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ITOT vs VTI: Which index ETF should you choose?

coworking on Investing in ETF

ITOT and VTI are two of the most popular total market exchange-traded funds (ETFs). These two ETFs aim to provide full coverage and track the overall stock market’s performance.

ITOT tracks the performance of the S&P total market index, which includes large, mid, and small capitalization stocks. VTI tracks the performance of the CRSP US Total Market Index, which offers coverage of 100% of the US stock market.

 

The index you choose will impact your overall investment since these two ETFs are very similar. But how do you know which index/ETF is best for you?

 

In this article, we will compare ITOT and VTI, and you will understand the differences in each index, diversification strategy, expense ratios, and performance.

 

What is ITOT?

 

The iShares Core S&P Total U.S. Stock Market ETF (ITOT) tracks the performance of the S&P Total Market Index. IShares manages ITOT and aims to provide the general performance of the total US stock market.

 

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The S&P Total Market Index is designed to track the overall US stock market. It includes large, mid-, small-, and micro-cap stocks and all eligible US common equities.

 

What is VTI?

 

The Vanguard Total Stock Market ETF, or VTI, is an exchange-traded fund offered by Vanguard. It is an ETF index that tracks the performance of the CRSP US Total Market Index, designed to cover 100% of the US stock market. As a result, the fund invests in small, medium, and large-capitalization companies and holds over 3,500 stocks.

 

VTI has a mutual fund alternative, VTSAX. If you are looking for a similar investment opportunity in a mutual fund form, VTSAX is the perfect option.

 

VTI vs. ITOT Summary

 

VTI ITOT Edge
Fund Type ETF ETF Tie
Diversification CRSP US Total Market Index S&P Total Market Index Tie
Inception Date 2001 2004 VTI
Number of Holdings 3,747 2,647 VTI
Risk Rating Moderate Moderate Tie
Minimum Investment $1.00 $1.00 Tie
Expense Ratio 0.03% 0.03% Tie
Tax Efficiency ETFs generally are more tax-efficient ETFs generally are more tax-efficient Tie
Tax Loss Harvesting Funds must settle and may need 1-2 days to be available for reinvestment Funds must settle and may need 1-2 days to be available for reinvestment Tie
Trading and Liquidity Daily trading during Market Hours Daily trading during Market Hours Tie
Performance 26.05% in 2023 26.13% in 2023 ITOT slight edge
Dividend Yield 1.55% in 2023 1.54% in 2023 VTI slight edge

 

Diversification – Tie

 

ITOT and VTI are two ETFs that aim to provide exposure to the total US equities market. ITOT  tracks the performance of the S&P Total Market Index, while VTI tracks the performance of the CRSP US Total Market Index.

 

Understanding the differences in these two indexes is important to understanding the diversification strategies.

 

  • The CRSP US Total Market Index is intended to cover 100% of the US stock market and invest in over 3,500 stocks across small, mid, and large capitalization companies.
  • The S&P Total Market Index tracks the performance of all-size stocks in the US equities market and aims to provide full coverage of the market.

 

Below is the portfolio breakdown by sector for VTI and ITOT as of March 2024. Remember that these portfolios are not fixed and will change according to each ETF’s rebalancing schedule.

 

Industry ITOT VTI
Information Technology 29.77% 29.22%
Health Care 12.45% 12.76%
Financials 12.86% 12.93%
Consumer Discretionary 10.83% 10.49%
Communication Services 5.55% 8.20%
Industrials 9.30% 9.32%
Consumer Staples 5.55% 5.75%
Energy 3.80% 3.91%
Materials 2.33% 2.30%
Real Estate 2.82% 2.93%
Utilities 2.06% 2.18%

 

The table above shows that VTI and ITOT have very similar portfolio compositions in terms of industry. Every industry in the portfolio is within 1% of each other. The top three industries are the same; for ITOT, they account for 55%, while VTI’s top 3 industries account for 55%.

 

By industry, these ETFs are very similar and would have very little difference on your investment.

 

Likewise, we can look at each fund’s top 10 holdings to see how they differ.

 

Company ITOT VTI
Apple Inc. 5.32% 5.80%
Microsoft Corp. 6.18% 6.29%
Amazon.com Inc. 3.23% 3.07%
NVIDIA Corp. 3.93% 3.07%
Alphabet Inc. Class A 1.63% 1.77%
Facebook Inc. Class A 2.19% 1.84%
Alphabet Inc. Class C 1.40% 1.47%
Berkshire Hathaway Inc. Class B 1.50% 1.45%
Broadcom Inc. 1.21% 1.12%
Eli Lilly & Co. 1.15% 1.17%
Total 27.74% 27.05%

 

From the table above, we can see the top 10 holdings within each ETF. ITOT and VTI hold the same top 10 holdings with nearly the same weight. VTI’s top 10 holdings account for 27% of the portfolio, whereas ITOT’s top 10 holdings account for 28%.

 

When looking at diversification, ITOT and VTI have very similar diversification. Overall, the biggest difference is that VTI holds many more holdings, with over 3,500, while ITOT holds approximately 2,650.

 

Minimum Investment – Tie

 

Both ITOT and VTI require a minimum investment of $1.00. Since these are both ETFs, they can be traded on fractional shares, allowing for even the smallest investment. In addition, since they are both offered by Vanguard, if you already have a brokerage account for Vanguard, you can easily invest in either ETF.

 

Expense Ratio –  Tie

 

VTI and ITOT are two of the lowest expense ratio ETFs on the market. Both VTI and ITOT have an expense ratio of 0.03%. These ETFs offer some of the lowest expense ratios on the market, and you are unlikely to find a lower expense ratio offered by any other ETF. The Industry average ETF expense ratio is approximately 0.25%.

