VOO vs VTI: Which one is the better investment?
VOO vs VTI: Which one is the better investment?
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VOO Vs. VTI
Passive investing is becoming more popular than ever. People are turning away from buying penny stocks and day trading as the market continues to become more volatile. Also, it’s a well-known fact that passively managed funds are outperforming their actively managed counterparts, making them much more attractive for the retail investor.
You’re telling me I can do less work and generate better returns? Of course, people are turning to the passive way of life.
There are hundreds of thousands of companies that provide index funds. In fact, there are currently about 131,000 different funds to choose from across the entire globe.
Lucky for you, I don’t have the patience (nor the time) to cover them all. But we will be covering two of the most well-known and talked about funds in the Western hemisphere.
These two funds are VOO and VTI.
VOO - Vanguard 500 Index Fund ETF
VTI - Vanguard Total Stock Market Index Fund ETF
Of all the companies that provide index funds, Vanguard is one of the largest and most reputable companies out there. They offer plenty of options for passive investors and also keep the expense ratios extremely low, so you get to keep more of your money.
In this article, we’ll be doing a deep dive into each fund and determining which one is the better investment for your portfolio.
VOO: Vanguard S&P 500 ETF
Assets: $753 billion
Holdings: 503 stocks
Dividend yield: 1.55%
Expense ratio: 0.03%
Annualized performance since inception: 12.52%
You’ll notice that the S&P 500 holds more than 500 stocks, this is because some stocks have two classes, like Google for example that trades as both GOOGL and GOOG.
All of the stocks in the S&P 500 must meet specific criteria:
To be eligible for S&P 500 index inclusion, a company should be a U.S. company, meet market capitalization requirements, be highly liquid, have a public float of at least 10% of its shares outstanding, and its most recent quarter’s earnings and the sum of its trailing four consecutive quarters’ earnings must be positive
These types of companies are typically large-cap blue-chip stocks with massive market capitalizations, which is why so many investors are attracted to investing in the S&P 500 because they are essentially owning the largest and most powerful companies in the entire United States through just one ETF.
VTI: Vanguard total stock market ETF
Assets: $240 billion
Holdings: 4059 stocks
Dividend yield: 1.53%
Expense ratio: 0.03%
Annualized performance since inception: 9.55%
VTI is similar to VOO in many ways however the main difference is that it holds a much larger and broader range of stocks. This fund tracks the CRSP US Total Market index, which includes all of the stocks in the S&P500 plus thousands of others.
You are effectively buying the entire US stock market when you’re buying VTI. Because VTI is weighted by market cap, the larger companies make up more of the fund than the smaller ones.
Top 10 Holdings
Although weighted differently, both VOO and VTI have the same top 10 holdings.
As seen below, VOO’s exposure to Apple is 5.92% versus VTI’s exposure to Apple of 4.90%. This means that a change in the price of Apple will have a slightly larger effect on VOO than it otherwise would on VTI.
For VOO, the top 10 holdings account for over 27% of its total assets, whereas VTI’s top 10 holdings account for just over 22% of its total assets.
VOO’s Top 10 Holdings
VTI’s Top 10 Holdings
Source: Yahoo Finance (as of October 15, 2022)
VOO vs. VTI: performance
Past performance is no guarantee of future results. However, it’s always important to analyze past performance because it gives us the ability to project into the future.
With that being said, here are both funds’ 1, 5, and 10 year performances.
VOO’s Total Return
1 year: (16.57%)
5 years: 8.86%
10 years: 11.73%
VTI’s Total Return
1 year: (18.97%)
5 years: 8.26%
10 years: 11.42%
*Source: morningstar
As you can see, both funds have performed relatively similarly over the last 10 years. VTI sees more volatility than VOO simply because it also carries mid and small cap stocks.
Because of the sheer size of these funds, they won’t provide fast returns, but they do provide stability and steady gains over a longer period of time.