Warren Buffett, famously known as the Oracle of Omaha, is one of the most successful investors of our time and built his wealth from handpicking individual stocks. Despite his success, his advice for the average investor is to invest in index funds.
With index funds becoming more and more popular, hundreds of companies are creating their own and there are currently thousands of funds to choose from. However, index funds are not created equal.
Having compared SPY to VOO earlier in this article, we will now take a closer look at two highly popular exchange-traded funds (ETFs) from Vanguard’s family of funds – the Vanguard S&P 500 ETF (VOO) and the Vanguard Total Stock Market ETF (VTI) – and compare them to see which one is a better investment for you.
An Overview of VOO vs VTI
VOO and VTI are both tremendous ETFs by Vanguard that are tightly matched together. On a high level, you can’t go wrong with investing in either one or both funds. However, one key differentiator is the index that they track. VOO tracks the S&P 500 (Standard & Poor’s 500), which follows the 500 largest publicly traded U.S. companies, whereas VTI tracks the CRSP U.S. Total Market Index, which tracks the entire U.S. market.
This means that VOO is mostly comprised of large-cap stocks while VTI has a mix of large-cap, mid-cap, and small-cap stocks. By definition, VTI is much more diversified as the fund has over 3,000 holdings compared to VOO’s roughly 500 holdings.
Below is a side-by-side comparison chart of some basic facts about VOO vs VTI.
On the surface level, both VOO and VTI may seem virtually the same and investors may not know how to differentiate between the two funds. To see if either fund meets your investment goals, let’s take a deeper dive into VOO vs VTI to sort out their similarities and differences.
As mentioned earlier, VOO tracks the S&P 500 Index while VTI tracks the CRSP US Total Market Index. The S&P 500 is one of the most popular benchmarks used today to track large-cap U.S. stocks, with a market cap of over $33.4 trillion as of December 31, 2020. On the other hand, the CRSP US Total Market Index is slightly more diversified and tracks thousands of stocks in the U.S. market. However, both indexes focus only on U.S. stocks, so the vast majority of the assets in their portfolios are U.S. companies.
Number of Holdings
Currently, VOO has roughly 510 holdings in its portfolio while VTI has 3,742 holdings. Because VTI includes the total U.S. market, the fund is considered by some investors as more passively managed than VOO. Since the S&P 500 includes only the top 500 large-cap U.S. stocks, there are stricter criteria for a company to get chosen as part of the S&P 500. For companies to be a part of this exclusive list, they are vetted by a selection committee for market capitalization, profitability, float, equity, etc., which makes VOO more actively managed.
Both VOO and VTI have an expense ratio of 0.03%. This means that for every $10,000 you invest in VOO or VTI, you are charged $3 in fees.
The average dividend yield for VOO ranges from 1.47% to 2.06% while the average dividend yield for VTI ranges from 1.35% to 1.94%, according to Seeking Alpha. Based on both funds’ dividend yield history, VOO usually has a slightly higher dividend yield than VTI, but that ranges from year to year.
VOO was created by Vanguard on September 7, 2010, while VTI was created by Vanguard on May 24, 2001.
VTI has a 90-day average trading volume of 4,256,018 compared to VOO’s 90-day average trading volume of 4,178,578. This makes VTI slightly more popular than VOO as the fund has a trading volume roughly 1.85% higher than VOO on an average day.
In terms of fund composition, VOO and VTI currently have the exact same top ten holdings, though their percentage allocated into the individual stocks slightly varies.
Below are charts listing their top ten holdings, which include names such as Apple, Microsoft, Amazon, and Facebook.
The key difference here is the weighting of their top ten stocks. For VTI, the fund’s top ten holdings make up 21.92% of its portfolio. For VOO, the fund’s top ten holdings comprise 27.05% of its portfolio, which means it has a roughly 4% higher weight given to its top holdings compared to VTI. Though VTI has more exposure to mid-cap and small-cap stocks than VOO, large-cap stocks still make up a significant percentage of both funds.
Because the biggest holdings for VTI and VOO are the same, they have relatively similar historical performances.
Below is a comparison of their performances ranging from one month to ten years.
While VOO has been performing slightly better than VTI in the last few years, the difference is very small and almost negligible.
VOO and VTI both have high exposure to the technology sector, followed by consumer cyclicals, financials, healthcare, and industrials.
Below is a side-by-side comparison of their sector exposure.
Currently, VOO is made up of 85.45% large-cap stocks, 14.45% mid-cap stocks, and 0.10% small-cap stocks. VTI is made up of 72.31% large-cap stocks, 19.26% mid-cap stocks, 6.25% small-cap stocks, and 2.19% micro-cap stocks. Not surprisingly, VTI has more exposure to mid-cap, small-cap, and micro-cap stocks than VOO.
There is currently no investment minimum for either VOO or VTI. Some brokerages, such as M1 Finance, SoFi Wealth, and Public, also offer fractional shares investing, which means you can invest in either fund with as little as $20.
VOO vs VTI – Which Vanguard ETF is better?
The biggest difference between VOO and VTI is the index that the funds track. However, when comparing the ETFs side-by-side based on performance, expense ratios, sector exposure, trading volume, etc., there are no meaningful differences.
Though VOO has had better returns in the last few years and more price stability, that does not mean the fund will continue to perform better given their relatively short inception times. In the future, it is highly likely that both ETFs will continue performing similarly and be tightly matched.
When choosing which one to invest in, it will all come down to the index being tracked. Investors who want to only own the largest and safest U.S. companies should choose VOO. Investors who want a bit more diversification, risk, and market exposure should choose VTI. If you find yourself having a decision paralysis, you can also invest in both funds. There is no right or wrong answer here.
Currently, I do not invest in either fund. Because my Roth IRA is under Fidelity, I am more inclined to invest in Fidelity’s flagship funds to take advantage of their low expense ratios. However, I do have investments in funds that track the total market, the international market, and the technology sector specifically. Personally, I do not invest as heavily in S&P 500 companies because I have a much higher risk tolerance and prefer growth stocks.
How Much Should You Invest?
How much you should invest in either of these funds depends entirely on your financial goals, risk profile, and financial literacy. If you are a passive investor, you could allocate the majority of your portfolio to these 2 ETFs and get a decent amount of exposure to the U.S. market. If you are like me and prefer handpicking stocks or have a riskier profile, you may not want to allocate as much capital to these two funds.
After reviewing all our data on VOO vs VTI, we can conclude that there is only a small difference between the two ETFs. Both are fantastic choices if you are interested in investing in the U.S. stock market.