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VTI vs SPY: Which total market exchange-traded fund is better?

Are you looking to invest in a market index ETF? If you are, you likely came across VTI and SPY.

VTI tracks the performance of the CRSP US Total Market Index, which is designed to provide 100% coverage of the US stock market. SPY, on the other hand, tracks the performance of the S&P 500, which includes the 500 largest companies in the US stock market.

 

In this article, we’ll compare SPY and VTI, and you’ll understand the differences in diversification, expense ratios, annual returns, and dividend yield.

 

What is SPY?

 

The SPDR S&P 500 ETF Trust (SPY) is an exchange-traded fund offered by State Street Global Advisors that tracks the S&P 500 Index.

 

SPY is often called the original S&P 500 ETF because it was the first US ETF traded on national exchanges. It was created in 1993 and remains one of the most traded ETFs in the world today.

 

What is VTI?

 

The Vanguard Total Stock Market ETF, or VTI, is an exchange-traded fund offered by Vanguard. It is an index ETF that tracks the performance of the CRSP US Total Market Index, which is designed to cover 100% of the US stock market.

 

The fund invests in small, medium, and large-capitalization companies and holds over 3,500 stocks.

 

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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. SPY Summary

 

VTI SPY Edge
Fund Type ETF ETF Tie
Diversification CRSP US Total Market Index – 100% US stock market coverage, more volatile S&P 500 Index – large capitalization stocks, less volatile Tie
Inception Date 2001 1999 SPY
Number of Holdings 3,500+ 503 VTI
Risk Rating Moderate Moderate Tie
Minimum Investment $1.00 $1.00 Tie
Expense Ratio 0.03% 0.09% VTI
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 26.19% in 2023 VTI slight edge
Dividend Yield 1.54% in 2023 1.52% in 2023 SPY slight edge

 

Diversification – Slight Edge to SPY

 

VTI and SPY are two market index funds. VTI is broader and designed to cover 100% of the US stock market by tracking the performance of the CRSP US Total Market Index. SPY, on the other hand, tracks the S&P 500 and the largest 500 companies, which is a good indicator of the overall market direction.

 

Understanding the differences between these indexes is important to understanding their 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 Index tracks the performance of the 500 largest companies on the US stock market.

 

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

 

Industry VTI SPY
Information Technology 29.22% 30.48%
Health Care 12.76% 12.81%
Financials 12.93% 12.68%
Consumer Discretionary 10.49% 10.46%
Communication Services 8.20% 8.86%
Industrials 9.32% 8.14%
Consumer Staples 5.75% 6.10%
Energy 3.91% 3.81%
Materials 2.30% 2.07%
Real Estate 2.93% 2.37%
Utilities 2.18% 2.23%

 

The table above shows that VTI and SPY have very similar portfolio compositions by industry. Every industry in the portfolio is within 2% of one another. The top three industries are the same; for VTI, they account for 55%, while SPY’s top 3 industries account for 56%.

 

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 VTI SPY
Apple Inc. 5.80% 7.26%
Microsoft Corp. 6.29% 6.63%
Amazon.com Inc. 3.07% 3.47%
NVIDIA Corp. 3.07% 3.74%
Alphabet Inc. Class A 1.77% 2.04%
Facebook Inc. Class A 1.84% 2.13%
Alphabet Inc. Class C 1.47% 1.74%
Tesla Inc. 1.27%
Berkshire Hathaway Inc. Cl 1.45% 1.72%
Eli Lilly & Co. 1.17%
Broadcom Inc. 1.12% 1.27%
Total 27.05% 31.27%

 

From the table above, we can see the top 10 holdings within each ETF. VTI and SPY hold 9 of the same top 10 holdings. Overall, SPY is slightly more concentrated than VTI, with 31% of the portfolio held in the top 10 holdings. VTI, on the other hand, only holds 27% of assets in the top 10 holdings.

 

Overall, the difference between these two ETFs is the number of holdings. VTI holds approximately 500 stocks, while SPY holds approximately 3,500 stocks. Otherwise, these two ETFs have very similar investment strategies.

 

The biggest difference is that SPY invests in large-capitalization companies, whereas VTI invests in small, medium, and large ones. This makes SPY less volatile and less risky than VTI.

 

Minimum Investment – Tie

 

Both SPY 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, SPY and VTI are well-known ETFs that are easily accessible and should be easy to invest in.

