When it comes to investing in low cost diversified exchange traded funds (ETFs) VTI and VTI vs VOO are two of the most popular options among investors.
Both of these funds are designed to provide exposure to the U.S. stock market but they do so in different ways.
In this article we’ll compare VTI vs VOO in depth to help you make an informed decision about which ETF might be the better choice for your investment strategy.
What is VTI?
VTI, or the Vanguard Total Stock Market ETF aims to track the performance of the CRSP US Total Market Index.
This index includes all segments of the U.S. stock market, from small cap stocks to large cap stocks.
By investing in VTI you gain exposure to over 3,500 U.S. stocks across various sectors which helps in achieving broad diversification.
VTI offers investors a low cost way to invest in the entire U.S. stock market, giving them access to a wide array of companies.
The ETF includes large cap stocks like Apple and Microsoft mid cap stocks small cap stocks and even micro cap stocks. This makes it a one stop solution for those who want to track the entire U.S. equity market.
What is VOO?
VOO, or the Vanguard S&P 500 ETF is another popular ETF from Vanguard. This fund tracks the performance of the S&P 500 Index, which includes the 500 largest publicly traded companies in the U.S.
The S&P 500 is often considered a benchmark for the U.S. stock market, and investing in VOO gives you exposure to a broad selection of large cap stocks that make up this index.
While VOO’s scope is narrower than VTI’s it is still a diversified fund that represents a significant portion of the U.S. economy.
The S&P 500 companies typically have more stability and offer solid growth potential, making VOO a popular choice for investors looking for steady returns over the long term.
Key Differences Between VTI vs VOO
1. Scope of Exposure
The most significant difference between VTI and VOO is the scope of their exposure. VTI covers the entire U.S.
Stock market including large mid small and micro cap stocks. In contrast VOO only tracks large cap stocks specifically the companies included in the S&P 500 index.
- VTI provides exposure to around 3,500 stocks.
- VOO gives exposure to just 500 stocks, all large-cap.
For investors seeking more diversification and a broader representation of the U.S. stock market VTI is the clear choice.
On the other hand if you prefer a focus on large stable companies with a track record of performance VOO may be more appropriate.
2. Diversification
Because VTI includes small and mid cap stocks in addition to large cap stocks it offers more diversification.
These smaller stocks may carry more risk but can offer higher growth potential. If you’re an investor looking for greater market coverage VTI provides a much more diverse portfolio.
VOO being composed solely of large cap stocks does not have the same level of diversification. Large cap companies however are generally more stable and less volatile than smaller companies. Therefore, if you prioritize stability over growth, VOO might suit your preferences better.
3. Risk vs. Reward
With its broader exposure VTI inherently carries more risk particularly due to its inclusion of small and micro cap stocks which are more volatile.
On the other hand VOO’s focus on large cap companies offers lower volatility and relatively safer steadier returns.
If you’re willing to accept more risk for potentially higher returns VTI might be the right choice for you. If your goal is to minimize risk while still achieving steady growth VOO could be a better fit.
4. Performance History
Historically, both VTI and VOO have performed well, but there are slight differences. Over the long term, VTI has often outperformed VOO due to its inclusion of small and mid cap stocks which tend to have higher growth rates.
However this performance disparity can change over time and past performance is not always indicative of future results. In periods when large cap stocks outperform VOO could outperform VTI.
For instance during economic downturns or periods of market uncertainty large cap companies tend to show more resilience, which could make VOO a safer bet in those times.
5. Expense Ratios
Both VTI and VOO have incredibly low expense ratios which is one of the major appeals of these funds. Vanguard is known for its commitment to low cost investing and these ETFs are no exception.
- VTI: Expense ratio of 0.03%
- VOO: Expense ratio of 0.03%
With such low fees, investors don’t have to worry about a significant portion of their returns being eaten up by fund expenses. This makes both ETFs ideal for long term buy and hold investors looking to minimize costs.
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Which ETF Should You Choose: VTI vs VOO?
Choosing between VTI vs VOO largely depends on your investment goals, risk tolerance, and preference for diversification.
- Choose VTI if you want exposure to the entire U.S. stock market, including small cap and mid-cap stocks. This is a great option for investors seeking more growth potential and willing to accept slightly higher volatility.
- Choose VOO if you prefer exposure to large cap stocks that are more stable and offer steady returns over the long term. This is ideal for investors who prioritize stability especially during market downturns.
If you’re a more conservative investor looking for a lower risk steady growth option, VOO could be the better choice.
However if you’re an aggressive investor or looking for a broader range of market exposure VTI may offer better long term growth potential.
Conclusion
When comparing VTI vs VOO both ETFs offer excellent opportunities for diversification and low cost investing, but they serve slightly different purposes.
VTI provides exposure to the entire U.S. stock market, including small and mid cap stocks offering more diversification and growth potential.
VOO on the other hand, focuses solely on large cap companies making it a more stable and less risky option.
By understanding the key differences between VTI and VOO, you can decide which fund best aligns with your investment objectives and risk profile.
Ultimately, both VTI and VOO have proven to be strong performers over time, making them popular choices among investors seeking low cost diversified exposure to the U.S.
Stock market. Whether you choose VTI or VOO will depend on your personal financial goals and preferences for risk and diversification.
Final Thoughts VTI vs VOO
Remember regardless of whether you choose VTI vs VOO it’s essential to maintain a diversified portfolio and stay aligned with your long term investment strategy.
Both of these ETFs are exceptional tools for gaining exposure to the U.S. stock market, but they cater to different types of investors. Carefully assess your risk tolerance investment horizon and financial goals before making your decision.