Money Analysed

VTI vs VOO: Comparing Popular Vanguard ETFs for Your Portfolio

VTI and VOO ETFs: What Are They and How Do They Differ? Exchange-traded funds (ETFs) are investment vehicles that have become increasingly popular in recent years, particularly due to their low fees and ability to track the performance of various indices.

Two of the most popular ETFs are Vanguard Total Stock Market ETF (VTI) and Vanguard S&P 500 ETF (VOO). Both of these ETFs are managed by Vanguard, a well-known investment management company with over $6 trillion in assets under management.

In this article, we will compare VTI and VOO and explore their advantages as investment options.

Differences between VTI and VOO

VTI and VOO may seem similar at first glance, but there are some key differences between the two ETFs that make them better suited for different investment goals. VTI is a total stock market ETF that invests in a broad range of stocks, including small, mid, and large-cap stocks.

This ETF tracks the CRSP US Total Market Index, which includes about 3,500 stocks and covers over 99% of the investable U.S. equity market. As a result, VTI provides broad exposure to the U.S stock market, making it ideal for investors who want to invest in various market segments.

VOO, on the other hand, is an index fund that tracks the S&P 500 index. It invests in the stocks of the top 500 companies listed on U.S stock exchanges.

As a result, VOO has a more limited scope than VTI and caters primarily to investors who want to invest in larger, more established companies. Both VTI and VOO have similar expense ratios, with VTI being slightly more expensive at 0.03% compared to VOO’s 0.02%.

However, investors should note that these expense ratios are still much lower than the average mutual fund expense ratio of around 1%.

Similarities between VTI and VOO

Despite their differences, there are also some similarities between VTI and VOO. Both ETFs have strong historical performance records, which is one of the reasons why they are so popular among investors.

Additionally, both VTI and VOO are index funds, which means they invest in a portfolio of stocks that track an underlying index. One of the main advantages of investing in index funds is that they are passively managed, which means they have lower fees compared to actively managed funds.

Additionally, index funds tend to have a more diversified portfolio, which helps investors minimize their risk exposure and achieve stable returns.

Advantages of VTI and VOO ETFs

Low fees of both ETFs

As previously mentioned, one of the biggest advantages of investing in VTI and VOO is their low expense ratios. Compared to mutual funds, which can charge fees of 1% or more, both ETFs have expense ratios that are orders of magnitude lower.

This makes them an attractive investment option for investors who want to minimize their costs and maximize their returns.

Strong historical performance of both ETFs

Another advantage of investing in VTI and VOO is their strong historical performance. According to data from Morningstar, VTI has a 10-year annualized return of 13.35%, while VOO has a 10-year annualized return of 13.36%.

These returns are impressive, considering that they are at least on par with the overall stock market’s performance.

Good for beginners as both are index funds

If you are new to investing, VTI and VOO are good options to consider due to their simplicity and ease of use. Both ETFs are index funds, which means they track a specific index and therefore do not require active management by a fund manager.

This makes them an excellent choice for novice investors who might not be familiar with the nuances of the stock market.

Diversification benefits of both ETFs

Lastly, both VTI and VOO offer diversification benefits. Diversification is a risk management technique that involves spreading your investments across different assets to minimize the impact of any one asset on your overall portfolio.

By investing in both VTI and VOO, you can gain exposure to a wide range of stocks and segments of the market, reducing your exposure to market volatility.

Conclusion

VTI and VOO are popular ETFs with several advantages that make them attractive investment options. While they have some differences in terms of their scope and investment goals, they both provide low fees, strong historical performance, simplicity, and diversification benefits.

As with any investment, it is essential to do your due diligence and consult with a financial advisor to determine which ETF is best suited to your investment goals.

Differences between VTI and VOO ETFs

Vanguard Total Stock Market ETF (VTI) and Vanguard S&P 500 ETF (VOO) are two of the most popular ETFs offered by Vanguard. Although both ETFs are similar in many ways, they have some key differences that investors need to understand to make informed decisions about their investments.

Tracking Different Indexes

One significant difference between VTI and VOO is the indexes they track. VTI tracks the CRSP US Total Market Index, which includes about 3,500 stocks between small, mid, and large caps, and it covers over 99% of the investable U.S. equity market.

On the other hand, VOO tracks the S&P 500 Index, which consists of the top 500 companies listed on U.S. stock exchanges based on their market capitalization. As such, VTI has a broader scope than VOO and provides exposure to a more diversified range of companies, including smaller companies that are not included in the S&P 500 index.

In contrast, VOO focuses on larger, more established companies and has a more concentrated portfolio. Funds Allocation

Differences between VTI and VOO

The different indexes that VTI and VOO track mean that their allocations are different.

Since VTI tracks the CRSP US Total Market Index, it invests in all companies listed on U.S. stock exchanges, including small- and mid-cap stocks. As of September 30, 2021, VTI has allocated 4.2% to small-cap stocks, 19.5% to mid-cap stocks, and 76.3% to large-cap stocks.

VOO, on the other hand, invests in the top 500 companies listed on U.S. stock exchanges, and as of September 30, 2021, it has allocated 100% to large-cap stocks. Therefore, VOO has a more concentrated portfolio than VTI, and investors who want more exposure to small- and mid-cap stocks may prefer VTI.

Price Difference between VTI and VOO

Another difference between VTI and VOO is the price difference between the two ETFs. As of November 1, 2021, the price of one share of VTI was around $234, while the price of one share of VOO was about $404. The nominal value of one share is not indicative of the value of the fund or the returns it generates, but the fact that VOO is more expensive than VTI means that investors need to invest more money to purchase one share of VOO.

