VOO vs VTI: Vanguard’s S&P 500 and Total Stock Market ETFs Compared

Two of the most popular exchange traded funds (ETF)s are the Vanguard S&P 500 ETF (VOO) and the Vanguard Total Stock Market ETF (VTI).  Even though I have been a financial advisor and investing for over 25 years, I asked myself what is the difference between VOO vs. VTI?

The short answer is that the Vanguard S&P 500 ETF (VOO) invests only in companies listed the S&P 500 and the Vanguard Total Stock Market ETF (VOO) invests 82% in the S&P 500 stocks, 12% in mid-cap, and 6% in small-cap stocks.  This also creates slight differences in taxes and fund volatility.  

Established in 2010, the Vanguard S&P 500 ETF (VOO), as its name suggests, tracks the well-known S&P 500 Index that is a composite of the largest 500 US corporations. Its performance is used as a representation of the performance of the US stock markets and retains its popularity more than ten years after its introduction. It also has a Mutual Fund equivalent that is known as VFIAX.

Established in 2001, VTI, the Vanguard Total Stock Market ETF, is similarly broad-based, even broader in fact, as it includes small and mid-cap stocks in addition to the S&P 500. The index it seeks to mirror is the CSRP US Total Market Index and consists of over 3,500 stocks; in other words, 3,000 stocks in addition to the 500 of S&P 500. Its composition is:

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• 82% in S&P 500 stocks (another way to look at it is that VOO, which is purely S&P 500, contributes 82% to VTI’s performance)

• 12% in mid-cap stocks

• 6% in small-cap stocks

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VTI also has a Mutual Fund equivalent. It is identified as VTSAX.

Historically, VTI has been more volatile than VOO. That stands to reason as small and mid-cap stocks display greater volatility than large-caps. At the same time, with its inclusion of 3,000 plus small and mid-caps, VTI is perhaps a better representation of the broader market than VOO is.

VTI vs VOO
VTI vs VOO

What are Stock Market Large Cap Stocks?

A stock is a company with a large cap, is one that has a market capitalization, or market cap, of more than $10 million.  Market capitalization is calculated by multiplying the number of a company’s stock shares outstanding by its company stock’s price per share.

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People like investing in large cap stock companies because the companies are seen as stable and often pay dividends. Conservative investors often invest primarily in only large cap stocks or ETFs. They generally don’t see huge increases in value, but they don’t typically lose value as much. Example stocks would include Apple (AAPL), Visa (V), and Walmart (WMT).

Large cap companies worldwide are often found in the benchmark indexes that measure market performance. These indexes include and the Dow Jones Industrial Average, S&P 500 as well as the Nasdaq Composite.

Why invest in ETFs?

Investors can reach advantages to a single index exchange-traded fund (ETF) via owning stock index funds. By purchasing this index fund you have ownership in every publicly traded stock in the U.S. and Warren Buffett suggests a low-profile S&P 500 Index Fund.

In the past, investors only had the choice to invest in mutual funds. Nowadays, investors can invest in ETFs with a minimum investment of $10 on many online brokerages.

Vanguard Total Stock: A minimalist’s dream

The Vanguard Total Stock Market ETF is the quintessential, inexpensive market tracking tool that sets it up and forgets it. At a low rate of 0.03% a year, you’ll be able to get active exposure to all publicly traded companies in the United States. Over many years Vanguard has vastly outperformed swaths of expensive funds and active traders. It is best to hold within portfolios or perhaps in partnership with an international underlying mutual fund such as an international fund or a single international fund. The performance of the fund will largely correspond to the general total performance of the stock market as long to traders don’t trade.

VOO: Vanguard S&P 500 ETF

The Vanguard S&P500 ETF based on 500 stock market shares has been weighted. These are US companies that are categorized as high-cap which can be reached by companies whose market cap was greater than $10 billion. Because the market is limited as a whole to 500 companies this index does have several stocks of more than two classes. An example of the two companies that trade as Alphabet and that also trading as both Google are. In fact, it’s 508 corporations, not 500 so it only presents companies with large market caps instead of 500. The index has a low expense ratio so it’s popular with investors mainly passive.

