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VOO vs ITOT: Which index ETF should you choose?

Speculating VOO fluctuations on a mobile

VOO and ITOT are two of the most popular total market index exchange-traded funds on the market.

Both ETFs use subsets of the S&P index. VOO is more narrow and tracks the performance of the S&P 500, which tracks the largest 500 companies on the US stock market.

 

ITOT is broader and tracks the performance of the S&P Total Market Index, which offers coverage of 100% of the US stock market and invests in large-, mid-, and small-cap stocks.

 

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 VOO and ITOT, and you will understand the differences in each index, diversification strategy, expense ratios, and performance.

 

What is VOO?

 

The Vanguard 500 Index Fund (VOO) is Vanguard’s S&P 500 index-tracking ETF offering. It is the ETF alternative to Vanguard’s VFIAX, which is a mutual fund.

 

 

VOO’s main objective is to generate similar overall returns as the market using the S&P 500 as its index. The ETF is inherently diversified and is generally considered safer than holding individual stocks within an index.

 

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.

 

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

 

ITOT vs. VOO Summary

 

ITOT VOO Edge
Fund Type ETF ETF Tie
Diversification S&P Total Market Index S&P Index Tie
Inception Date 2004 2010 ITOT
Number of Holdings 2,647 505 ITOT
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 26.13% in 2023 28.53% in 2023 VOO slight edge
Dividend Yield 1.54% in 2023 1.56% in 2023 VOO slight edge

 

Diversification – Tie

 

ITOT and VOO 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 VOO tracks the performance of the S&P 500 Index.

 

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

 

  • 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.
  • The S&P 500 tracks the performance of the 500 largest companies traded on US stock exchanges.

 

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

 

Industry VOO ITOT
Information Technology 28.90% 29.22%
Health Care 12.60% 12.76%
Financials 12.90% 12.93%
Consumer Discretionary 10.90% 10.49%
Communication Services 8.60% 8.20%
Industrials 8.80% 9.32%
Consumer Staples 6.20% 5.75%
Energy 3.90% 3.91%
Materials 2.40% 2.30%
Real Estate 2.50% 2.93%
Utilities 2.30% 2.18%

 

The table above shows that ITOT and VOO 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 VOO, they account for 54%, while ITOT’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 VOO ITOT
Apple Inc. 7.00% 5.32%
Microsoft Corp. 6.96% 6.18%
Amazon.com Inc. 3.44% 3.23%
NVIDIA Corp. 3.04% 3.93%
Alphabet Inc. Class A 2.06% 1.63%
Facebook Inc. Class A 1.96% 2.19%
Alphabet Inc. Class C 1.75% 1.40%
Tesla Inc. 1.71%
Berkshire Hathaway Inc. Class B 1.61% 1.50%
JPMorgan Chase & Co. 1.22%
Broadcom Inc. 1.21%
Eli Lilly & Co. 1.15%
Total 30.75% 27.74%

 

From the table above, we can see the top 10 holdings within each ETF. VOO and ITOT hold 8 of the same top 10 holdings. Overall, VOO is slightly more concentrated than ITOT, with 31% of the portfolio being in the top 10 holdings. ITOT, on the other hand, only holds 28% of assets in the top 10 holdings.

 

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

 

Minimum Investment – Tie

 

Both VOO and ITOT 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

 

VOO and ITOT are two of the lowest expense ratio ETFs on the market, with an expense ratio of 0.03%. 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, ITOT and VOO 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, VOO and ITOT are considered to have the same level of tax efficiency.

 

Tax Loss Harvesting – Tie

 

As ETFs, both VOO and ITOT 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 have access to 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 – VOO slight advantage

 

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. VOO is a bit more concentrated, focusing on the top 500 stocks in the US stock market. On the other hand, ITOT is more broad and invests in stocks of all sizes.

 

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

 

Total Return by NAV
Year VOO ITOT Delta
2023 26.33% 26.13% -0.20%
2022 -18.15% -19.47% -1.32%
2021 28.66% 25.68% -2.98%
2020 18.35% 20.71% 2.36%
2019 31.46% 30.67% -0.79%
2018 -4.42% -5.31% -0.89%
2017 21.78% 21.38% -0.40%
2016 11.93% 12.61% 0.68%
2015 1.35% 0.91% -0.44%
2014 13.63% 12.97% -0.66%

 

From the table above, you can see that VOO has slightly outperformed ITOT by an average of 0.46% in each of the last ten years. Overall, based on annual returns, both of these ETFs generate nearly the same annual returns, with VOO having a slight edge each year.

 

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

 

Year VOO ITOT Delta
2023 1.56% 1.54% -0.02%
2022 1.50% 1.46% -0.04%
2021 1.36% 1.26% -0.10%
2020 1.84% 1.88% 0.04%
2019 1.94% 1.92% -0.02%
2018 1.80% 1.71% -0.09%
2017 1.89% 1.73% -0.16%
2016 2.06% 2.00% -0.06%
2015 1.97% 1.79% -0.18%
2014 1.84% 1.70% -0.14%

 

The table shows that VOO has a slight advantage in dividend yield. From 2014 to 2023, VOO outperformed ITOT in terms of dividend yield every year by an average of 0.08%.

 

Overall, VOO has consistently slightly outperformed ITOT in dividend yield since 2014. However, this outperformance is marginal and will have a very small impact on performance.

 

ITOT vs VOO: Where Should You Invest?

 

VOO and ITOT are two of the most popular total market index ETFs on the market today. VOO tracks the performance of the S&P 500, which holds the largest 500 stocks in the US market. ITOT, on the other hand, tracks the performance of the S&P Total market, which invests in over 3,500 small, mid, and large capitalization stocks. It 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.

 

The key similarities include Vanguard offering both ITOT and VOO index ETFs. As a result, both ETFs have a very low expense ratio of 0.03% and a minimum investment of $1.00.

 

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

 

Two key differences between VOO and ITOT are the diversification strategy and performance.

 

VOO invests in approximately 500 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.

 

VOO is a bit more concentrated, with 31% of assets in the top 10 holdings, while ITOT only has 28%.

 

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

 

VOO consistently and slightly outperformed ITOT in terms of annual returns and dividend yield between 20214 and 2023. Since 2014, VOO has outperformed ITOT by an average of 0.46%. Likewise, VOO has outperformed ITOT in dividend yield by an average of 0.08% since 2014.

 

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

 



 

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