VTI and VOO are two popular Vanguard exchange-traded funds that provide an easy way to diversify your portfolio. The fundamental difference between the two is that VTI includes small, mid, and large-cap stocks, while VOO only includes large-cap stocks. Additionally, VTI tracks the CRSP Total Market Index, and VOO tracks the S&P 500 index. Otherwise, these funds are very similar, especially in their strategies, portfolios, fees, and dividend yields.
Finding an effective investment strategy can set you on the path to financial independence and help kickstart your future. Unfortunately, the stock market can be a confusing place for many investors, and finding the right assets to add to your investment account can be even harder.
Choosing an exchange-traded fund (ETF) to add to your portfolio can allow you to put your money into many companies at once, including some of the most valuable on the market. VTI and VOO are two ETF options that can take some of the pressure off your investment decisions. In this article, we’ll look at both funds to see which is a better investment choice.
The S&P 500 index and VOO
The S&P 500 index is comprised of stocks from the 500 largest companies in the U.S. and includes household brands such as Apple, Microsoft, Amazon, and Tesla. It is by far one of the most popular index funds available.
The index tracks the performance of stock prices, which helps provide investors and financial advisors with a snapshot of not only where the market is now, but also where it’s headed. The S&P 500 is considered one of the best benchmarks for both the health of the stock market and the overall strength of the economy.
VOO is an ETF that tracks the S&P 500, meaning it is a portfolio of assets and includes the same companies that are in the S&P 500. This type of ETF will hope to mimic the performance of the index.
CRSP US Total Market Index and VTI
The Center for Research in Security Prices (CRSP) Total Market Index tracks shares of 99.5% of U.S. stocks, ranging from small-cap stocks to larger companies such as Apple and Microsoft. It currently includes over 3,700 stocks.
The approach is that by taking a broad, total market index fund, investors don’t have to worry about picking winning companies. With so many stocks in its portfolio, even if there are some losers, it’s likely there will be many winners as well.
The Vanguard Total Stock Market ETF (VTI) provides broad exposure to the U.S. stock market, specifically as it relates to the CRSP Total Market Index. Like other total stock market ETFs, it also includes the addition of small and mid-cap stocks. The fund was established in 2001 and seeks to track the CRSP US Total Market Index.
VTI is comprised of roughly 82% large-cap, 12% mid-cap, and 6% small-cap stocks. VTI is market cap weighted, meaning it is weighted by the size of the constituent stocks. About 82% of VTI’s weight is VOO, with the other 18% being those smaller companies. Essentially, the stocks contained in the VOO fund are already inside of VTI.
Portfolio and fees
As of August 2022, VTI has about $281 billion in assets under management (AUM), making it one of the largest ETFs on the market. The fund has 4,076 stocks in its portfolio, headlined by large percentage holdings in the technology and consumer discretionary markets like Apple, Microsoft, and Amazon. With a range of large-cap stocks, mid-cap stocks, and small-cap stocks, VTI gives investors broad exposure to the market.
VTI’s expense ratio is relatively low, at only .03%. Year-to-date (YTD) returns (as of August 2022) are down around 11.6%. It has a median market cap of $124.9 billion. The fund employs a passively managed, index-sampling strategy.
The Vanguard S&P 500 ETF (VOO) is one of the most popular stock ETFs available. Established in 2010, the fund seeks to track the S&P 500 Index, which holds the 500 largest U.S. companies. This ETF is considered a sufficient proxy and barometer for the stock market in the U.S.
VOO only holds large-cap stocks, meaning there’s less of a chance of pronounced volatility in the fund.
Portfolio and fees
As of August 2022, VOO has about $281 billion in AUM, meaning that (similar to VTI) it is a sizable fund. VOO has 503 stocks currently in its portfolio and (again like VTI) Apple, Microsoft, and Amazon are the three companies it holds the most shares in.
VOO also has a low expense ratio, at just .03%. YTD returns (as of August 2022) are down around 10.4%. It has a median market cap of $169.5 billion. The VOO ETF is considered more appropriate for long-term goals for investors focused on growing their money.
Understanding expense ratio and fees
When deciding between an actively managed and passively managed ETF, fees can make a difference. Although ETFs tend to have lower fees, they can make a difference over time.
That said, because both VTI and VOO have the same expense ratio at .03%, there won’t be much of a difference in what you pay in fees over time.
Past performances of VTI and VOO
As you can see, the two ETFs have both differences and similarities between them, which includes how they have performed in previous years.
VTI is an older ETF that was released in 2001. Since its inception, it has posted an 8% return overall, with an average earnings growth rate of just over 20% for the past five years.
However, due to the inclusion of small-cap stocks in the fund, there has been some volatility over the years, especially when compared to VOO. That said, the risk level is fairly comparable to the greater S&P 500 index.
VOO is a somewhat newer ETF that was released in 2010. Since it was started, its posted a 14% gain overall. Similar to VTI, the fund had an average earnings growth rate of just over 20% for the past five years.
There isn’t so much volatility in the fund, as it is comprised of just over 500 large-cap publicly traded companies. The large size of the companies within its portfolio won’t provide much in the way of fast returns, but it does provide stability and steady gains over a longer period of time. The VOO pretty much always overlaps with the S&P 500 and doesn’t waiver much from its performance.
