered quickly, however, with better performance than its average peer.

Overall, the fund’s performance should mimic that of the US stock market. Fully investing allows it to capitalize on the market’s performance. Securities lending helps the fund earn back a portion of its fee, especially since small-cap stocks are not widely available for borrowing and generate greater lending revenue than large-cap stocks. The fund’s low fee should help it beat its pricier US large-cap peers over the long run.