 

Trading and Liquidity – Tie

 

Since they are both ETFs, VTI and ITOT have the same trading and liquidity characteristics.

 

Investors can buy and sell ETFs throughout the day at any time during market hours. This is not the case with mutual funds, which are only traded at the end of the day based on Net Asset Value (NAV).

 

ETFs’ trading flexibility doesn’t come without drawbacks, though—they typically trade at prices slightly different from their NAV. This difference is called a bid-ask spread.

 

ETFs offer an advantage to investors who trade daily or change positions frequently. Since they can trade throughout the day, whereas mutual funds, you have to wait until the day is closed.

 

Tax Efficiency – Tie

 

When comparing two different investment options, it’s essential to consider the tax implications and not only the returns they generate. The tax implications of an investment can have a significant impact on which investment generates higher after-tax returns.

 

Generally, ETFs will have a slight edge from a tax efficiency perspective. ETFs tend to distribute comparatively fewer capital gains to shareholders – these same gains are simply more challenging to manage efficiently from a mutual fund.

 

Overall, ITOT and VTI are considered to have the same level of tax efficiency.

 

Tax Loss Harvesting – Tie

 

As ETFs, both ITOT and VTI have the same rules and regulations.

 

Tax-loss harvesting is a strategy that involves selling investments at a loss to offset gains (and up to $3,000 in ordinary income). Tax-loss harvesting only matters in taxable investment accounts since you aren’t taxed on capital gains in tax-deferred accounts.

 

While this strategy can be implemented using any type of investment (stocks, ETFs, mutual funds, or other property), mutual funds have an advantage because of how they are traded.

 

When you sell an ETF, you’ll have to wait for the funds to settle before reinvesting the proceeds. This is commonly called T+2, and you may have to wait one or two days before you can access the funds.

 

If you prefer the tax-loss harvesting rules of a mutual fund, opting for a similar indexed mutual fund might be a better option.

 

Performance & Dividends – ITOT (Annual Returns), VTI (Dividend Yield)

 

The performance of an investment option is often one of the most critical aspects investors consider.

 

Both of these ETFs are designed to generate returns similar to those of the overall market. While the S&P total market index offers broad exposure to the entire market. VTI is a broader measure of the overall market performance, including small and mid-market capitalization stocks.

 

The table below shows the total annual returns between VTI and ITOT.

 

Total Return by NAV
Year ITOT VTI Delta
2023 26.13% 26.05% -0.08%
2022 -19.47% -19.51% -0.04%
2021 25.68% 25.67% -0.01%
2020 20.71% 21.03% 0.32%
2019 30.67% 30.67% 0.00%
2018 -5.31% -5.21% 0.10%
2017 21.38% 21.21% -0.17%
2016 12.61% 12.83% 0.22%
2015 0.91% 0.36% -0.55%
2014 12.97% 12.54% -0.43%

 

From the table above, you can see that VTI has outperformed in 4 of the last ten years, while ITOT has outperformed in 6 of the last ten years. On average, ITOT has outperformed by 0.21%, while VTI has outperformed by 0.16%.

 

Overall, based on annual returns, both of these ETFs generate nearly the same annual returns, with VTI having a slight edge.

 

The table below will show the dividend yield for both ETFs.

 

Year ITOT VTI Delta
2023 1.54% 1.54% 0.00%
2022 1.46% 1.48% 0.02%
2021 1.26% 1.28% 0.02%
2020 1.88% 1.77% -0.11%
2019 1.92% 1.84% -0.08%
2018 1.71% 1.72% 0.01%
2017 1.73% 1.85% 0.12%
2016 2.00% 1.93% -0.07%
2015 1.79% 1.85% 0.06%
2014 1.70% 1.74% 0.04%

 

The table shows that VTI has outperformed in 6 of the last ten years by an average of 0.05%. ITOT, on the other hand, has outperformed in 3 of the last ten years by an average of 0.09%.

 

Overall, VTI has a slight advantage in dividend yield, but the difference in performance can be considered marginal since it is 0.00% over a 10-year period.

 

VTI vs ITOT: Where Should You Invest?

 

VTI and ITOT are two of the most popular total stock market index ETFs. Both aim to provide full market exposure.

 

ITOT tracks the performance of the S&P total market index, which provides complete coverage of the US equity market. VTI, on the other hand, tracks the performance of the CRSP US Total Market Index, which invests in over 3,500 small, mid, and large-capitalization stocks and is intended to provide 100% coverage of the US stock market.

 

These two ETFs are very similar, and there are very few key differences between them.

 

First, ITOT and VTI have an expense ratio of 0.03%, among the lowest on the market.

 

Since VTI and ITOT are both ETFs, they have the same trading and liquidity, tax efficiency, and tax-loss harvesting rules.

 

There are two key differences between ITOT and VTI: the diversification strategy and performance.

 

ITOT invests in approximately 2,600 stocks, while VTI invests in over 3,500. Their portfolio compositions are very similar by industry. Overall, they invest in each industry within 1% of each other.

 

ITOT is a bit more concentrated, with 28% of assets in the top 10 holdings, while VTI only has 27%.

 

The final difference between ITOT and VTI is the annual returns and dividend yield performance.

 

Overall, ITOT has a slight advantage in annual returns, outperforming VTI slightly in 6 of the last ten years. On the other hand, VTI has outperformed in 6 of the last ten years in dividend yield.

 

If maximizing returns and dividend payments is the top priority, VTI is the better option based on historical performance. However, the performance difference between these two ETFs is marginal.

 



 

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