VTI vs. VOO
The biggest difference between VOO and VTI is that VTI includes small-, mid-, and large-cap stocks, while VOO is only large-cap stocks. However, VTI has historically outperformed VOO over the long term due to its inclusion of these small and mid-cap stocks, which give it even broader exposure to the market. And, with more stocks under its portfolio, VTI is much more diversified than VOO.
Despite the difference in the number of companies and the inclusion of small-cap companies and mid-cap companies within its portfolio, VTI and VOO ultimately have similar performances when compared to one another. Essentially, on the basis of longevity, size, and expenses, there’s virtually very little that separates these two ETFs.
Both funds can serve as core holdings in any investment portfolio. Because VOO has fewer companies, you should consider whether you prefer quality over quantity when determining your preferred ETF. However, there are enough similarities between the funds that there won’t necessarily be a huge disparity in returns over time.
Different share prices
While this may not be a huge concern in the grand scheme of things, the share prices of VOO are higher than that of VTI. For example, at the close of business on August 19, 2022, VTI was at $211.79 and VOO was $388.17. The lower share costs of VTI may be more attractive to some investors.
However, most brokerage firms now allow buyers to purchase fractional shares, which provide investors of all income levels the opportunity to invest in the big ETFs. To find a brokerage who may offer this option, take a look at some of the brokerage firms below.
VTI vs VOO: Which is better?
These are two very similar ETFs. Both have low expense ratios, similar companies in their portfolios, a similar dividend yield, and provide a broad exposure to the market. There’s not necessarily one right answer for this question since the investment depends primarily on your individual investment strategy.
That said, historically speaking, VTI has outperformed VOO because of the small- and mid-cap companies it keeps in its portfolio, which gives the fund more possibility of gains. If you’d rather go for quality over quantity, however, then VOO might be a good choice since it contains the best 500 companies in the S&P 500 at a given time.
When you invest in the S&P 500 you are basically betting on the U.S. economy. However, if in doubt, it’s always a good idea to consult with a financial advisor before investing your hard-earned money.
|Type of Security||ETF||ETF|
|Composition||Large blend||Large blend|
|Net Assets||$281 billion||$281 billion|
Should I have VOO and VTI?
You can own both VTI and VOO. However, because about 82% of VTI is made up of VOO stocks, it doesn’t necessarily make sense to own both. Both funds have a negative YTD return of around 10% to 11%, and both have an expense ratio of .03%. You will get virtually the same return on both funds, although historical performance indicates VTI does better over time.
Is VTI a good fund?
VTI is a good fund depending on your goals as an investor. If you value long-term growth, broad exposure to the market, and want to include all different types of companies in your portfolio, then VTI would make for a good investment. VTI allows for a little more diversification, while also still offering the opportunity to own big tech stocks like Apple, Amazon, and Tesla.
Does VOO or VTI pay dividends?
Both VOO and VTI pay dividends. As of July 31, 2022, VOO has a dividend yield of 1.49% and VTI has one of 1.42%. Both dividends are paid every three months, with VOO paying $5.65 per share within the past year and VTI paying $3.04 per share in that same time.
Should I just invest in VOO?
Investing in VOO can be a good idea if you want to minimize your volatility and invest only in stable, large-cap weighted companies. Although VOO and VTI have performed almost identically over time, VOO offers less volatility because it does not include mid- and small-cap companies, which tend to be open to more risk. The VOO mirrors the S&P 500 index, meaning it will likely remain a good investment even if the market encounters trouble.
Is VTI high risk?
VTI does come with some volatility due to its inclusion of mid- and small-cap companies in its portfolio. That being said, the risk is not considered high because it’s mainly made up of large caps that are stable and perform well. VTI could be a smart core holding of an investment portfolio, meaning it’s a fund that can be built around.
Is VTI a smart buy right now?
Nobody can predict the market consistently, so there isn’t a straight answer to this question. However, highly diversified ETFs like VTI are considered relatively safe long-term investments with historically dependable returns.
Of course, every investor wants to buy assets when they are at a bargain price, but not even the smartest investors know when a stock or a set of stocks has hit rock bottom. The good news is that timing doesn’t matter a whole lot with ETFs like VTI. When you buy VTI, you are practically investing in the entire U.S. stock market because you have a wide selection of small-, mid-, and large-cap companies.
So, you could argue that it is always a good time to invest in VTI if you have a buy-and-hold strategy and you are bullish about the overall long-term trend of the U.S. economy.
How many Vanguard ETFs should I own?
Diversification can be a good thing when it comes to investing in the stock market and help maximize returns for an investor’s chosen level of expected risk. Therefore, it’s likely not a good idea to own more than one or two Vanguard ETFs in your portfolio.
You want to keep your diversification broad, so you can keep your investments most protected from risk. That said, as with all investments, it’s a good idea to speak with an advisor or your financial institution before investing in the stock market.
- VTI is a Vanguard ETF that provides broad exposure to the U.S. stock market, specifically tracking the CRSP Total Market Index. The fund was established in 2001 and includes large-, mid-, and small-cap stocks.
- Established in 2010, VOO is a Vanguard ETF and one of the most popular stock ETFs available. The fund tracks the S&P 500 Index, which holds the 500 largest U.S. companies. It only includes large-cap stocks.
- Overall, VTI has outperformed VOO, but only by a small difference.
- VTI and VOO are similar in their returns and other metrics. The main difference between the two is that VTI is larger and more prone to volatility.
View Article Sources
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