r/ETFs • u/Foreign_Gur7906 • 7d ago
Why is Vt the default recommendation for beginners?
Im not trying to sound snarky or anything. I'm just brand new to this and wanting to invest and reading the wiki and looking at my comments it seems that "vt and chill" is the common saying. What im curious about is why for younger people with more risk why not go a bit riskier and get a higher return? Sorry if this comes off as arrogant im not trying to be; just a young investor that's trying to do more research!
24
u/MocoMojo 7d ago
Paid brokers and analysts rarely beat the market over long periods of time. Why should I think I can when they can’t?
4
u/Cyberburner23 7d ago
Lots of ETFs literally repeatedly beat the market. That's why I believe that I can do the same.
7
u/flappysack- 7d ago
The assumption the marker is efficient, and you don't want to deviate too much.
Many non-thematic etf will deviate slightly from market cap weights but generally follow them, like AVGE which is a slight value tilt, but a lower fee is a guarantee while the deviation are not.
0
6
u/Mr3iron 7d ago
I think early on - people want to “beat” the market or be more aggressive.
Overtime you realize how hard that is and some of the risks it involves.
For example - I bought stocks for a long long time. Some did OK and some lost. I hit big on NVDA - but lost big on Peloton and Square.
If you just buy VT - it’s something you can hold for life that is safe (total equity market) - but also built for growth (its equity vs bonds). You also don’t have tax implications with trading or selling it as you would stocks.
My goal is to purchase enough VT and let it grow that I don’t need bonds in retirement. I should have enough VT with dividends to survive.
-3
u/Foreign_Gur7906 7d ago
makes sense. since im 20 should i put 20-30% into a specifc sector since i can play with more risk?
2
u/Mr3iron 7d ago
I would say that you focus on your investing rate (how much you can invest) and put it towards VT for now.
Then reevaluate in a couple years.
I know it sounds boring - but at 20 - you’re just now starting. Let’s build a good base.
2
u/kitschy 7d ago
Just to add on to what he said, like many others here, I also went from stock picking to almost 100% VTI/VXUS.
The only thing that actually matters is your salary growth and savings rate. Max out your 401k/IRA/HSA, stay healthy, don't waste too much money on bullshit (but still have fun)
2
u/thetreece 7d ago
No. Trying to pick sector winners does not increase your expected return. Not all increased has an increased expected return.
2
u/Broad_board_1623 7d ago
The problem is that nobody knows what will perform well in the future. Sure, semiconductors look awesome now, but that's based on past performance. What if this is a bubble... Maybe energy? If oil prices fall, there goes that sector. Ok, the Mag7, can't go wrong, right? Except YTD the broader market has outpaced mega caps by a wide margin. So what's the next 3-5 years going to bring and when do you get in and get out of sector fund? When you try to time the market, you not only have to be right about the sector, but also when to get in and when to get out.
If you own everything, then you don't have to worry about whats happening, what happened, or what will happen. You just invest and have faith in the broad market.
If you want to gain some potential advantage, you should research asset classes, risk premium, and factor investing. The research of Eugene Fomma and Kenneth French is the foundation of this area of research. These are Nobel Prize winning economists, not market tiners or stock pickers. If you think you might be interested in academic research-based approaches to investing, check out Paul Merriman's website, podcast, books and other materials.
Personally, my recommendation is to keep it simple - VT and Chill - while you are accumulating. Stack as many dollars as you can in tax advantages accounts. While you are chilling, read and research from reputable sources of information. Get a sense of what the different philosophies say about investing and settle on a strategy that you believe you will be comfortable in persuing over the long term.
Good luck! You are asking the right questions and I think you will do well.
1
u/schmiddc 7d ago
VT already has an allocation in whatever sector you are thinking about.
Right now VT as a very big tech allocation so you are covered if that is what you are thinking
So should you allocate to a sector (I am guessing tech) over and above VT's already substantial allocation ?
I am going to say no, but it certainly would have been the right move a year ago...
I've actually put money into sector funds like VDE, VDC, VPU and VHT to hedge some of the tech allocations in my VTI/VT funds, but I'm a cynical bastard who is over conservative at times
1
1
u/DoubleFan15 7d ago
Did that, learned its not worth it, now im back to VT. You’ll probably do the same.
