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VTI vs VOO – Vanguard’s S&P 500 and Total Stock Market ETFs

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VOO vs VTI

There are no instruments better than exchange-traded funds (ETFs) for having a balanced portfolio. You can easily trade these securities to acquire exposure to several assets in one or more industries, similar to mutual funds.

However, unlike mutual funds, you can acquire ETFs at the end of every trading day. This quality makes them work close to stocks while offering more flexibility.

Another difference between ETFs and mutual funds is that the former doesn’t require active management by a fund manager. This means you are in control of your investment based on the market index it follows: What you see is what you get. The ETFs we are looking at today are an example of this flexibility.

In this review, we’ll be taking a look and comparing two popular ETFs: VOO vs. VTI. These two ETFs are extremely popular and similar, making it hard to choose one. The main difference between VOO and VTI is their scope. Let’s take a look at how these 2 giants compare!

What Do VOO and VTI Track?

The first step to understanding both funds is understanding the indexes behind them. As we mentioned, these ETFs differ in their scope, but they also have differences in the indexes they represent. While VOO tracks the S&P 500 Index, VTI tracks the CRSP US Total Market Index.

Understanding each of these indexes is essential to choose between the ETFs. Let’s get started by understanding the Indexes.

What Is the S&P 500 Index?

The S&P 500 Index, which stands for “Standard & Poor’s 500”, is a market-capitalization-weighted index of the 500 biggest publicly traded companies in the U.S. market. This index, which VOO tracks, is perfect for anyone who favors simplicity while investing in the biggest U.S. companies.

stock index

While other factors determine which companies are in the top-500, market capitalization is the most important. This makes this index one of the best gauges to represent large-cap companies in the U.S., translating to it being considered one of the 4 major US indexes.

Historically, the S&P 500 Index has outperformed other indexes and expensive mutual funds.

What is the CRSP US Total Market Index?

Now, let’s look at the other index we are interested in: the CRSP US Total Market Index. This is an index that looks to track the whole of the U.S. market, adding mid and low-cap companies. This inclusion results in this index tracking shares of 99.5% of U.S. stocks, much more than the S&P 500 Index.

Not only does this index track nearly the whole U.S. market, but it also includes all types of different shares. If the previous index was all about simplicity, this one is about diversifying by adding exposure to other companies.

stocks

The index currently includes more than 3,700 different stocks with a median market capitalization of $1.4 billion.

What Is VOO?

We now have an idea of the indexes that each of these ETFs is tracking, so, let’s look at what the ETFs are.

Let’s start with VOO or, as it is also known, Vanguard S&P 500 ETF. As we already mentioned, this ETF tracks 500 of the U.S.’ largest companies. As such, this ETF offers high potential for investment growth over the long term, making it appropriate for those looking to hold a position in the long term.

If you don’t know what an expense ratio is, worry not. At the time of writing, the expense ratio of this ETF is 0.03%, which is nothing when considering the benefits it offers. This is a fee that all investors are charged for administering the ETF per year.

investment fund

Currently, VOO has 500 different holdings and a total of $827.2 billion in assets under management as of December of 2021. Of these 500 holdings, the top ten and their corresponding weights are:

Apple Inc: 6.70%Microsoft Corp: 6.40%
Alphabet Inc: 4.30%Amazon.com Inc: 3.90%
Tesla Inc: 2.40%NVIDIA Corp: 2.10%
Meta Platforms Inc: 2.00%Berkshire Hathaway Inc: 1.30%
JPMorgan Chase & Co: 1.20%Home Depot Inc: 1.10%

In this case, the 10 largest holdings represent 31.4% of the total net assets in the funding. Another thing to note is that tech companies are incredibly relevant for this ETF. However, tech is not the only sector you will be investing in if you choose to acquire this ETF. Let-s take a look at the equity sector diversification:

Communication Services: 10.40%Consumer Discretionary: 13.20%
Consumer Staples: 5.60%Energy: 2.70%
Financials: 10.80%Health Care: 12.70%
Industrials: 7.80%Information Technology: 29.40%
Materials: 2.50%Real Estate: 2.60%
Utilities: 2.30%

As you can see, this ETF doesn’t put all of its eggs in one basket. This is because it essentially is a low-cost set-it-and-forget-it ETF anyone can take advantage of. The diversification and the nature of the index make this ETF great for new investors.

What is VTI?

