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VOO vs VOOG: Should you invest in S&P 500 or S&P 500 Growth?

When it comes to S&P 500-indexed exchange-traded funds, Vanguard provides two key ETF options: VOO and VOOG. When deciding between VOO and VOOG, the choice lies in whether you prefer to invest in the S&P 500 or focus on S&P 500 Growth.

VOO‘s main objective is to generate similar overall returns as the market using the S&P 500 as its index. In contrast, VOOG distinguishes itself by tracking the S&P 500 Growth Index subset, which targets stocks exhibiting growth characteristics rather than companies that are less likely to sustain continued growth.

 

If you’re looking to invest in an S&P 500-indexed exchange-traded fund, this post is for you. Here, we’ll compare VOO and VOOG diversification, performance, fees, and tax efficiency to help you decide.

 

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Let’s dive in.

 

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 VOOG?

 

The Vanguard S&P 500 Growth ETF is Vanguard’s S&P 500 Growth index-tracking ETF. The S&P 500 Growth Index is comprised of all companies categorized as growth companies within the S&P 500, which is intended to measure the US growth market.

 

VOOG’s main objective is to generate returns similar to those of the US growth market. The ETF is intended for long-term investors since growth stocks may be more volatile, but they offer a higher potential for growth and higher returns.

 

VOO vs VOOG Summary

 

VOO VOOG Edge
Fund Type ETF ETF Tie
Diversification S&P 500 Index S&P 500 Growth Index Tie
Inception Date 2010 2010 Tie
Number of Holdings 505 226 VOO
Risk Rating Moderate Moderate-High VOO
Minimum Investment $1.00 $1.00 Tie
Expense Ratio 0.03% 0.10% VOO
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 26.25% in 2023 29.90% in 2023 VOOG
Dividend Yield 1.43% in 2023 1.09% in 2023 VOO

 

SPY vs VOO: Which is better?

 

 

Diversification – VOO

 

VOO and VOOG have the same baseline index tracking, which is the S&P 500, but VOOG only takes a subset of the S&P 500.

 

VOOG tracks the performance of the growth stocks within the S&P 500. As a result, VOOG has fewer holdings, and although it invests in some of the same companies, it does so in different proportions.

 

Below is the portfolio breakdown by sector for both VOO and VOOG.

 

Keep in mind that the exact portfolio composition will change as the ETFs are reconstituted quarterly.

 

Industry VOO VOOG
Information Technology 28.90% 46.80%
Health Care 12.60% 7.10%
Financials 12.90% 5.30%
Consumer Discretionary 10.90% 15.40%
Communication Services 8.60% 12.10%
Industrials 8.80% 6.50%
Consumer Staples 6.20% 2.80%
Energy 3.90% 1.70%
Materials 2.40% 1.40%
Real Estate 2.50% 0.80%
Utilities 2.30% 0.10%

 

From the table above, you can see that VOO and VOOG have different portfolio compositions.

VOO’s portfolio composition reflects the entire US market, while VOOG’s reflects the US growth market. VOOG heavily invests in information technology, with 46.80% of the portfolio, whereas VOO only holds 28.90%.

 

Another key difference is that VOOGs’ other largest sectors are communication services and consumer discretionary, while VOOs are healthcare and financials.

 

Overall, VOO is more evenly diversified within the market, with only the top three sectors accounting for 54.40% of the portfolio, whereas VOOGs top three sectors account for 74% of the portfolio.

 

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

 

Company VOO VOOG
Apple Inc. 7.00% 13.16%
Microsoft Corp. 6.96% 13.07%
Amazon.com Inc. 3.44% 6.46%
NVIDIA Corp. 3.04% 5.72%
Alphabet Inc. Class A 2.06% 3.87%
Facebook Inc. Class A 1.96% 3.67%
Alphabet Inc. Class C 1.75% 3.28%
Testa Inc. 1.71% 3.21%
Berkshire Hathaway Inc. Class B 1.61%
JPMorgan Chase & Co. 1.22%
Broadcom Inc. 2.20%
Eli Lilly & Co. 2.17%
Total 30.75% 56.81%

 

The table above shows that both VOO and VOOG hold 8 of the same companies in their top 10 holdings. The key distinction is that VOOG holds each of the top 10 holdings in much higher concentrations than VOO.

 

VOO’s top 10 holdings account for 30.75%, while VOOG’s top 10 holdings account for 56.81%. VOOG is more heavily concentrated in the top 10 holdings, with approximately 43% invested in the remaining 216 holdings.

 

Overall, VOO is more diversified than VOOG. The sector and holding distributions are more even compared to VOOG. VOOG is more concentrated so returns will be more heavily influenced by specific companies in the top 10 holdings.

 

Minimum Investment – Tie

 

Both VOO and VOOG 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. For most Vanguard ETFs, minimum investments are $1.00 and have minimum fees, making it easy to invest in either VOO or VOOG.

