VOO and VTI are popular Index Funds among everyday investors. There are several similarities and differences between these investment options.
Index Funds have been at the forefront of democratizing investing, allowing everyday investors access to diversified portfolios that once only available to large institutional investors or high-net-worth individuals.
Two such ETFs offered by Vanguard, the VOO (Vanguard S&P 500 ETF) and VTI (Vanguard Total Stock Market ETF), are popular options for investors looking to invest in U.S. equities. Like other index funds such as VOO and SPY, these two index funds are very similar but have some key differences.
In this blog post, we dive deep into the differences and similarities between these two index funds to help investors choose the one that suits their investing goals.
Quick Comparison
| VOO | VTI | |
|---|---|---|
| Issuer | Vanguard | Vanguard |
| Index Tracking | VOO tracks the S&P 500 index, which includes around 500 of the largest publicly-traded companies in the U.S. | VOO tracks the S&P 500 index, which includes around 500 of the largest publicly-traded companies in the U.S. |
| Expense Ratio | .03%. For every $10,000 invested, only $3 goes toward the fund’s operating expenses. | .03%. For every $10,000 invested, only $3 goes toward the fund’s operating expenses. |
| Historical Performance (10 Year) | 385.32% | 365.92% |
| Minimum Investment | 1 Share | 1 Share |
| Dividend Yield (10-Year Average) | 1.93% | 1.91% |
Overview: VOO vs. VTI
The primary difference between these two ETFs lies in the index each fund tracks.
VOO is pegged to the S&P 500 Index, thus providing exposure to around 500 of the largest companies in the U.S. by market capitalization. Conversely, VTI is benchmarked to the CRSP U.S. Total Market Index, offering broad exposure to the entire U.S. equity market, spanning over 3500 stocks from mega-caps to small-cap firms.
Therefore, the crucial divergence between these two ETFs lies in their breadth of exposure to the U.S. stock market.
Head-to-Head Comparison
In the following sections, we’ll dissect several key aspects differentiating VOO and VTI, including their historical performance, returns, dividend yield, fees, index composition, and diversification potential.
Historical Performance
The performance of VOO and VTI has historically been very similar because of the high overlap in their holdings. As large-cap stocks dominate both indices, the overall performance difference between the two is small.
Performance | VOO | VTI |
|---|---|---|
| 6M | 6.97% | 6.05% |
| 1Y | 7.26% | 6.34% |
| 5Y | 67.16% | 60.23% |
| 10Y | 385.32% | 365.92% |
For example, over the past 5 years, VOO outperformed VTI by approximately 7% after accounting for dividends and splits.
However, past performance is not indicative of future results. Thus, an investor must consider other factors, such as risk tolerance, investment goals, and market outlook, when deciding between VTI and VOO.
Dividend Yield
The dividend yield for both VOO and VTI can vary depending on market conditions. Still, they have historically been quite close to each other because both funds are heavily weighted toward large-cap stocks, which tend to have similar dividend policies.
Since 2012, the dividend yields for VOO and VTI have typically ranged between 1% and 2%, with VOO having a higher dividend yield of 1.93% vs. 1.91% for VTI. However, these rates can fluctuate based on market conditions and changes in the dividends paid by the companies in their portfolios.
Fees
When it comes to ETFs, the expense ratio is an important consideration. Both VOO and VTI come with a low expense ratio of 0.03%. Vanguard is well known for its investor-friendly, low-cost approach, and ETFs illustrate this principle. So, if you’re concerned about fees, there is no discernable difference between VOO and VTI.
Index Composition
VOO and VTI are both Exchange Traded Funds (ETFs) offered by Vanguard, but they track different indices and thus offer different types of exposure to the U.S. stock market.
As mentioned earlier, VTI offers exposure to a much broader range of stocks than VOO. It includes large-cap, mid-cap, and small-cap stocks. So, VTI might be a better choice if your goal is maximum diversification within the U.S. equities market.
However, it’s important to understand that the S&P 500 index (tracked by VOO) covers approximately 80% of the market capitalization of the U.S. stock market. Although VOO holds fewer stocks, it still represents much of the U.S. economy.
Diversification
VOO tracks the S&P 500 index, which comprises 500 of the largest companies in the United States. While this does provide a good amount of diversification among large-cap stocks, it does not include mid-cap or small-cap stocks.
On the other hand, VTI tracks the CRSP US Total Market Index, which includes essentially all publicly traded U.S. stocks. This index contains large-cap stocks but also provides mid-cap and small-cap stocks. And includes more than 3,000 different stocks.
Regarding diversification, VTI has a broader exposure across the entire market cap spectrum, whereas VOO is focused solely on large-cap stocks.
While both can be part of a well-diversified portfolio, an investment in VTI would offer more diversification because of its broader market coverage. It’s also worth noting that because there is significant overlap in the stocks they cover, the performance of VOO and VTI tends to be fairly similar over time. However, in certain market conditions, one may outperform the other.
Remember, diversification does not ensure a profit or protect against a loss; it’s a strategy used to spread risk. When choosing your investments, consider your investment goals, risk tolerance, and time horizon.
Conclusion: VOO or VTI?
Choosing between VOO and VTI depends on your investment strategy and risk tolerance. If you’re interested in casting a wider net with exposure to the entire U.S. stock market, including small and mid-cap companies, then VTI might be your best choice.
If you prefer sticking to the large-cap universe and believe in the power of the 500 largest U.S. companies, VOO could be your better option.
Both ETFs have a solid track record, low expense ratios and offer diversified exposure to U.S. stocks. Remember, no one-size-fits-all in investing. Consider your financial goals, risk tolerance, and investment horizon before deciding.
