Exchange-traded funds (ETFs) allow you to invest in many companies at once and can be purchased through online brokers. VTI and VOO — two ETFs offered by Vanguard — can help you diversify your portfolio with minimal effort.
But not all ETFs are the same. Some, like VTI, allow you to invest in the entire U.S. stock market. Meanwhile, other ETFs invest in just a handful of companies. We’ll compare VTI, which invests in every publicly traded company, to VOO, which only invests in the S&P 500.
VTI vs. VOO
If you’re just learning how to invest money, you may not be familiar with the differences between VTI and VOO. We’ll break those down here.
TipVTI invests in every publicly traded company in the U.S., while VOO invests in the S&P 500, which consists of the largest 500 companies in the U.S.
|Vanguard Total Stock Market Index Fund ETF (VTI)||Vanguard 500 Index Fund ETF (VOO)|
|Number of tracked stocks||4,056 as of October 2022||503 as of October 2022|
|Net assets||$1.2 trillion||$766.3 billion|
|Market price||$190.02 as of Oct 5, 2022||$347.19 as of Oct 5, 2022|
|Historical performance||11.34% over a 10-year period, ending October 2022||11.68% over a 10-year period, ending October 2022|
What is Vanguard Total Stock Market ETF (VTI)?
The Vanguard Total Stock Market ETF (VTI) is an ETF that aims to track the performance of the CRSP US Total Stock Market Index. This stock index represents nearly 4,000 companies, which is almost 100% of the entire U.S. stock market.
As of September 15, 2022, that meant investing in about 4,056 different U.S. companies with a single ETF, including micro-, small-, mid-, and large-cap stocks.
Investing in the full range of companies lets you own small slices of companies with values ranging from less than $1 billion to over $10 billion.
Tip“Cap” is short for market capitalization (or market cap) and refers to how valuable a publicly traded company is. Large-cap, mid-cap, small-cap, and micro-cap indicate where each company falls in that range.
What is Vanguard S&P 500 ETF (VOO)?
The Vanguard S&P 500 ETF (VOO) is an ETF that aims to track the performance of the S&P 500 Index. The S&P 500 is considered the best single gauge of large-cap companies — approximately 500 companies at any given time.
Together, these 500 companies are worth around $15.6 trillion. The S&P 500 represents less than 15% of the roughly 4,000 publicly traded companies in the U.S. Nevertheless, those 500 companies account for about 80% of the value of all stocks available on the market.
What both VTI and VOO excel at
- Low fees: Both ETFs have an expense ratio of 0.03%. For example, you would pay a fee of just $3 per year on $10,000 invested in either ETF.
- Strong performance: Both VTI and VOO have performed well in the past. For instance, VTI has a 10-year average annual return of 12.52%, while VOO’s 1-year average annual return rate is 12.92%.
- Good for beginners: Both ETFs are index funds, which means little work is needed from the investor. To invest in multiple companies, you only have to buy shares of the fund. There is no research to do beyond understanding the purpose of each fund.
- Diversification: Both VTI and VOO are well diversified so you aren’t putting all your eggs in one basket. VTI naturally provides more diversification since it invests in the entire U.S. stock market. However, both of these ETFs invest in 11 sectors.
4 important differences between VTI and VOO
VTI and VOO are similar in many ways. Both invest in many different companies across different sectors, and their long-term performance is similar. But there are also key differences to keep in mind.
1. They track different indexes
The most notable difference between VTI and VOO is the different indexes they track. VTI aims to track the performance of the CRSP US Total Market Index, while VOO attempts to track the performance of the S&P 500 Index.
As of September 2022, that means investing in around 4,056 companies with VTI and around 500 with VOO.
With both funds, a large percentage of your money is invested in big names like Apple, Microsoft, and Amazon. But the fact that VTI lets you invest in around 3,500 companies more than VOO does makes VTI a winner for anyone looking for more diversification.
2. They fund allocation differently
VTI invests your money in many more companies than VOO. Both funds are cap-weighted, which means more valuable companies make up a larger portion of each index than smaller companies.
