VTI VS VOO - Which ETF is better?

What is VTI? (Total U.S. Stock Market Fund)

VTI is a total U.S. stock market fund. The fund seeks to give you exposure to the entire U.S. stock market. VTI holds over 4,000 public companies ranging from large public companies to small public companies.

If we break down VTI a little bit more, roughly 82 percent of the stocks within VTI are large-cap companies, 12 percent are mid-cap companies, and approximately 6 percent are small-cap companies.

Although VTI attempts to build a mix of the entire U.S. stock market, it still leans heavily towards the larger public companies.

What’s the difference between Large/Mid/Small cap companies?

Large-cap Companies: Companies with a $10 billion+ market valuation

Mid-cap Companies: Companies with a $2-$10 billion market valuation

Small-cap Companies: Companies with a <$2 billion market valuation

VTI expense ratio

VTI has an expense ratio of 0.03 percent per year… which is definitely on the lower side when it comes to expense ratios for funds. If we broke down that expense ratio, it means that for every $100 you're investing into that fund; you'd be paying roughly three pennies per year to cover that fund's administration fees and operation.

VTI summarized facts

Fund Goal: VTI seeks to give investors exposure to the entire U.S. stock market.

Companies Held: 4,036 companies

Dividend Yield: 1.50%

Expense Ratio: 0.03%

Check out the fund’s fact sheet here for more information regarding VTI.

What is VOO? (S&P 500 Index Fund)

VOO is an S&P 500 fund. It is one of the most popular S&P 500 funds out there. The goal of VOO is to mirror the S&P 500 Index.

What is the S&P 500 Index?

The S&P 500 holds 500 of the most valuable public companies in the USA.

Companies that are both profitable and resilient. These companies have some of the most intelligent people working for them.

The S&P 500 index is generally used as a gauge to determine how the overall stock market is performing.

The fund holds 100 large-cap companies. VOO only contains large companies that are more or less stable and have been around for a while. These companies have stood the test of time and have proven themselves as profitable companies.

Historically, the S&P 500 has returned an average of 10% per year for the past century. It’s also one of Warren Buffett’s favorite Index Funds and where he suggests most investors leave their money.

VOO expense ratio

VOO has an expense ratio of 0.03 percent per year. For those unfamiliar with how expense ratios work... the fees are taken out automatically. You don’t have to make a payment to anyone. So you'll likely never even notice the fee.

Compared to investing with a financial advisor, 0.03 percent is insignificant. Many financial advisors charge anywhere from 1 to 2 percent per year to manage your money on your behalf. And many financial advisors fail to beat the S&P 500 long-term returns after considering the outrageous fees they charge.

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VOO summarized facts

Fund Goal: VOO seeks to track the S&P 500 Index.

Companies Held: 500 companies

Dividend Yield: 1.57%

Expense Ratio: 0.03%

Check out the fund’s fact sheet here for more information regarding VOO.

Historical Performance: VOO vs VTI

Let’s talk about VTI’s and VOO’s historical performance…

Both of these funds have performed nearly identically. However, VOO has had a slight advantage over VTI.

Over the past five years, VTI has earned an average return of 11.88 percent per year. At the same time, VOO has returned an average of 12.44 percent per year.

Will VOO’s slight outperformance continue? It’s hard to tell. VTI seems to do better during bull markets, as the smaller companies it holds tend to thrive and outperform during good economic conditions.

However, VTI seems to get hit harder during bear markets as smaller companies struggle more since they have fewer resources to thrive in challenging economic conditions.

Nonetheless, the historical performance of both funds is nearly identical. No matter which fund you pick, you will likely do just fine.

A good way to summarize the difference between VTI and VOO: Think of VTI as holding all of the stocks VOO has but also adding additional exposure to smaller public companies.

Top 10 Stocks: VTI vs VOO

The same ten stocks make up over 20 percent of both funds. Both funds are heavily weighted in tech stocks. VTI has a little less exposure to these ten stocks and additional exposure to smaller companies, but both funds have heavy exposure to the top public U.S. companies.

If you're looking to invest in the U.S. stock market as a whole, either of the funds will work. But if you want additional exposure to smaller public companies and maybe a better chance at growth due to the small companies held within the fund, VTI would likely be a better fund for you.

However, if you're looking for a more stable fund with concentrated exposure to the large public companies that have stood the test of time, VOO would likely be your ideal fund.

Does it make sense to hold both VTI and VOO?

Due to the overlap of stocks held within each fund, I don’t think holding both funds is necessary. VTI contains all of the stocks VOO has but also adds some additional exposure to smaller public companies.

Which is a better Investment - VTI or VOO?

If you don’t want exposure to smaller companies, VOO would be a better hold for you. If you want some exposure to smaller companies but still want to have a heavy concentration in the top public U.S. companies, VTI would be ideal for you. But keep in mind that large-cap companies still dominate VTI.

Both VTI and VOO are great funds to hold for long-term investors. They are well diversified amongst the top public companies in the world.

Alternatively, if you want exposure to smaller companies but don’t think VTI does the trick, there is another option… You could add VOO to your portfolio and then add a small-cap ETF like VB (Vanguard Small-Cap Fund), which holds over 1,500 small public companies. That way, you can customize your exposure between large-cap and small-cap companies by allocating money between VOO and VB.

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I recently put together a master list of 88 different ETFs designed to support different investment goals. You can grab it here.

As Always: Buy things that pay you to own them.

-Josh

Blog Post: #047

Do you have a suggestion on which ETFs I should compare next? Let me know here.