Different Historical Performance of VTI and VOO

The historical performance of VTI and VOO also differs due to the indexes they track and the types of companies they invest in. According to Morningstar, VTI has a total return of 19.18% over the past year, 14.65% over the past three years, and 14.23% over the past five years.

In contrast, VOO has a total return of 18.17% over the past year, 14.38% over the past three years, and 13.82% over the past five years. Therefore, the historical performance of VTI has been slightly better than that of VOO over the past few years.

Choosing between VTI and VOO ETFs

Investors who want to invest in VTI or VOO may wonder which ETF is the better option for their portfolio. Several factors can influence the decision, including the investor’s investment goals, risk tolerance, and investment time horizon.

Diversification versus Concentration Benefits

One important consideration is whether the investor wants to prioritize diversification or concentration in their portfolio. Since VTI invests in all publicly traded companies in the U.S., it provides greater diversification across all market segments, including small- and mid-cap stocks.

On the other hand, VOO has a more concentrated portfolio of 500 larger-cap companies and may be beneficial for investors who are looking for deeper exposure to index stocks.

Possibility of Owning Both VTI and VOO

Investors who are undecided about whether to invest in VTI or VOO may also consider owning both ETFs. By owning both, investors can balance diversification with concentration in their portfolio while minimizing the risk exposure in their investments. Owning both VTI and VOO may diversify the investor’s holdings, as they would be investing in a mixture of the U.S. equity market as a whole and the top 500 U.S. companies by market cap.

Conclusion

VTI and VOO ETFs offer investors low-cost investment options that provide exposure to the U.S. equity markets. Although they share several similarities, differences exist in the indexes they track, funds allocation, historical performance, and price.

Investors should consider their investment goals, risk tolerance, and investment time horizon when choosing between VTI and VOO or whether to own both. The historical performance of both ETFs suggests a track record of strong performance accompanied by low expense ratios, making them a popular investment option for many investors.

Additional Information on VTI and VOO ETFs

Vanguard Total Stock Market ETF (VTI) and Vanguard S&P 500 ETF (VOO) are popular exchange-traded funds (ETFs) that are known for low expenses and strong historical performance. However, there is more to consider when looking at these ETFs. In this expansion, we will delve deeper into VTI and VOO and explore their dividend payouts, potential for investment, and comparative analysis.

Potential for VTI as a Good Investment

VTI is a broad-market ETF that provides exposure to the entire US equity market. As previously mentioned, the ETF tracks the CRSP US Total Market Index, which encompasses about 3,500 stocks and covers over 99% of the investable US equity market.

This level of diversification helps to spread investors’ risk across many businesses and should be a factor to consider while making investment decisions. VTI’s portfolio is also rebalanced quarterly, thereby ensuring that the ETF holds the correct proportion of each holding.

Rebalancing aims at returning an investment portfolio to its original strategic weights for asset classes so that portfolio diversification is maintained over time. As such, VTI holdings rebalancing could enhance the efficacy of the ETF investment.

Dividend Payouts for Both VTI and VOO

Dividends are a return of income to shareholders and are an essential consideration for investors searching for income-generating stocks. Both VTI and VOO distribute dividends to their shareholders, although the manner of distribution may differ.

VTI’s dividend yield is typically lower than some of its peers – providing a yield of 1.7% over the last year, based on Morningstar’s data. Despite the low dividend yield, VTI could still hold potential for investors in the long term, especially given its focus on diversification across sectors and market caps.

VOO has a somewhat similar approach, offering a dividend yield of approximately 1.2%. Conversely, VOO focuses more on established large companies.

Given the relatively low dividend yield, VOO investors should be interested in a long-term investment horizon to maximize earnings.

Comparative Analysis of VTI and VOO

Comparative analysis is the process of identifying the similarities and differences between two or more investments, including their performance, characteristics, and management style. Investors may need a comparative analysis to understand the underlying factors that make VTI and VOO different and help inform investment decisions.

One such difference is the funds allocation. As previously mentioned, VTI invests in all publicly-traded companies in the US, while VOO invests in the top 500 companies listed on US stock exchanges by market capitalization.

Another difference between the two ETFs is their expense ratio. As of November 1, 2021, the expense ratio for VTI was slightly higher than that of VOO being 0.03% and 0.02%, respectively.

Although this difference in expense ratio is generally viewed as minor, it could have an impact on the returns generated by the ETFs.

Investors should also consider historical performance differences when comparing VTI and VOO. VTI generally outperforms VOO over the long term, with an annualized total return of 13.35% compared to VOO’s 13.36% per Morningstar’s data.

VTI’s total return even outshines VOOs, which has been around for a more extended period.

Final Thoughts

VTI and VOO are low-cost investment options that provide exposure to the US equity markets. Given the similarities and differences between both ETFs, it is essential to weigh investment goals, risk tolerance, and investment horizon before deciding which one is suitable.

Factors such as diversification, dividend yields, and expense ratio, among others, should also factor in investment decisions. Ultimately, investors may need to perform comparative analysis to understand the underlying differences between these ETFs to make informed investment choices.

In conclusion, Vanguard Total Stock Market ETF (VTI) and Vanguard S&P 500 ETF (VOO) are low-cost investment options that provide investors with exposure to the US equity markets. VTI is known for its broad-market diversification while VOO focuses on well-established companies.

Investors should consider factors such as dividend yield, expense ratio, historical performance, and comparative analysis when choosing between the ETFs. Ultimately, the key takeaway is that investors should understand their investment goals, risk tolerance, and investment horizon when choosing between VTI and VOO to make informed decisions that optimize returns.

Popular Posts