Both funds also heavily favor tech stocks. But because VTI invests in more companies, its tech allocation is slightly lower: 25.90% compared to 27.10% for VOO as of Oct 5, 2022. Similarly, Apple (APPL) — the largest stock in both funds — is 6.07% of the VTI portfolio compared to 7.16% for VOO as of Oct 5, 2022.
Tech-heavy portfolios aren’t necessarily bad, but tech stocks can be more volatile in some economic climates. For instance, tech stocks may react more negatively than the broader stock market to economic downturns.
While VOO and VTI performance have been similar in the long term, VTI’s lighter focus on tech could help reduce short-term volatility.
3. They have a significant price difference
VOO generally trades at a higher price than VTI, which we can attribute to VOO’s higher trading volume. If you use one of the best brokerage accounts, or one of the best investment apps, and can buy fractional shares, this isn’t a huge deal. But if you can only buy full shares, VTI’s lower price makes it more accessible.
4. They have different performances
VTI and VOO have similar historical performances across the board, especially when we look at their 3-year, 5-year, and 10-year performance. However, there are slight differences in returns.
For example, consider the historical performance of VTI vs. VOO:
These small differences won’t be very noticeable for a beginner who has only a few thousand dollars to invest. But for someone with hundreds of thousands, or even millions, to invest, the difference would be much more noticeable.
For example, consider two scenarios:
- In scenario A, an investor has $10,000 to invest with an additional $5,000 in contributions per year.
- In scenario B, an investor has $1,000,000 to invest and contributes $50,000 annually.
Here is how these scenarios compare when using an 11.34% 10-year return and an 11.68% 10-year return:
|Scenario A||Scenario B|
Which ETF should you choose?
Both VTI and VOO are excellent low-cost ETFs that can work well for beginners and experienced investors alike. They have the same 0.03% expense ratio, meaning neither fund is likely to eat away at your returns, and the long-term performance for these funds has historically been similar.
VTI is a better choice if diversification is your priority since it invests in nearly every publicly traded company in the U.S. VOO, meanwhile, invests in about 500 of the largest companies. VOO also has a slightly heavier concentration in tech stocks than VTI, which could result in more volatility.
TipInvestors who want the absolute best performance may prefer VOO with the understanding that it could be more volatile than VTI from time to time. Of course, performance is not guaranteed. VOO also has a slightly higher dividend yield, but the difference is small when compared to VTI.
Does it make sense to have both VTI and VOO?
For most investors, it probably doesn’t make sense to own both. VTI and VOO both provide great diversification at a low cost.
However, you may find that your retirement plan at work doesn’t offer a total stock market index fund like VTI. In this scenario, if you open an IRA on your own, you might decide to invest in VTI on your own and an S&P 500 fund through your employer.
Is buying VTI a good investment?
VTI could be an excellent investment for the average investor since it lets you invest in a larger number of stocks through a single ETF. If you don’t have the time or knowledge to research stocks on your own, VTI does the work for you by investing in nearly the entire U.S. domestic stock market.
Does VOO pay dividends?
VOO pays dividends, usually every three months. Its most recent dividend was on Sept 28, 2022, paying $1.46 per share. So far in 2022, VOO has paid $4.26 in dividends per share. VOO has a dividend yield of 1.67%.
Does VTI pay dividends?
VTI does pay dividends, usually every three months. Its most recent dividend was on Sept 23, 2022, paying $0.79 per share. So far in 2022, VTI has paid $2.23 in dividends per share with a yield of 1.67%.
VTI and VTO are both low-cost, diversified ETFs with strong performance. VTI provides a well-rounded portfolio, as it aims to track the performance of the entire U.S. stock market.
VOO has had slightly higher returns in the past, but most investors will appreciate that a single fund in VTI lets them invest in the entire stock market. VTI also has a much lower price, making it more accessible for most investors.
More from FinanceBuzz:
- Get $3-$300 in free stock when your account is approved*
- Invest in 1000s of stocks and ETFs with fractional shares—no account minimums
- Follow friends in a social feed and learn from a diverse community of investors
- * Free stock offer valid for U.S. residents 18+. Subject to account approval.