VOO vs. VTI Historical Performance

Using index data going back to 1972, though the funds themselves are much more recent, it emerges that VTI has a slight edge over VOO in terms of returns, having delivered a CAGR of 10.65% as opposed to 10.55% delivered by VOO. This is, obviously, traceable to its inclusion of small and mid-cap stocks that tend to outperform large caps, on account of the risk factor being woven into the price, also known as the ‘size risk factor premium.’

Expectedly, one may be inclined to announce, it also emerges that the VTI has shown greater volatility while delivering these slightly superior returns. Volatility is defined as the variability of returns and measured by standard deviation.

However, perhaps expectedly once again, the risk-adjusted performance of the two has been identical, as measured by the Sharpe ratio, which stands at 0.43 for both.

TickerCompanyYTD ReturnBeta 1-YearBeta 3-YearBest Monthly ReturnWorst Monthly ReturnMax Drawdown 1-Year1-Month Return3-Month Return1-Year Return2-Year Return3-Year Return5-Year Return10-Year Return
VOOVanguard S&P 500 ETF19.60%1118.10%-16.60%-9.40%2.10%7.20%33.50%61.60%65.30%123.90%355.00%
VTIVanguard Total Stock Market Index Fund ETF Shares18.10%1.02118.60%-17.70%-9.20%1.90%6.50%35.00%62.90%64.40%123.60%349.80%

Same Expense Ratio and AUM

With over $910 billion in assets under management (AUM), VTI steals a march over VOO in terms of investor preference over VOO, which has $550 billion in AUM.

The expense ratio at 0.03% is the same for both funds.

Is VTI or VOO more tax-efficient?

VOO is currently more tax-efficient than VTI if you look at qualified dividends taxes. Currently, VOO is 96% 100% and VTI is 96% QDI. You can read more about how dividends are taxed here.

Differences in performance between VOO and VTI

For the period 1930 to 2013, the two indices offered annual 9.7% yields (including reinstatement of dividends) The S&P 500 and the total stock market share a very similar constituency hence it’s performance over the.

The 2 indices offer extremely comparable yields. In some periods the S.P500 surpasses. In other decades total market fares better.

The report is not surprising but should be unsurprising given the composition of the stock indexes to be very similar to that of S&P500 and total. In other years the indices performed in t outperforming each other.

For the slightly more active investor

In a few situations, Vanguard’s S&P 500 ETF is the best choice than total stocks Vanguard offers. If you have currently a portfolio of mid and small-cap funds Vanguard may help you as a pragmatic complement to those funds in your portfolio. Total market funds give you a specific allocation you could not change in this case. The ETF can also be preferred in a portfolio where the investor wants greater discretion over specific holdings and in special cases in specific segments of the portfolio. In other words, if you were to have Vanguard S500 alongside small and micro stocks you would be.

A battle of titans comes down to the details.

They are relatively similar in their performance though they are also quite different from each other to merit a separation. Let’s see what fund you can use if you’re investing for your portfolio. The benefits are well established but there’s a problem maintaining multiple assets covering the same segments of the market. The funds have been labeled fairly different but also separate enough from the other funds to be distinct for evaluating the difference between individual fund in terms of how different individual fund is on that market and how much each fund covers the market x.

Conclusion

With one comprising 82% of the other, it is no surprise that the two funds are closely related as reflected in historical performance trends. The deviations in performance and variability have been on lines that one would call expected, based on the differences in their composition, with VTI having an 18% exposure to 3,000 small and mid-cap stocks in addition to 82% to large-caps of the S&P 500, while VOO is focused on the 500 stocks that constitute the S&P 500.

Investors will have different outlooks, which is why both these funds are so popular. For an investor seeking lower volatility in returns, VOO would be a better choice. For investors with a greater appetite for variability in search of higher returns, VIT could be the preferred option.

Of course, there are many ways of executing a strategy. The same combination of higher volatility in search of greater returns could be achieved with VOO with the addition of a small and mid-cap index-based ETF strapped on. Some people may end up with one and not the other purely on account of their employer-sponsored retirement fund offering one and not the other.

The bottom line is that both are great choices, whatever you end up choosing. There are perhaps good reasons for their popularity thus far.

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