VTI Is Cheaper Than It Used to Be. So What’s the Catch?

The entire US stock market is trading at a discount to its recent past, but the safest alternative is paying you more to wait.

The aggregate earnings yield of the fund’s holdings is 3.6%, while the 10-year US Treasury yields 4.6% today. That simple comparison is the central dilemma for anyone considering the Vanguard Total Stock Market ETF (VTI). You are looking at an investment that, for now, offers a lower potential return than you can get from the government, risk-free. So, is the price you pay for this basket of stocks justified by what is actually inside it?

After a strong run where the fund has returned +72% in total over the trailing three years, it’s a fair question to ask. Let’s look at the math.

A Discount From Its Own Past

By one key measure, VTI looks less expensive than it has been. The fund’s trailing price-to-earnings ratio is 28.1. Compared to its own history, that’s a notable shift. Over the last five years, that same P/E ratio has averaged 41.4. Today’s price is about 32% below that 5-year average. A discount is a discount, but it only matters if the earnings power underneath is solid. A lower price for deteriorating businesses is no bargain.

Are The Engines Still Running?

The story inside the fund suggests the earnings are holding up. The consensus forward price-to-earnings ratio for the fund is about 19.6. A forward multiple that much lower than the trailing one of 28.1 signals that the market expects earnings to grow. In fact, consensus estimates put one-year earnings growth for the fund’s holdings at about 18%.

While VTI holds 3598 positions, its performance is really driven by a handful of giants. Names like Nvidia (NVDA) at 6.7% of the fund and Apple (AAPL) at 6.3% have an outsized impact. For these largest holdings, trailing twelve-month earnings per share grew about 53% over the past year. That powerful growth is what you are buying into.

The Price Of Forgoing A Sure Thing

This brings us back to the starting point. The fund’s 3.6% earnings yield sits about 1.0 percentage points below the 4.6% risk-free Treasury yield. This is what investors call a negative risk premium. It means you are not being compensated with a higher potential yield for taking on the inherent risks of the stock market compared to the certainty of a government bond. It is the single strongest argument for patience.

What An Owner Is Really Deciding

So, is today’s price justified? The data presents a clear trade-off. You have the entire US stock market trading at a valuation well below its recent average, powered by companies whose earnings are growing briskly. At the same time, the risk-free alternative offers a higher yield. Buying an index fund like VTI means you own every company in it, accepting this complete package at the going price. The alternative for investors is to be more selective, seeking out individual companies rather than owning the whole basket. For a VTI owner, the key thing to watch is whether corporate earnings live up to expectations and begin to close that gap with the risk-free rate.

You Just Saw Inside One Fund, Now Check The Rest

You have just seen exactly what sits inside one holding, and the same question applies to everything else you own. How much damage any single position could do to your net worth is a question with a precise answer. The Trefis Wealth team computes it for investors professionally, with the same rules-based systematic discipline that runs our High Quality Portfolio. Request a free vulnerability audit of your biggest positions.