How should a beginner invest in stocks? Get started with this ETF.

The stock market is a proven long-term wealth-building machine, but it can be intimidating at first.

For new investors, picking stocks can seem overwhelming and confusing. How do you build a diversified stock portfolio without any market experience?

Fortunately, there is a very simple way to start off on the right foot. A broad market-tracking index fund gives you a huge chance for instant diversification, and then you can build on that solid base by adding single stocks later. Give your investment style time to develop before committing to specific stocks or even industries.

There are many reasonable options, but it’s hard to beat the diversification and stability you get from Vanguard Total Stock Market ETF (VTI 0.68%). Let me show you why this exchange-traded fund (ETF) can be the perfect starting point for Wall Street newbies.

The benefits of an index tracking ETF

Buying shares of an ETF is as easy as buying shares of a single stock. The fund is represented by a ticker symbol — VTI in this case — and its market price automatically reflects the average price movements of its constituents. Open a brokerage account, add some investable funds that you don’t need for any other reason in the near future, and place a “buy” order for the ETF. Seconds later, you’ll be a fund owner and on your way to mastering the ins and outs of a successful investment.

Index funds are a special case. They tend to be passive, meaning that another organization sets and manages the list of stocks (or other assets) that should be included in the fund. Simply mirroring someone else’s stock-picking research allows the fund manager to do less work and charge lower annual fees.

And the target index can be very high. The Total Stock Market ETF, for example, currently tracks the market performance of 3,673 stocks with a fee-based expense ratio of 0.03%. Any US stock you could buy on the open market is included in this ETF. Its target index “represents 100% of the US investable equity market.” Do you want stability? Index funds will give you stability — especially a big one, like this Vanguard fund.

The Vanguard Advantage

Many financial institutions offer index funds and they are mostly exchangeable. Throw in low management fee rates, a decent amount of assets under management and maybe a recognizable brand name, and you should be good to go.

That said, Vanguard sets the gold standard for investor-friendly management practices.

Following the research and insights of founder Jack Bogle, Vanguard insists on passive index funds with extremely low commission rates. Investors have noticed, making Vanguard funds some of the biggest and most popular options on the market. Two of the four largest ETFs, measured by the amount of assets under management, come from Vanguard’s portfolio today. The Total Stock Market ETF holds the fourth position, with a stock portfolio worth $499 billion today.

How the Total Stock Market ETF Stands Out

There is nothing like the Total Stock Market ETF out there. A few options come close, such as iShares Russell 2000 ETF (IWM 2.15%) or the SPDR S&P 1500 Composite Stock Market ETF (SPTM 0.65%). Vanguard also offers several ultra-diversified index funds, including Vanguard Russell 3000 Index ETF (VTHR 0.60%). You may want to look into these options and they may float your boat, but they will never be an exact replacement for the Total Stock Market ETF.

You see, this is the only ETF on the market today that mirrors this particular market index. With more than 3,500 components, this index truly represents the entire US stock market. Smaller indices like the Russell 300, Russell 2000 and S&P 1500 Composite also track thousands of tickers, but will always provide less complete coverage of the market.

So it’s no surprise that none of the alternatives we’ve listed can compete with the size of the Total Stock Market ETF portfolio. It comes with the Vanguard brand of microscopic fees, and its long-term performance is always close to popular S&P 500 (^GSPC 0.55%) landmark It has surpassed that index since its inception in May 2001.

VTI data by YCharts

This fund is extremely popular for all the right reasons. It’s a model of stability, and its market-wide coverage allows you to dive deeper into any corner of the stock market without feeling like you’re out of bounds.

So the Vanguard Total Stock Market ETF serves as the perfect launching pad into a lifetime of wealth-creating investment adventures. I wish you the best of luck, but there’s no need for that when your first investment follows the entire stock exchange!