 

Expense Ratio –  VTI

 

VTI has an expense ratio of 0.03%, which is cheaper than SPY. SPY has an expense ratio of 0.09%, which is 3 times higher than the VTI expense ratio. Overall, both ETFs have relatively low expense ratios compared to the industry average of 0.25%.

 

Trading and Liquidity – Tie

 

VTI and SPY have the same trading and liquidity characteristics since they are both ETFs.

 

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

 

Tax Loss Harvesting – Tie

 

As ETFs, both SPY 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 wait, commonly referred to as T+2, may be 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 – VTI Slight Edge (Annual Returns), SPY Slight Edge (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. VTI is focused on the overall US stock market, while SPY is focused on the large market capitalization stocks in the US.

 

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

 

Total Return by NAV
Year SPY VTI Delta
2023 26.19% 26.05% -0.14%
2022 -18.17% -19.51% -1.34%
2021 28.75% 25.67% -3.08%
2020 18.37% 21.03% 2.66%
2019 31.22% 30.67% -0.55%
2018 -4.56% -5.21% -0.65%
2017 21.70% 21.21% -0.49%
2016 12.00% 12.83% 0.83%
2015 1.25% 0.36% -0.89%
2014 13.46% 12.54% -0.92%

 

The table above shows that SPY outperformed VTI in 8 out of 10 years from 2014 to 2023. On average, SPY outperformed VTI by an average of 1.01%. VTI only outperformed in 2 years, from 2014 to 2023, by an average of 1.75%.

 

Overall, SPY has a slight advantage when it comes to annual returns, with consistent outperformance over the last 10 years.

 

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

 

Year SPY VTI Delta
2023 1.52% 1.54% 0.02%
2022 1.47% 1.48% 0.01%
2021 1.33% 1.28% -0.05%
2020 1.80% 1.77% -0.03%
2019 1.83% 1.84% 0.01%
2018 1.79% 1.72% -0.07%
2017 1.89% 1.85% -0.04%
2016 2.08% 1.93% -0.15%
2015 1.94% 1.85% -0.09%
2014 1.83% 1.74% -0.09%

 

The table shows that SPY has a slight advantage in dividend yield. SPY has outperformed VTI in 8 of the last 10 years, from 2014 to 2021. On average, SPY has outperformed VTI by 0.06%.

 

With that said, over the last two years, 2022 and 2023, VTI has generated higher dividend yields with an average outperformance of 0.02%.

 

Both generate very similar dividend yields and only have a marginal difference.

 

VTI vs SPY: Where Should You Invest?

 

VTI and SPY are two index exchange-traded funds that aim to track the overall market’s performance.

 

The key difference between these two ETFs is that VTI aims to track the performance of the overall US stock market. SPY aims to track the performance of the S&P 500 with the 500 largest stocks in the US stock market.

 

The key difference here is that the SPY mainly holds large-capitalization companies and is less volatile. VTI, on the other hand, invests in small, medium, and large-capitalization companies to cover 100% of the US stock market, making it more volatile than SPY.

 

Since VTI and SPY are both ETFs, they have the same trading and liquidity, tax efficiency, and tax-loss harvesting rules. The key differences between VT and VTI are expense ratio and performance.

 

VTI has an advantage with an expense ratio of 0.03% compared to 0.09% of SPY. Another key difference is the performance in annual returns and dividend yield.

 

SPY has a clear advantage in annual returns; it has outperformed VTI by an average of 1% in 8 of the last ten years. Regarding dividend yield, while SPY has a slight advantage over VTI, the performance differences between these two have only been approximately 0.06%.

 

Overall, VTI has an advantage in expense ratio and annual returns. While SPY has a slight edge in dividend yield, it’s marginal and unlikely to make a significant difference. Whether you invest in VTI or SPY, they are both good investments with small differences in annual returns and dividend yield.

 

Overall, when considering these differences are marginal, the key difference becomes expense ratio and diversification strategy. With that said, VTI is less expensive, but SPY is less volatile.

 



 

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2 thoughts on “VTI vs SPY: Which total market exchange-traded fund is better?”

  1. I think if you want to trade options with covered calls or buy/sell puts, SPY is more liquid and spreads are tight at each target price giving you more flexibility and liquidity. Open interest at every strike price is much higher with SPY.

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  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!

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