Is Vanguard Total Stock Market ETF a Millionaire Maker?

Here’s how consistently investing in a total stock market index fund would have worked out historically

| More on:
financial freedom sign

Image source: Getty Images

The straightforward answer to whether Vanguard Total Stock Market ETF (NYSEMKT:VTI) can be a millionaire maker is yes, under the right circumstances and over the correct period, thanks to the magic of compounding.

This article will take you on a historical journey, tracing the performance of VTI’s mutual fund counterpart, VTSMX, all the way back to its inception in 1993. That’s over 30 years of data we have to work with today!

We’ll explore how this broad-market exchange-traded fund (ETF) has the potential to turn diligent savers into millionaires, highlighting the importance of time, patience, and consistent investing in achieving financial milestones.

What the data says

An initial investment of $10,000 in VTSMX back in January 1993 could have grown to an impressive $1,731,580 by March 31, 2024, but this success hinges on a few critical actions from the investor:

  1. Promptly reinvesting dividends upon receipt.
  2. Consistently contributing $500 monthly, totalling $6,000 annually, which is under the current $7,000 TFSA limit.
  3. Maintaining the investment through the downturns of 2000, 2001, 2002, 2008, 2018, and 2021.

By following this strategy, the investor’s returns would have compounded at an annual rate of 10.15%, solely from the ETF’s performance. Including the periodic contributions, the compounded rate jumps to 17.93%.

However, this journey wasn’t without its trials; at the worst point, the investor would have seen a 50.89% drop in their investment value and experienced average annual fluctuations of 15.34%.

The risk here is to be expected — you’re being compensated with market returns over the long run to absorb and weather this volatility. This is the price to pay for returns that exceed those of bonds and cash.

The Foolish takeaway

The key takeaway here is that success in investing comes down more to behaviour than the specific investments chosen, assuming sufficient diversification is attained.

It’s crucial to focus on consistent investing, reinvesting dividends, avoiding market timing, and maintaining investments during downturns. Sometimes, the hardest thing to do is sit on the sidelines and let time pass.

Now, for those looking to invest in VTI, a Registered Retirement Savings Plan account is recommended to avoid the 15% foreign withholding tax on dividends. This is because it is a U.S. ETF. However, you’ll need to convert Canadian dollars to U.S. dollars.

However, for Tax-Free Savings Accounts, where this tax advantage doesn’t apply, investors might consider VTI’s Canadian counterpart, Vanguard Total U.S. Stock Market Index ETF (TSX:VUN), to save on currency-conversion fees.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Senior housing

3 Lesser-Known Reasons to Invest in an RRSP

The RRSP has so many more benefits that investors might be unaware of, and can be used for your benefit…

Read more »


TFSA Blueprint: 4 Canadian Stocks to Secure Your Future

Successful TFSA investing requires four steps and four Canadian stocks to secure your future.

Read more »

gas station, car, and 24-hour store
Energy Stocks

Is it Too Late to Buy Suncor Stock?

Suncor Energy stock has rallied big in the last year, but expect it to move higher as efficiencies keep rolling…

Read more »

Payday ringed on a calendar
Dividend Stocks

TFSA Monthly Money: How to Generate Consistent Tax-Free Passive Income

Adding these two attractive Canadian dividend stocks to your TFSA now could help you earn reliable monthly passive income for…

Read more »

analyze data
Dividend Stocks

3 Magnificent TSX Dividend Stocks to Buy and Hold Forever

Do you want to hold some quality dividend stocks for the decades ahead? Here are three stocks worth holding for…

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Tech Stocks

Up 51% This Year: This Canadian AI Stock is Still Down 65% From Its Highs – Time to Buy?

Copperleaf Technologies (TSX:CLPF) stock has shown positive momentum as the AI stock attempts a recovery. Can shares rise 180% to…

Read more »

Oil pipes in an oil field
Energy Stocks

TSX Energy Sector: Best Stocks to Buy in May 2024

Energy stocks like Suncor are generating massive amounts of cash flows and paying out significant dividends.

Read more »

Dividend Stocks

How Much Will Canadian Utilities Pay in Dividends This Year?

Investors can stabilize their long-term stock portfolio returns by accumulating quality utility stocks on meaningful dips.

Read more »