Vanguard Total Stock Market ETF Recommended as Bear Market Hedge

The Motley Fool recommends the Vanguard Morningstar Total Stock Market ETF (VTI) as a primary strategy to prepare portfolios for an upcoming bear market, citing the fund's broad exposure to the U.S. economy. This advice follows recent record highs in major U.S. indices, including the S&P 500, which has posted 78% returns over the past five years. The Dow Jones Industrial Average and Nasdaq Composite have also delivered strong performance over the same period, rising 48% and 88%, respectively.

Historical patterns suggest that bull markets typically last five or six years on average. With the current bull market in its fourth year, The Motley Fool notes that a bear market is inevitable. The publication argues that diversification remains the most reliable method for investors to navigate this transition, particularly as selling high-performing sectors like artificial intelligence could result in missed gains during the remaining bull run.

The Vanguard Morningstar Total Stock Market ETF offers immediate diversification by tracking approximately 3,500 stocks across 11 sectors of the U.S. economy. This range includes large-cap technology firms such as Nvidia and small-cap consumer goods companies like Crocs. By holding this ETF, investors gain exposure to technology, industrials, consumer goods, and energy, among other sectors. The Motley Fool emphasizes that this breadth is critical during bear markets, where it is difficult to predict which companies will suffer the deepest declines or rebound the fastest.

While holding the ETF does not protect investors from market declines, it spreads risk across a wider base of holdings. The publication highlights that the average bear market downturn results in a 38% drop and typically lasts about 15 months. A key advantage of staying invested in a diversified fund is avoiding the risk of missing the market's eventual rebound.

JPMorgan Chase data from March 2005 to March 2025 supports this approach, showing that seven of the 10 best days in the stock market occurred within two weeks of the 10 worst days. According to The Motley Fool, missing those positive days would have cut 20-year returns in half compared to keeping money invested. The recommendation is to diversify with the Vanguard ETF now to ensure readiness for market volatility without attempting to time the bottom of a downturn.