If you’re considering a balance between VTI and VOO, you’re probably considering putting your money into an index fund. It will generally be a good decision. Index funds allow you to diversify your portfolio even with small amounts of investment capital, but even investment professionals are often unable to select stocks that outperform the index.
But which of these funds should you choose? Let’s start with the basics.
VTI vs VOO: By the numbers
VTI | VOO | |
---|---|---|
full name | Vanguard Total Stock Market ETF | Vanguard S&P 500 ETF |
tracked index | CRSP US Total Market Index | S&P500 index |
Assets under management* | $318.6 billion | $339.7 billion |
Number of possessions | 3839 | 507 |
expense ratio | 0.03% | 0.03% |
Dividend yield* | 1.54% | 1.56% |
Issuer | Vanguard | Vanguard |
*As of September 2023
5 years of results
Source: BarChat
VTI and VOO: What’s the difference?
The most important difference between VTI and VOO is that each fund tracks a different index.
- VTI track the CRSP US Total Market Index. The CRSP US Total Market Index is an index of approximately 4,000 U.S.-based companies, ranging from large to small capitalizations. This makes the index a good representation of the entire U.S. stock market, not just the largest companies.
- VOO Tracks the S&P 500. The S&P 500 is an index of the top 500 companies in the United States.
These indexes and the ETFs they track are market capitalization weighted. In other words, the weight of large companies will become heavier.
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VTI vs VOO: sector exposure
VTI and VOO use slightly different terminology to disaggregate sector exposure.
VTI sector breakdown
sector | weight |
---|---|
information technology | 30.20% |
consumer’s discretion | 14.40% |
industrial | 13.00% |
health care | 12.60% |
finance | 10.30% |
Daily necessities | 5.10% |
energy | 4.60% |
real estate | 2.90% |
public works | 2.70% |
Telecommunications | 2.20% |
basic materials | 2.00% |
VOO sector breakdown
sector | weight |
---|---|
technology | 28.20% |
health care | 13.20% |
finance | 12.40% |
consumer’s discretion | 10.60% |
communication service | 8.80% |
industrial | 8.40% |
Daily necessities | 6.60% |
energy | 4.40% |
real estate | 2.50% |
basic materials | 2.50% |
public works | 2.40% |
One thing that immediately stands out in these breakdowns is that both VTI and VOO are heavily weighted towards IT (technology and communications), particularly VOO, reflecting the current large market capitalization of these sectors in the US stock market. It means that it is placed.
- VTI Tracks a large number of companies across a wide range of company sizes. The focus is on the consumer and industrial sectors, which include many small and medium-sized businesses. The large number of holdings and the variety of company profiles further increase the diversity of companies.
- VOO We track a small number of companies that are somewhat focused on technology. It gives a high percentage to healthcare and finance, which tend to be dominated by large corporations (sometimes referred to as big banks or big pharmaceutical companies).
None of these options is fundamentally better or worse. These provide exposure to slightly different sectors of the market, which can lead to different performance characteristics.
VTI and VOO: similarities
VTI and VOO have a lot in common. Both are very large ETFs. Both funds are managed by Vanguard, which has a reputation for offering low-cost funds.
If you’re looking for a large, liquid fund that’s reliably managed, both of these ETFs will pass the test.
There are some similarities that are less obvious, but this explains very similar performance charts that arise from three basic facts.
- As market-cap weighted indexes, both give a dominant space to mega-cap stocks, mostly tech companies, worth trillions of dollars.
- Much of the CRSP US Total Market Index’s performance is determined by the top largest holdings within the S&P 500.
- The stock prices of small and medium-sized stocks tend to move in tandem with those of large stocks.
What does that actually mean? Let’s take a look at the top 10 largest holdings in VTI and VOO.
Top Holdings: VTI vs VOO
The top holdings in both indexes differ only slightly in order, with the first nine largest holdings being the same. This includes:
- Apple.
- Microsoft Corporation
- Amazon.com Inc.
- NVIDIA Corporation
- Alphabet Co., Ltd. Class A
- Alphabet Inc. Class C
- tesla
- Facebook Inc. Class A
- Berkshire Hathaway Class B
Therefore, the only difference between the top 10 holdings is that VTI includes insurance and healthcare stock UnitedHealth Group, while VOO includes oil and gas company Exxon Mobil. That’s what I’m doing.
The same is true when looking at the 10 stocks each fund will hold in the future. The list is the same for his ninth, and the order is also very similar.
- Exxon Mobil Corporation or UnitedHealth Group
- Eli Lilly & Company
- JPMorgan Chase & Co.
- Visa Inc. Class A
- johnson & johnson
- Broadcom Co., Ltd.
- Procter & Gamble Co.
- MasterCard Inc Class A
- home depot
The difference lies in the 20th-ranked stock held, with VTI holding pharmaceutical company Merck & Co. and VOO holding energy company Chevron.
The only real difference is that VTI’s top holdings are slightly smaller than the ETF as a whole, making room for smaller holdings of smaller companies.
Which one is best for you?
Both VTI and VOO are good options for investors looking for quality diversified index funds. Both are among the largest and most prominent ETFs in the country, both are highly liquid, and both have very similar track records. The commission fee is also low at 0.03%.
Your choice will be based on what you are looking for in your investment.
- VTI It provides some exposure to companies with small market capitalizations. This results in a slightly different profile on a sector basis, with more emphasis on industrial and consumer sectors.
- VOO is a more aggressive, less diversified fund focused on large technology companies. This increases the potential for profits in bull markets, but can also result in significant losses in bear markets.
How you view the market makes a difference. If you believe the market will continue to favor large-cap stocks, you would prefer an index that focuses only on large-cap stocks. If you believe that smaller companies have the potential to outperform, you would prefer an index that allows you to rebalance towards smaller companies and increase their weight in the index while market capitalization grows. .
If you’re weighing VTI vs. VOO and can’t decide, consider allocating a portion of your portfolio to each fund. By holding multiple ETFs in your portfolio, you get the best of both worlds.