Avoid making this mistake: VOO vs VTI

What’s up my friend, no sponsor this week!

Incase you missed it, I sent a post out on Twitter about one of the most boring topics and it went off to the races.

Check it out here:

Onto the regular content 🤝 

Quote

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

The ETF Kings

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 (and a mistake to avoid). 👇️ 

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 505 holdings while VTI has 3,717.

The overall weight of the holdings is very similar though as VOO composes about 86% of VTI when viewed by weight. Basically, they are about 86% similar.

ETFRC.com has a great “fund overlap” tool you can use to check similarity between any two ETFs. Click here to check it out.

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

If you are seeking a one and done fund then 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 March 2024 are shown below.

(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 14 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 9.38% compared to SPY’s 9.11%.

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 can actually use VOO, you’ll see that VOO has slightly outperformed VTI with a CAGR of 12.7% vs VTI’s 12.1%.

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 (or another small/mid cap ETF).

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

Chump Change Picks

Theo Von and Dave Ramsey: Haven’t watched this yet, but Theo Von and Dave Ramsey doing a podcast together wasn’t on my bingo card for 2024. Going to be a must watch.

Honest Advice To Someone Who Wants Financial Freedom: Simple but effective video by Ali Abdaal on how to achieve financial freedom. Learn whether you have a knowledge problem, or an execution problem

Millionaire Questionnaire: One of my Twitter friends Zach Melloh put together an awesome thread from a few of his wealthy clients. Sharing here as the insights are quite detailed compared to the normal content you see on Twitter.

Best Memes

Gotta do what you gotta do.

This guy has it figured out.

Nothing in this email is intended to serve as financial advice. Do your own research. Thanks for reading, if you have any questions, comments, suggestions, etc. about the email don’t hesitate to send me a reply.