The Vanguard Total Stock Market Index Fund is a collection of stocks that represent the entire market. A stock is a piece of ownership of a company, and stocks can be bought in one share or multiple shares. For example, you can buy a share of Apple, and you will own a small chunk of the company. That means that if the company makes money, you will get a little bit of those earnings.
But owning only one company is dangerous. Even billion dollar companies can lose lots of money, or even go out of business (#tbt to Enron). So it’s best to diversify, and buy many different successful businesses to reduce your risk.
This is where VTI comes in. It owns over 3,600 different U.S. stocks, basically getting as much diversification as possible. With every approximately $115 share that you buy of VTI you are owning a chunk of profits from thousands of companies. That way if one company goes bad, it won’t hurt much at all, and most companies will continue to be successful!
That doesn’t mean that VTI will never lose money. It will go up and down just like the individual stocks do. It might go down 10% one year, and then up 20% the next, but over the long term it will go up about 7% every year just like I mentioned before.
Now, some people are able to make better than 7% on a consistent basis. Those people are rare, and have billions of dollars like Warren Buffett. I am no Warren Buffett, and you are no Warren Buffett. I used to think I was, and spent a couple years thinking I could do better than VTI. I couldn’t. And neither can 86% of Professional Money Managers.
VTI is where it’s at fam. Super easy.