The Motley Fool

Is the Vanguard US Total Market Shares Index ETF a good long-term investment?

Vanguard US Total Market Shares Index ETF (ASX: VTS) could be a contender for a long-term investment.

It’s an exchange-trade fund (ETF) that essentially looks to track the entire US share market.

But don’t think of this ETF as just an American ETF. Many of the businesses listed in the US do have international earnings diversification. Perhaps the additional underlying earnings are just from Canada or Mexico, but some other businesses might generate earnings from across the globe.

It has over 3,600 holdings so it certainly ticks the diversification box. Its top holdings are some of best and biggest businesses like Microsoft, Apple, Amazon, Alphabet and Facebook. These leading tech companies have been excellent long-term investments and it could be a decent idea to buy a small slice of each of them with this ETF.

One of the best reasons to think about this ETF for the long-term is its ridiculously-low annual management fee of 0.03% per annum, which is almost nothing. Lower management fees mean higher returns for our portfolios. 

Over the past five years the ETF has generated an average return per annum of 17.5%, which is strong for an index-based option.

It would be naïve to expect these strong investment returns to continue for a long time, recessions do happen sometimes. But, I do think that the US share market could generate better long-term returns than the ASX because of the focus on growth and re-investment in the US without the influence of franking credits, leading to higher profit over time.

Foolish takeaway

I think it’s entirely possible to just own this ETF and nothing else, the ETF is weighted towards impressive growing businesses. US interest rates may fall causing this ETF to perform well, although it’s already valued quite expensively compared to the historic average. 

However, one of the major issues with the ETF is that it offers a very low dividend yield. That’s why these top ASX shares could be good additions for a combination of dividends and long-term growth.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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