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VOO vs VTI: Which index ETF should you choose?

VOO and VTI are two of the most popular Vanguard index ETFs available today. The key distinction between these two ETFs is the index they track.

VOO tracks the performance of the S&P 500, which tracks the largest 500 companies on the US stock market. VTI tracks the performance of the CRSP US Total Market Index, which offers coverage of 100% of the US stock market.

How do you know which ETF is best for you?

In this article, we will compare VOO and VTI in terms of diversification strategy, expense ratios, and performance to help you decide.

 

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.

 

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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 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. VOO Summary

 

VTI VOO Edge
Fund Type ETF ETF Tie
Diversification CRSP US Total Market Index S&P Index Tracking Tie
Inception Date 2001 2010 VTI
Number of Holdings 3,747 505 VTI
Risk Rating Moderate Moderate Tie
Minimum Investment $1.00 $1.00 VTI
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 28.53% in 2023 VOO
Dividend Yield 1.09% in 2023 1.43% in 2023 VOO

 

Diversification – Tie

 

VOO and VTI are two ETFs that track the performance of the two indexes. VOO tracks the performance of the S&P 500, 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 500 tracks the performance of the 500 largest companies traded on US stock exchanges.

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

 

Industry VTI VOO
Information Technology 50.62% 29.81%
Health Care 6.95% 12.68%
Financials 0.52% 12.50%
Consumer Staples 6.63% 11.02%
Communication Services 15.55% 8.58%
Industrials 4.89% 8.36%
Consumer Discretionary 13.01% 6.11%
Energy 0.44% 3.89%
Real Estate 0.27% 2.51%
Utilities 1.15% 2.34%
Materials 0.00% 0.00%

 

The table above shows that VTI 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 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 VOO VTI
Apple inc. 7.00% 5.80%
Microsoft Corp. 6.96% 6.29%
Amazon.com inc. 3.44% 3.07%
NVIDIA Corp. 3.04% 3.07%
Alphabet Inc. Class A 2.06% 1.77%
Facebook Inc. Class A 1.96% 1.84%
Alphabet Inc. Class C 1.75% 1.47%
Tesla Inc. 1.71%
Berkshire Hethaway Inc. Class B 1.61% 1.45%
JPMorgan Chase & Co. 1.22%
Broadcom Inc. 1.12%
Eli Lilly & Co. 1.17%
Total 30.75% 27.05%

 

From the table above, we can see the top 10 holdings within each ETF. VOO and VTI hold 8 of the same top 10 holdings. Overall, VOO is slightly more concentrated than VTI, with 31% of the portfolio being in the top 10 holdings. VTI, on the other hand, only holds 27% of assets in the top 10 holdings.

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

 

Minimum Investment – Tie

 

Both VOO 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 VOO are offered by Vanguard, which is known for having some of the lowest expense ratios in the industry. Both VTI and VOO 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 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 VTI are considered to have the same level of tax efficiency.

 

Tax Loss Harvesting – Tie

 

As ETFs, both VOO 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. You may have to wait one or two days before you have access to the funds, commonly called T+2.

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. While the S&P is a bit more concentrated, the top 500 stocks tend to control the market’s overall direction. 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 VOO.

 

Total Return by NAV
Year VOO VTI Delta
2023 26.33% 26.05% -0.28%
2022 -18.15% -19.51% -1.36%
2021 28.66% 25.67% -2.99%
2020 18.35% 21.03% 2.68%
2019 31.46% 30.67% -0.79%
2018 -4.42% -5.21% -0.79%
2017 21.78% 21.21% -0.57%
2016 11.93% 12.83% 0.90%
2015 1.35% 0.36% -0.99%
2014 13.63% 12.54% -1.09%

 

From the table above, you can see that VOO has slightly outperformed VTI by an average of 0.53% 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.

Based on the performance, it would seem that the low and mid-capitalization stocks that VTI invests in slightly reduce the overall performance, whereas the S&P 500 maintains a higher annual return.

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

 

Year VOO VTI Delta
2023 1.56% 1.54% -0.02%
2022 1.50% 1.48% -0.02%
2021 1.36% 1.28% -0.08%
2020 1.84% 1.77% -0.07%
2019 1.94% 1.84% -0.10%
2018 1.80% 1.72% -0.08%
2017 1.89% 1.85% -0.04%
2016 2.06% 1.93% -0.13%
2015 1.97% 1.85% -0.12%
2014 1.84% 1.74% -0.10%

 

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

With that said VTI’s dividend yield performance has improved over the last several years, with VOO only outperforming VTI by an average of 0.04% between 2021 and 2023.

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

 

VTI vs VOO: Where Should You Invest?

 

VOO and VTI are two of the most popular Vanguard index ETFs on the market. Both of these ETFs aim to track the overall market’s performance. VOO tracks the performance of the S&P 500, which holds the largest 500 stocks in the US 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.

The key similarities include Vanguard offering both VTI 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 VTI and VOO are both ETFs, they have the same trading and liquidity, tax efficiency, and tax-loss harvesting rules.

There are two key differences between VOO and VTI: 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 VTI only has 27%.

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

VOO has consistently and slightly outperformed VTI in terms of annual returns and dividend yield between 20214 and 2023. VOO has outperformed VTI since 2014 by an average of 0.53%. Likewise, VOO also outperformed VTI in dividend yield since 2014 by an average of 0.08%.

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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1 thought on “VOO vs VTI: Which index ETF should you choose?”

  1. Hello Doctor Sanchez. Seems your “Industry” exhibit shows “QQQ” when you probably meant VTI. Loved the analysis.

    Reply

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