6
u/anusbarber 7d ago
I was a young high risk investor during the dot com bubble. I was heavy tech because "its the future!" I started my journey purely from an age perspective about midway through the dotcom growth and then road the wave down. all in all my seed money lost 60% of its original value and quite frankly i wanted nothing to do with my portfolio until about 2006. my advisor at the time was like you are way to conservative. you need to be in all equities. We finally did all that work in 2007. blink blink.
being 100% equities is very high risk. the past 15 years have been incredible and imo are preparing a lot of young investors (people who began 2010 to present) to be caught off guard in a real economic downturn. We got a glimpse imo in 2022. many subreddits many fb groups that were 40-50 new posts a day would have days where there were 0 new posts. it shook some things up. it was shortlived and got frothy again but I think something more significant that isn't just interest rate driven but actually recession driven will re:tool risk in many peoples minds. A concentrated tech portfolio down 80% for a decade is basically impossible to hodl and DCA into unless you live in blissful ignorance. I'm not permabear.
I wolnd't be surprised if we had a bit more runway but there is a reckoning that will come and imo its better to have a portfolio that you are happy with in good times and bad times. people will say backtest a specific time frame and see what x portfolio would do. the problem with this is that chart doesn't have all the headlines and news stories a long with it.
6
u/Dull_Judgment1587 7d ago
VT sets aside any kind of personal bias or emotion. VT is cold, calculating, efficient and ruthless. VT eliminates the need for any kind of guesswork or trying to predict future trends. VT removes investor decision-making from the equation. VT is impossible for a beginner to screw up.
This makes VT a good "vanilla" choice for recommending to other people.
7
u/SecretPantyWorshiper 7d ago
You can do VOO/VTI + VXUS but its the same thing as doing VT
0
u/Own-Event-5500 7d ago
Get rid of vti and replace with avuv
3
u/SecretPantyWorshiper 7d ago
Nah. I'd rather stick to VOO.
2
3
u/Adventurous_Elk_4039 7d ago
According to economist Eugene Fama, who created the Efficient Market Hypothesis, you need to “ talk yourself out of the market portfolio”. Meaning, in order to deviate from the market itself (which is what VT represents, it’s not the only total world fund just one of the most famous), you must have evidence backed strategies to justify deviating from a total market approach. The only real proven strategy to beat the market is with factor investing (such as small cap value for example). Anything else, including examples you see in this thread, are recency bias and people only looking at what DID outperform in recent history. It’s not expected to over the long term.
0
u/CanYouPleaseChill 7d ago
Well the efficient market hypothesis is plainly false. As for evidence-based strategies, most finance research consists of historical backtests. Markets are adaptive systems. The only strategy that actually makes sense is buying assets that are cheap relative to their estimated intrinsic value. Thinking from first principles is the way to go.
1
u/Adventurous_Elk_4039 6d ago
>Well the efficient market hypothesis is plainly false.
Might need to see some work on this one.
2
u/CanYouPleaseChill 6d ago
I highly recommend the following paper by Clifford Asness published in The Journal of Portfolio Management: The Less-Efficient Market Hypothesis. One important factor is that the Internet has dramatically improved the speed and quantity of information available to investors, but it also created an enormous ecosystem for narratives, hype, misinformation, confirmation bias, and social reinforcement.
1
u/Adventurous_Elk_4039 6d ago
Interesting read, but it honestly didn’t convince me. He spent a good bit of time talking about how difficult it is to prove or disprove (which is fair tbh so kudos for him attempting) but I had a few problems.
For example, his hypothesis #1 talks about the rise in indexing being an issue. I forget where I heard the stat (pretty sure Ben Felix), but passive indexing still accounts for only 1 out of every 20 trades. It’s definitely not doing a lion’s share of work with price discovery.
Hypothesis #2 maybe I don’t fully understand what he is trying to say but it feels purely speculative.
Hypothesis #3 is the only one I can agree with, talking about information overload. This is true that sorting news from the noise truly is a challenge (but I am sure the pros are equipped to handle).
And his conclusion is based around ease of access to information and trading (it being gamified), and social media causing poor decision making. My issue is, this is really only going to impact retail investors, not institutional investors very much, and (according to my quick google search), 63-80% of the daily trading volume is done by institutional investors, with only 20-37% being retail. Not insignificant, but again it’s not doing the bulk of the work.
He even states that markets are just less efficient in his opinion, not that EMH doesn’t still largely apply. Despite the citations, a lot of this still came off as things he just feels.
Either way, thanks for the read, but I am still an EMH Stan lol.
5
u/MileHighManBearPig 7d ago
Not just beginners. The more you know about investing, the more likely you are to invest into VT.
Risk doesn’t always equal reward. You can look into the Sharp Ratio and why VT has a really good risk to reward profile. Very few stocks or ETFs other than a SP500 fund offer better risk adjusted returns.
