VTI vs. VOO: Comparing and Contrasting [Everything You Should Know]

Are you thinking about investing in the stock market but don’t know where to begin? Consider choosing a fund that handles the risk for you. In this article, we’ll explore VTI vs. VOO.

Investing in the stock market is like shopping at a grocery store. There are many options based on your budget, needs, and wants. The key difference is that your stock market investments can either support your long-term goals or set you back.

Many people seek investments that offer the best return. But not all investments deliver. What if an index fund could provide a stable and secure investment? Plus, what if it also offered an annual dividend to help manage risk?

That’s where the Vanguard Total Stock Market ETF (VTI) and Vanguard S&P 500 ETF (VOO) come in. These funds might be the best strategy if you’re unsure about the stock market. Let’s dive in.

The Vanguard Total Stock Market ETF (VTI) is a diversified fund with over 3,500 stocks and a market cap of over $89.6 billion. It tracks the CRSP US Total Market Index, covering small, medium, and large-cap companies. Since its start in 2010, VTI has had a 10-year return of 13.48%. It’s managed passively and uses an index sampling strategy.

The top sector in VTI is technology, making up 21.2% of the fund. The top three holdings account for 12.6%. The fund has a low expense ratio of 0.03% and closely tracks the broader stock market, making it an affordable way to access the entire US equity market. It has a price-to-earnings ratio of 20.9 and a price-to-book ratio of 2.8.

VTI’s low expense ratio and turnover rate of 4.1% mean lower transaction costs. The fund’s expense ratio doesn’t include brokerage fees or commissions, which benefits long-term investors. With an average trade volume of 2 million shares, VTI has ample liquidity.

You can buy VTI shares commission-free through M1 Finance, which has no broker fees and allows investments starting from $100.

VTI holds a large number of investable securities in the US, including small stocks, which are more volatile than mid or large-cap stocks. Its beta is one, meaning it’s exposed to systematic market risk. A significant downturn in the US economy could impact the fund’s value.

With the stock market’s recent bull run, VTI has performed well, averaging an annual return of 11.46% and a 5-year return of 9.17%. It’s a solid choice for a growing portfolio, reflecting the broader US market in one low-cost fund.

To balance your portfolio, consider other assets like gold, real estate, or peer-to-peer lending, which can provide passive income over time.

If you’re cautious about the future, you might allocate some capital to the Vanguard S&P 500 ETF (VOO) for its yield.

VOO, based on the S&P 500 Index, is a popular fund with high liquidity and daily trading volumes. The S&P 500 includes the 500 largest US companies, and VOO tracks its returns, reflecting the performance of US stocks.

Investors are drawn to VOO because it consists of large-cap stocks, which are more stable during market downturns. The fund manages over $100 billion in assets. During market corrections, many investors turn to these big names.

VOO’s appeal also comes from its annual dividend yield of 1.64% and a low expense ratio of 0.03%. Since its inception in September 2010, VOO has grown by 268.21% and has increased by 9.69% year-to-date.

VOO’s strong performance is largely due to its significant allocation to the tech sector. The fund’s sector breakdown is as follows:

Index funds like VOO offer a low-cost way to diversify across different asset classes. Vanguard is known for its low fees and accurate tracking of ETFs. VOO is a good measure of US market performance.

VTI, on the other hand, includes small and medium-cap companies, providing broader market exposure. Established in 2001, it tracks the CRSP Total Market Index. VOO and VTI are closely related, with VOO making up about 82% of VTI.

VTI includes 82% large-cap, 12% mid-cap, and 6% small-cap stocks, making it more volatile than VOO. VOO focuses on large-cap stocks. VTI’s market-cap weighting means it’s heavily influenced by the stocks it includes, with 82% of VTI consisting of VOO. The remaining 18% is smaller companies. Essentially, VOO is part of VTI, similar to how VTSAX is a mutual fund equivalent to VTI.

Small and mid-cap stocks are generally more volatile than large-cap stocks, making VTI more volatile than VOO. VTI is more diversified, with over 3,500 stocks compared to VOO’s 500+ stocks. This diversification and cap size exposure are the main differences between VOO and VTI.

Historically, small and mid-cap stocks outperform large caps due to the risk factor premium. Thus, VTI may perform better than VOO in the long term, though it’s more volatile. Both funds have an expense ratio of 0.03%.

VTI is more popular, with a market cap of over $910 billion, compared to VOO’s $450 billion. Both funds are large, indicating trust among investors. While size isn’t the only measure of a fund’s quality, it’s an important consideration.

If you prefer large-cap stocks with low volatility, choose VOO. For greater diversification and higher potential returns with more volatility, go with VTI. You might also combine VOO with a small-cap value fund.

Both VTI and VOO are excellent options for exposure to the US market. Some employer-sponsored retirement plans may only offer one of these funds. Mutual fund equivalents are VTSAX for VTI and VFIAX for VOO.

Now that you know more about these funds, decide which suits your goals. Investing in one of these funds can help you on your journey to financial freedom. Remember, the stock market is risky, but with proper due diligence and education, you can manage these risks and achieve your long-term goals.

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