 

Expense Ratio – VOO

 

VOO has an advantage in expense ratio, with an expense ratio of 0.03%. In contrast, VOOG has an expense ratio of 0.10%, which is more than triple VOO’s cost.

 

While VOO has the advantage in terms of lower expense ratios, both ETFs have relatively low expense ratios relative to the industry average, which is an expense ratio of 0.25%.

 

Trading and Liquidity – Tie

 

Since they are both ETFs, VOO and VOOG 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 – Slight edge to VOOG

 

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.

 

Since both VOO and VOOG are ETFs, they offer the same tax advantages and efficiencies. However, we can take a look at the tax burden on the returns to see if there is a marginal difference in tax efficiency.

 

1-Year 5-Year 10-Year
VOO VOOG VOO VOOG VOO VOOG
Returns Before Taxes 26.33% 29.98% 15.66% 16.13% 12.00% 13.22%
Returns afer Taxes 25.85% 29.60% 15.20% 15.85% 11.51% 12.89%
Tax Burden 0.48% 0.38% 0.46% 0.28% 0.49% 0.33%

 

The table above shows that VOO has a higher tax burden than VOOG in both short-term and long-term investment periods.

 

Tax Loss Harvesting – Tie

 

As ETFs, both VOOG and VOO 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 it may take 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 S&P-indexed mutual fund might be a better option. VOO offers a mutual fund alternative, VFIAX, with a minimum investment of $3,000.

 

Performance & Dividends – VOOG

 

The performance of an investment option is often one of the most critical aspects investors consider. While VOO and VOOG have similar investment approaches, they produce different performance results.

 

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

 

Total Return by NAV
Year VOO VOOG Delta
2023 26.33% 29.90% 3.57%
2022 -18.15% -29.47% -11.32%
2021 28.66% 31.85% 3.19%
2020 18.35% 33.33% 14.98%
2019 31.46% 31.03% -0.43%
2018 -4.42% -0.18% 4.24%
2017 21.78% 27.21% 5.43%
2016 11.93% 6.74% -5.19%
2015 1.35% 5.39% 4.04%
2014 13.63% 14.73% 1.10%

 

As the table above shows, VOOG outperformed VOO in 7 out of the last 10 years. In those years, VOOG outperformed VOO by 5.22%. Likewise, VOO outperformed VOOG by an average annual return of 5.65%.

 

Overall, VOOG has generated higher annual returns more consistently than VOO, giving it the edge annually.

 

Cumulative Return by NAV
VOO VOOG Delta
3-year 32.95% 20.80% -12.15%
5-year 106.84% 111.04% 4.20%
10-year 210.37% 245.88% 35.51%

 

The table above shows the cumulative annual returns at different time periods. Overall, VOOG generated higher returns over the long 5-year and 10-year periods. But VOO outperformed in the 3-year span.

 

Overall, based on performance, VOOG outperforms VOO annually and has higher returns over the long term.

 

However, although VOOG has an advantage in annual returns, it also has a clear advantage in dividend yield. VOO has outperformed VOOG by an average of 0.60% in the last ten years.

 

Year VOO VOOG Delta
2023 1.56% 0.97% -0.59%
2022 1.50% 0.74% -0.76%
2021 1.36% 0.72% -0.64%
2020 1.84% 1.21% -0.63%
2019 1.94% 1.23% -0.71%
2018 1.80% 1.26% -0.54%
2017 1.89% 1.35% -0.54%
2016 2.06% 1.49% -0.57%
2015 1.97% 1.42% -0.55%
2014 1.84% 1.36% -0.48%

 

VOO vs VOOG: Where Should You Invest?

 

VOO and VOOG are both ETFs offered by Vanguard that use the S&P 500 as the baseline index, but VOOG uses a subset of the S&P 500, which includes only growth stocks. To determine which you should invest in, you must identify which features of the fund you prioritize or prefer.

 

Regarding risk, VOOG is generally considered riskier since you are investing in growth companies with higher volatility. However, these growth companies are in the S&P 500, eliminating some risk levels.

 

Another key difference is expenses; VOO has a significantly lower expense ratio and is more diversified than VOOG. VOOG is more concentrated in the top 10 holdings and has an expense ratio over 3 times the cost.

 

Finally, regarding performance, VOOG has a clear advantage in both annual and long-term returns. Overall, VOOG outperformed in 7 of the last ten years and in both 5-year and 10-year periods. But, if you prioritize dividends and dividend yield, VOO has outperformed VOOG in 7 of the last ten years.

 

Some key similarities between the two include its tax efficiency, trading, tax-loss harvesting rules, and minimum investment. Both Vanguard ETFs are identical in these areas.

 

Overall, if you want to generate the highest returns and don’t mind taking on additional risk and expense, the VOOG is the better option. If you are looking for a more secure investment offering higher dividends, lower expenses, and less risk / higher diversification, VOO is the better option.

 



 

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