It's been a tough few weeks for both the American and Australian share markets. That includes the index funds that track them. The Vanguard US Total Market Shares Index ETF (ASX: VTS) finished Tuesday's trading session at $436.75 a unit. That's down 8% from this exchange-traded fund (ETF)'s all-time high of $474.70 that we saw back at the end of January.
As the Vanguard US Total Market ETF is an all-encompassing fund that tracks more than 3,650 shares listed on the American markets, this drop reflects the turmoil that the world's largest market has been experiencing over the past month or so.
It's a similar experience to that of the iShares S&P 500 ETF (ASX: IVV), which is far more popular with ASX investors. The S&P 500 Index (SP: .INX) represents the largest 500 American stocks, of course. Although VTS technically has far more underlying holdings, both indexes are market capitalisation-weighted, meaning their experiences align more than their differing natures might suggest.
So many ASX investors might be eyeing off the drop in the Vanguard US Total Market Shares ETF and wondering whether it might be a good time to buy in. Let's discuss that proposition today.
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Is it a good time to buy the Vanguard US Total Market Shares Index ETF (VTS)?
As a market-wide ETF, there's never really a good time to buy this ETF. Determining whether it is a 'good time' involves timing the market, which is never a good strategy to employ with index funds.
If an ASX investor is attracted to the Vanguard US Total Market ETF, a better way to invest is arguably using a dollar-cost averaging strategy. Rather than dumping all of your cash into this ETF in one go or attempting to work out yourself whether the market will go up or down tomorrow or next week and executing your trades accordingly, a dollar-cost averaging strategy involves setting a nominal amount to invest and a time interval. This could be $500 a month, for example.
If you invest $500 a month in VTS units accordingly, you'll never have to worry about whether it's the best time to buy. If you wish to take full advantage of the power of compounding, make sure you reinvest your dividends, too.
Sure, you'll be 'buying high' as well as 'buying low' at some points. But over the long term, you should manage to hit the average return this ETF provides with this method. Further, you won't run into any of the psychological issues that cause so many problems for investors. As of 28 February, that average return for the VTS ETF stood at 14.92% per annum over the previous ten years.
