VOO vs VTI - Don't Make This Mistake

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It’s the age old debate.

Two gladiators of the investing community.

The legendary VOO and the ever so worshiped VTI.

So, what’s the most popular mistake that people make with these?

Let me tell you about it.

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Quote

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” - Thomas Edison

Legend Vs Legend

If you are an ETF investor, you likely know about the ETFs VOO and VTI.

VOO - Vanguard S&P 500 ETF (tracks the largest 500 companies in the US)

VTI - Vanguard Total US Market ETF (tracks the entire US market)

The debate with these is which should one invest in?

Here are some factors to help you make that decision.

Holdings

The total number of holdings is one of the main differences between VOO and VTI.

At the time of writing this email, VOO has 512 holdings while VTI has 4,156.

The overall weight of the holdings is very similar though as VOO composes about 82% of VTI when viewed by weight. Basically, they are about 82% similar.

The difference with VTI is that it contains mid and small cap companies, unlike VOO.

If you are seeking a one and done fund than VTI might be for you.

In the case that you’d rather own VOO, you can couple it with VXF which includes all companies outside of the S&P 500 to get that mid and small cap exposure.

Top 10 holdings of each as of January 2021.

(Hint, they are the same. The only difference is in how much of each company is in the ETF.)

Performance 

Since VOO has only been around since 2010 I’m going to use SPY, another S&P 500 ETF, to compare with VTI. It’s important to note the over the last 10 years the performance of VOO and SPY have been essentially identical, so using SPY can be considered an accurate representation of VOO’s performance.

Using portfolio visualizer you can see the performance of both SPY (S&P 500) and VTI (total stock market) have been extremely similar.

Over the last 20 years the two funds have followed each other closely with VTI having a slightly higher compound annual growth rate (CAGR) of 9.91% compared to SPY’s 9.46%.

So the winner of this one is VTI, but just by a slight margin.

If you compare the two over the last 10 years, in which case we case actually use VOO, you’ll see that VOO has slightly outperformed VTI with a CAGR of 15.1% vs VTI’s 14.8%.

Once again, the performance of these two is almost mirrored over the long term.

Due to how larger companies naturally have more influence on the markets, these two funds will likely continue to have similar performance in the future.

Cost To Own

The cost of ownership of these two is identical.

For holding each of these you will have to pay a 0.03% management fee.

That means for every $10,000 you invest in one of these ETFs you will pay $3 in fees per year.

This is an extremely low expense ratio and is one reason I am such a big fan of Vanguard ETFs.

Avoid This Mistake

So where does everyone mess up?

The problem is that people will debate which of these to invest into instead of just picking one, or both.

The wasted time in deciding which one to buy will likely cost you more over the long run than the difference in performance.

My recommendation is this, though NOT INVESTING ADVICE.

If you want a one and done ETF go with VTI.

If you want more control over your exposure to mid and small caps go with the VOO and VXF combo.

Easy as that my friend, the important part is to just get invested.

Meme Winner

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