Are you interested in investing in funds that are both low-cost and low-maintenance? Let’s dive into two index fund options, VT and VTI, to see which one suits your needs.
VT and VTI are index funds, which means they are passively managed to match a market index, unlike mutual funds that need active management. Both are low-cost ETFs offered by Vanguard, but they have some differences in their composition and performance.
VT, or Vanguard Total World Stock Index Fund, includes stocks from the global market. It tracks the FTSE Global All Cap Index, which covers both US and international companies in developed and emerging markets. VT holds around 8,500 stocks from various sectors and countries, with an expense ratio of 0.07% and no initial investment required. Because of its broad composition, the performance of any single company, like Apple, won’t significantly affect the fund’s value. However, strong performance from foreign companies like Nestle can boost your investment. VT is a good choice if you want a globally diversified portfolio and are patient enough to wait for long-term gains.
VTI, or Vanguard Total Stock Market ETF, focuses solely on US-based public companies by tracking the CRSP US Total Market Index Fund. It holds about 3,535 stocks across all sectors and market capitalizations in the US. VTI is also a market-cap-weighted fund with a lower expense ratio of 0.03% and no minimum initial investment. If you’re looking for a diversified US investment with low management fees and dividend payments, VTI might be for you.
While both VT and VTI are market-cap-weighted index funds from Vanguard, VT is more globally diverse, and VTI has a lower expense ratio. VT includes over 8,500 companies worldwide, whereas VTI includes over 3,500 US-based companies. The top ten holdings for VTI make up about 22.9% of its total holdings, with 99.91% of its companies in the US. In contrast, VT’s top ten holdings constitute around 13.4% of its assets, with 57.08% US companies and significant holdings in Japan, the UK, France, and emerging markets.
When considering the expense ratios, VT is at 0.07%, and VTI is at 0.03%, meaning VT costs more to hold. Historically, US and international stocks have taken turns outperforming each other. VT’s broader portfolio makes it less volatile, with higher risk-adjusted returns than VTI.
Looking at the past five years, VTI has outperformed VT, reflecting the stronger performance of US companies. However, the future is uncertain, and market trends can change. Deciding where to invest depends on your strategy and current portfolio. If you want more global exposure, VT is a good option. If you’re looking to focus on US companies, consider VTI. You might also consider a combination of both for a balanced approach.
As a beginner, investing in funds with potential for long-term growth is wise. VT is a solid choice for diversifying your portfolio, being low-cost and easy to maintain. Both VT and VTI have their unique benefits and limitations, so align your choice with your financial goals.
Congratulations on taking the first step towards financial empowerment by learning about these index funds. Knowledge is power!