So now that we have an idea of what VOO is, let’s take a look at VTI. As previously mentioned, the VTI ETF tracks the CRSP US Total Market Index. It has a much larger variety of holdings than VTI, which can be better or worse depending on your needs.

In that regard, the VTI has 4,093 holdings, which is about 8 times the holdings of VOO. What does having a larger amount of holdings entail?

Well, for one, the portfolio becomes much more diverse, increasing your exposure. Should any individual sector see a sudden downturn or a big company crash, the remaining will compensate for that.

investing

That being said, while a diverse portfolio minimizes risk quite a lot… Some consider that VTI’s bet on the biggest companies has a similar effect. This can make this tricky, but we will look into this later in this guide.

Now, out of the 4,093 holdings, the top 10 by weight are:

Apple Inc: 5.60%Microsoft Corp: 5.30%
Alphabet Inc: 3.50%Amazon.com Inc: 3.20%
Tesla Inc: 2.00%NVIDIA Corp: 1.70%
Meta Platforms Inc: 1.70%Berkshire Hathaway Inc: 1.10%
JPMorgan Chase & Co: 1.00%Home Depot Inc: 0.90%

We can see that there is some difference already. The top 10 holdings represent only 26% of the total assets in the fund. Compare this to the 31.4%, and when considering the top 10 largest holdings are the same, you can see the difference in numbers.

Let’s take a look at the different categories you will find in this ETF:

Basic Materials: 1.90%Consumer Discretionary: 16.50%
Consumer Staples: 4.40%Energy: 2.90%
Financials: 11.10%Health Care: 12.40%
Industrials: 12.60%Real Estate: 3.50%
Technology: 29.50%Telecommunications: 2.60%
Utilities: 2.60%

We can see that the technology sector has a bit more importance in this ETF at 29.5%. This result may seem surprising at first but makes sense once you think about the role of tech in the U.S. market.

Who Manages VTI and VOO?

Understanding who is behind an ETF is extremely important for evaluating whether you should invest in it. In this case, the decision is simple. Both VTI and VOO are managed by the same entity: Vanguard Group.

John C. Bogle founded Vanguard as a fund division of the Wellington Management Company in 1975. The fund that Venture began with tracked the S&P 500, which is VOO. As you can see, this ETF has been around for more than 45 years!

While Bogle retired from Vanguard in 1999, the group remains the largest issuer of mutual funds globally and the second-largest issuer of ETFs. As of 2021, the same has more than $7.50 trillion in assets under management, second only to BlackRock, Inc.

vanguard

One aspect that sets Vanguard apart is its structure. The company is owned by its funds, which the shareholders own. This means that the shareholders are the real owners of Vanguard. This does give it some advantages. It allows Vanguard to charge very low expenses for its funds, even when talking about ETFs that already have low expense ratios.

Vanguard shows immense pride in its stability, low costs, and risk management. They are one of the leaders in passively managed assets, these being mutual funds and ETFs.

VTI vs. VOO

Now that we have an idea of both ETFs, let’s look at how these two compare. First, the obvious thing is something that we’ve already touched upon – both ETFs track similar indexes, with their difference being the scope.

This brings us to the first difference: Volatility. Mid and low-cap stocks tend to be more volatile, which translates to VTI being more volatile than VOO. Historically, this has been the case, which is why VOO is favored by those looking for stability. However, more volatility can be positive if the value changes go in the right direction.

volatility

When it comes to expense ratios, both ETFs are equal. Vanguard has set an expense ratio of 0.03% for each, which means there is no difference here to worry about.

When looking at the cumulative returns, both ETFs have shown positive performance. The total return for VTI in 2020 was 20.99%, while VOO saw returns of 18.4%. This is an example of how volatility can play in your favor. However, if you look at 2019, VOO outperformed VTI by 0.67%.

Final Thoughts on VTI & VOO

As you can see, VTI and VOO are pretty similar ETFs in terms of performance and history. However, their scope changes who might be interested in investing in each of them.

If you are looking for stability and simplicity in the long term, VOO might be the best ETF for you. However, if you are open to a bit more risk and are not considering investing in the long term, VTI might be a better fit.

Both ETFs are pretty safe when it comes to generating income. Both funds have only had negative returns one year since 2009, making them a great choice for any new investors.

If you are still uncertain about investing in any ETFs, worry not. You can invest in multiple ETFs, and we have reviewed several. Make sure to check our investing section to expand your investment options.

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