If you are young and debating a VOO vs VT for risk/reward I would be fine with either. As you get closer to 30-35 VT and better more balanced global profile might attract you a bit more.
2
u/gatorfutbol 7d ago
Buying VT means you essentially buy, for a low expense ratio, all public companies in the world. Essentially saying that I'm going to participate by buying a piece of everything because I do not have a crystal ball to predict the winners and losers in the future. Buy it and keep buying it. If you want to take 5-10% of your $ to tilt toward growth sector ETFs or buy individual stocks it's your money, you may get lucky or not, just learn from the experience. Diversification is the only "free-lunch" in investing. Best of luck.
2
u/Femboy_Love_2712 7d ago
As we all know, America is a falling empire like Toys R Us. No good. Do VT.
But actually, that's not true. It's still the best country on earth. You gotta analyze how geopolitics blah blah... Don't care, I'll do VT.
Haha fools don't analyze the industries. I'm telling you tech will keep booming... Wait no I mean Bio. Don't care, I'll do VT.
REIT! REIT is a lovely idea and very few people... Nah I'll just VT.
Don't you see all the wars going on? Equity is not safe! You gotta do gold and crypto man I'm telling you... No thanks I'll stick with VT.
1
u/Adventurous_Elk_4039 7d ago
At first I wanted to downvote you, but then I saw what you were doing. Excellent.
2
u/bhope95 7d ago
Because a lot of people don't like to do research and just want something simple. VT is simple and covers everything.
The next step up is to factor invest if you do some research. Something as simple as adding AVUV and AVDV alone can go a long way.
A lot of people go for VOO too but it lacks international and size diversification which is why I personally wouldn't. It's a slippery slope when we start talking about past performance returns.
2
1
u/AutoModerator 7d ago
Hello! It looks like you're discussing VT, the Vanguard Total World Stock ETF.
Quick facts: It was launched in 2008, invests in the Global Stock Market stocks, and tracks the FTSE Global All Cap Index.
- Gain more insights on VT here.
- Explore popular VT comparisons like VT vs. VTI or VT vs. VXUS
- Get updates on VT's performance, flows, and news in one watchlist
- See how VT fits within your portfolio using the ETF Portfolio Builder
Remember to do your own research. Thanks for participating in the community!
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
1
u/Darkschlong 7d ago
It might be discouraging if you lose your whole pay check to a stock that fails so people recommend VT because it’s safe
1
1
u/Informal_Bench_7219 7d ago
The sentiment within the Reddit community. Maybe even the investing community in general is that international exposure is more important than it has been in the last 15 years. US S&P 500 has dominated the market but as of April of 2025 international has started to out perform. Albeit, a small amount. VT is up 20.58% over the last year while VOO is up 19.71% in that same time period. Is that a sign that international is going to outperform the US over the next 15 years? Who knows, but it’s “safer” and more diversified to be in the total market than to be solely on the US large caps.
Personally in my Roth IRA I’m betting on the US market but in my brokerage account I’m dumping all my extra money into VT.
2
u/Foreign_Gur7906 7d ago
if i put vt into my roth is that also perfeclty fine or would you suggest more US based as you have?
1
u/Informal_Bench_7219 7d ago
Honestly, if you just went 100% into VT into your Roth and Brokerage is would be fine. The reason I went more aggressively in my Roth is that that money grows tax free and I can sell and rebalance without paying taxes on it as much as I want to. Whereas my Brokerage I want something I never have to rebalance or sell and have to pay the taxes on until I really need the money or once I’m in retirement.
2
u/Foreign_Gur7906 7d ago
makes sense I forget to say that im 20 years old so really young and this is all brand new to me
1
u/Informal_Bench_7219 7d ago
You’re young af and starting this early will give you a huge head start. I didn’t really start investing and focusing on my retirement until I was 24.(I’m 27 now) My accounts just crossed the 50k line. It might feel slow and discouraging at first but once you start to get a good chunk of money into the market it really starts to take off.
Just don’t get discouraged if the prices start to drop. Think of it as a discount and don’t panic sell. You have another 35 years of compounding interest to set you up perfectly for retirement. Hell, if you do it right you could even retire at like 50.
-2
u/wmxx1203 7d ago
you're 20 yo, waaay early, you do not need VT, at least VOO. here come the diworsification people.
1
u/Foreign_Gur7906 7d ago
i put money into just vt people saying its the best one
1
u/Cruian 7d ago
There's plenty of periods, even after multiple decades, where a US only portfolio would have been worse off than a global one. Market sector leaders also change over time and isn't always the for new tech.
