Choosing between VTI or VOO
VTI vs. VOO, which one do I pick? This is a question that I’ve noticed coming up a lot on discussion forums. I thought I’d dive deeper into it and compare the two. Both VTI and VOO are Vanguard ETFs. Both of these ETFs are Index investors‘ best friends, especially Bogleheads. This is because they are passive investments and not active investments.
Disclaimer-I own neither of these funds (I own VTSAX, the mutual fund version of VTI. I also own ITOT, Ishares Total Market ETF)
VTI is a Total Market ETF and VOO tracks the S&P 500 Index. VOO gets you the top 500 largest companies in the U.S stock market while VTI gets you over 4000 stocks.
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Comparing VTI vs VOO
|Index||CRSP U.S Total Market Index||S&P 500 Index|
|Date of Inception||5/24/01||9/7/10|
|Number of Holdings||4098||508|
Summary of VOO vs VTI:
Both of these ETFs have super low expense ratios of 0.03%, so the winner here is the investor. VTI does have a longer history than VOO; however, you are still looking at over a decade on the market. You don’t have to worry about Vanguard closing their doors any time soon.
VTI vs VOO Dividend Yield: The Dividend yield of VOO is slightly higher; I presume due to the smaller cap stocks in VTI not paying as much in dividends. At the same time, the difference is so minuscule, it’s not something I’d choose one over the other for.
VTI is a Total Market ETF, it uses the CRSP U.S Total Market Index. VOO uses the S&P 500 Index. With VTI, you are getting greater diversification, which I’ll elaborate on further below. Both of these funds are in the top five largest funds, so Assets Under Management are gigantic.
Pros of VTI
- Greater Diversification
- Less Turnover
- One stop shopping
- Size factor premium exposure
- Slightly lower purchase price
VTI offers greater diversification than VOO. This is because it holds over 4000 stocks while VOO only holds around 500 stocks. Part of this diversification includes exposure to the ‘size factor premium.’ VTI holds not only large-cap stocks, but mid-cap, and small-cap stocks. Here’s a breakdown of each ETF by cap sizes:
There is some discrepancy between sources of data on how much mid-cap VOO holds. It depends on your definition. However, these are numbers I got from Morningstar; it at least shows you what VTI gives you that you don’t get with VOO. A tilt towards small and medium cap stocks.
Why mention this? Historically, they’ve shown that small and mid-cap stocks can outperform large-cap stocks. This isn’t always the case and you can’t rely on history to predict the future. However, the size factor premium can and does exist at different times throughout history.
One of the biggest advantages of VTI is that it’s what I call one-stop shopping. You pick up all the items you need in one trip. If you buy VTI and later decide you want more small cap exposure, you’ll need to purchase something like AVUV or IWM. One could purchase VTI, put it on auto-invest in their account and call it a day.
Less Turnover-John Bogle said one of the reasons they created VTI, was because with the total market fund, you don’t have to worry about whether S&P kicks a company out of the S&P 500. This causes tax inefficiencies within a S&P based fund. A lot of people don’t know this, but the S&P 500 isn’t really just the top 500 stocks by cap. They can choose to kick companies out of the index for a variety of reasons, regardless of how large they are. On the other hand, it isn’t as if VOO is very tax inefficient; after all, it’s a passive ETF.
Lastly, another advantage of VTI over VOO is the slightly lower purchasing price. Currently VTI is at $208 vs. $381. Remember, an ETF isn’t like a Mutual fund where you can buy partial shares. If you are younger and are using limited funds, this could come into play.
Disadvantages of VTI
- Greater Volatility
Since VTI holds small and medium-cap stocks, this comes with greater volatility. A bet on VTI is kind of a bet that the size premium will exist at some point in the future.
When you might consider VOO
If you already have a good number of small and mid-cap stocks in your portfolio, either from ETF’s or individual stocks, VOO might make more sense. If you are one of those people that believes diversification equals WORSEIFICATION, then you might prefer VOO. I notice a lot of people that buy individual stocks own VOO; perhaps they own small cap stocks in their portfolio as well? It is up to the individual investor to decide how much faith they have in the top 500 large-cap stocks.
VTI vs VOO performance
Year to date, VOO is down -12.10% while VTI is down -13.31%. The S&P has performed slightly better than the total market this year. Looking out more long-term, here are the Annual Returns of VOO and VTI for the last ten years:
It turns out that VOO actually outperformed VTI since 2011 (using 2011 as that was when data is available for both funds). The CAGR for them were 12.54% for VTI vs 12.97% for VOO. It’s not a huge outperformance and it’s a limited scope of data.
Even though we don’t have data for these ETFs, we know there are multiple times when the total market and small caps outperform the S&P 500.
Further Considerations for both ETFs
Even though something like VTI holds over 3500 stocks, many believe it still doesn’t offer enough diversification. Why? Its international exposure is limited. Lastly, depending on your age, you may still need to add bond funds to your portfolio. Some people opt for Vanguard’s Total World Market ETF with over 9,000 holdings! Keep this in mind as you design your portfolio.
In closing, I don’t think one can go wrong with either of these ETFs. It’s index investing at it’s finest. Low fees, passive investing, and much lower risk than individual stocks.
Wishing you the best on your investing journey!