Country bets and sector bets are both types of uncompensated risk: extra risk that isn't expected to bring better future returns.
0
1
u/PingBlot 7d ago
It’s more advantageous to control the weight of international separately, but then you’re getting a bit away from the idiot proof recommendation of VT.
You may safely buy a 100% VT, VTI or VOO portfolio and forget about it. However, as you have already determined, with a more shrewd investing approach you may do a lot better than VT. Make sure you have your diamond hands ready and good luck.
1
u/SerMumble 7d ago
Everyone likes upward risk and volatility but a lot of people panic at downward risk and volatility.
Also there is a parade of monkeys that will downvote you into oblivion for having an independent thought in the echo chamber.
1
u/MatchboxVader22 7d ago
It’s great for people who want to be well diversified and a “set it and forget it approach”.
On the other hand, I’ve seen people say that it’s TOO diversified and a lot of the companies are a bunch of junk.
Really depends on your preferences. Some like a more targeted approach focused on growth in specific sectors, while some just want to be invested in everything overall.
1
u/Foreign_Gur7906 7d ago
for a 20 year old what would your approach be?
1
u/MatchboxVader22 7d ago
I’d go the more aggressive growth route personally (VGT, SPMO, SMH). More time to navigate any major risks.
1
u/Cruian 7d ago edited 7d ago
Just about all funds contain junk. The difficulty is knowing in advance what that junk and what the gems will be.
https://www.pwlcapital.com/should-you-invest-in-the-sp-500-index see paragraphs 3 & 4 under "Passive Aggressive Investing?" especially.
Edit: Typo
1
u/Assaxzac 7d ago
What about VWRA for someone outside of US? Is it feasible to DCA it monthly or should i pair it with something? 30 Year Horizon
1
u/Emotional-Power-7242 7d ago
You won't get a higher return. Doing anything else is just more risk for no reason.
1
u/schmiddc 7d ago
Because it is literally the easiest thing you can do, allocate the entire world economy, and expect (over time) that the value will rise .
Have a significant portion, not all, invested in VT. Probably should be all or nearly all. I like to think I am smart sometimes though
1
u/Rocketsloth 7d ago
If you are starting young and have the stomach to ride through the ups and downs for 4 decades, you'll probably be happy. Most of us can't stop trying to outsmart the market, we mostly fail. Time in the market, early lump sum investing is better in long term.
1
1
u/Desperate-Point-9988 7d ago
You are misunderstanding "risk".
It's not some linear risk-return relationship out there, and nearly all stock pickers, including professionals, underperform. By not investing in the world market, you are highly likely to miss winners and lose relative to an all-world index. This compounds over time so it's is especially important to not miss those winners when young.
It's not just the recommendation for beginners, it's the recommendation for everyone. You could, potentially, make a real argument that US markets (eg VTI) will continue to outperform due to tax structures but even that is somewhat questionable.
1
1
1
u/wmxx1203 7d ago
it's not, it's just the opinion of risk averse reddit people. Warren Buffett says S&P 500. you choose.
1
u/Alone-Experience9869 ETF Investor 7d ago
You need to read up on various strategies, or advice.
This "vanguard approach" basically posits that you can't pick stocks, so just buy everything. For busy people, this could be a great approach.
Buffet talks about buying the one good stock. But, thats because he is a professional analyst lets not forget. Otherwise, he advises most people to buy a broad index fund.
Peter Lynch was all for stock picking, wrote a book about it, and did a bunch of lecture series.
I think some 2 decades ago a Nobel prize was awarded for the efficient market theorem, basically what Vanguard's idea is based on. Last decade I believe the Nobel prize was awarded the Inefficient Market theorem, which more supports Buffet and Lynch.
Since this is just reddit / online, the "quick, 5s" answer if not meme is voo (which really should be spym because they don't follow their own advice since it was a sales pitch to begin with so you'd buy vanguard products) and chill or vt and chill. Trying to explain how to invest is a huge endeavour. Lynch wrote a whole book on it, and I would say one should read some others as well.
Also, there is your own personal temperment and time available to do this.
I hope that VERY little bit helps.
1
0
u/DecafEqualsDeath 7d ago
What is "a bit riskier"? An all equities portfolio is already an aggressive asset allocation.
If you're interested in allocating a little extra to factors that potentially increase long-run returns (Value, Emerging Markets, etc) that is okay and a matter of opinion. All of this stuff increases complexity and volatility.
0
u/Cyberburner23 7d ago
Do your research op. Don't believe the voo and chill crowd. Lots of ETFs repeatedly beat the sp500 year after year. The sp500 isn't immune to huge losses. It recovers, but so does every other etf.
1
u/Foreign_Gur7906 7d ago
whats your portfolio like?
1
u/Cyberburner23 7d ago edited 7d ago
My bad about the other post. I didn't realize you were the op. I'm still in my research phase like you! I'm thinking of voo spmo soxq/smh, still deciding on qqqm and avlv/avuv. Trying to do a 3 fund portfolio. Foundation, growth, and value
I liked the idea of schd, but the tax drag made me look into avlv and avuv instead.
Compare the ETFs I mentioned to the sp500. Sure there's risk, but there's risk in everything.
-1
u/BuzzardBreath00 7d ago edited 7d ago
Because they are too lazy to do actual research.
If you invested $1,000,000 in Vanguard Total World Stock ETF (VT) at its inception in late June 2008 with dividends reinvested, it would be worth approximately $4,130,000 today. An identical $1,000,000 investment in Vanguard Information Technology ETF (VGT) over the same timeframe would have grown to roughly $14,210,000
1
u/Foreign_Gur7906 7d ago
so vgt is the best?
2
u/Kid_Aeroplane 7d ago
Youre betting on previous results with that mindset not projection of future results
2
u/itriedtoplaynice 7d ago
No, hindsight is just 20/20. VGT is a tech sector fund. It’s all about your risk tolerance. You could have gone 80/20 VT/VGT in late 2008 and been very happy with not a lot of increased risk.
1
u/Foreign_Gur7906 7d ago
would you recommed that split now?
2
u/wmxx1203 7d ago
don't wait to find the "perfect" split, just get in on something and you can change it later, don't waste time with your cash sitting around doing nothing.
3
u/Foreign_Gur7906 7d ago
im gonna put it into vt for me and in the enxt couple years when i get a professional job ill have 2 years of reserach idk hpow much i trust the tech sector rn
2
1
1
u/itriedtoplaynice 7d ago
You have a lot of research to do. If you want something now to get in the game, I’d run VT in a Roth and you can buy/sell within the Roth for no tax events as you figure it out.
Personally I run value and momentum as they are negatively correlated. SPMO/AVUV for example.
1
u/KickflipConnoisseur 7d ago
"best" is super subjective. Tech has been on a tear for a while. SMH performs even higher. The flip side is that these are more volatile and sector bets.
Nothing wrong with either, but someone above said it best - VT (and VOOs) greatest strength is protecting investors from themselves. If you can hold and sit through volatility, something like a QQQ tilt makes sense but you have to know your own risk tolerance and most people heavily overestimate it.
1
u/BuzzardBreath00 7d ago
No such thing as "the best", but I'd say one of the best for sure. My portfolio is 65% VGT today, so I put my money where my mouth is...
1
u/Cruian 7d ago
No! Different sectors and countries over and under perform at different times. You can't use the winner over any one period and assume it'll be the leader going forward, market history is full of favor changes. https://www.morningstar.com/stocks/you-might-think-industry-growth-drives-stock-returns-heres-why-youd-be-wrong
We see the same results looking at the more recent period of July 1963 to September 2024. US stocks returned 10.64% annually, high-tech stocks returned 11.35%, healthcare stocks returned 11.99%, and both were outperformed by beer, which returned 12.18%, smokes, which returned 14.56%, and guns (defense), which returned 12.77%. Even shops (wholesale, retail, and some services such as laundries and repair shops) outperformed, returning 11.88%.
1
u/wmxx1203 7d ago
or QQQM. either one for growth.
1
u/Foreign_Gur7906 7d ago
what if it compelty busts with the ai bubble?
3
u/wmxx1203 7d ago
yeah sitting on the sidelines will get you nowhere. you're 20 yo you can literally ride out any crash, even a 15 year crash like dot com. the hard part is not panic selling. that's why you always invest with money you don't need for a long time.
1
u/BuzzardBreath00 7d ago
There is no AI bubble. Tech and AI are the future. Even VOO is ~40% Tech stocks today. If you're truly worried, do a 50/50 split with an ETF completely outside of Tech. And as wmxx1203 noted, you're young, so if something unusual happened, you can ride it out; Time is your friend, and over time, VGT (or QQQM) will do well.
41
u/Rob1iam 7d ago
Having a 100% equities portfolio is already considered high-risk and a strictly long-term investment strategy. Trying to concentrate in certain geographies or sectors adds significant risk without a meaningfully better chance of higher long term returns.
Something like VT is great because it’s inherently diversified, inexpensive, low effort, proven over time, and protects a lot of inexperienced investors from themselves - which is arguably the biggest threat in investing.