Comparing VTI vs VOO: Which ETF Offers Better Returns and Market Exposure?

Are you struggling to decide between investing in VTI or VOO? Both are notable exchange-traded funds (ETFs) from leading provider Vanguard – but they aren’t identical. This article will help cut through the confusion and provide an easy-to-understand comparison of these financial instruments, highlighting their key differences and potential returns.

Let’s dive into the world of ETFs and figure out which investment is right for you!

Key Takeaways

  • VTI and VOO are low – cost US equity ETFs that provide broad exposure to the US market.
  • VTI includes over 4,000 stocks from various sectors, while VOO focuses on large-cap stocks from the S&P 500 index.
  • VTI has a slightly higher expense ratio than VOO, but both have shown strong historical returns.
  • Investors should consider their investment goals and risk tolerance when choosing between the two ETFs.

Overview of VTI and VOO

VTI and VOO are both low-cost US equity ETFs that provide broad market exposure.

What is VTI?

VTI is a type of ETF, short for exchange-traded fund. It is made by Vanguard, a big name in finance. VTI gives people the chance to invest in the total US stock market. This means when you buy VTI, you are buying into over 4,000 stocks at once! These include both large and small companies from many sectors.

For ten years its return rate has been around 12%.

What is VOO?

VOO is an exchange-traded fund (ETF) that aims to track the performance of the S&P 500 index. It is managed by Vanguard, a well-known investment management company. VOO provides investors with exposure to large-cap stocks from some of the biggest and most established companies in the United States.

With over $500 billion in assets under management, it is one of the largest ETFs available. VOO offers low-cost investing, making it an attractive option for individuals looking for broad market exposure to the US stock market.

Similarities between VTI and VOO

VTI and VOO have several similarities. Both ETFs are low-cost investment options that provide broad exposure to the US market. They are index funds offered by Vanguard, a reputable investment management company.

Additionally, both VTI and VOO aim to track the performance of major US stock market indices, with VTI tracking the Total Stock Market Index and VOO concentrating on large-cap stocks from the S&P 500.

These similarities make them popular choices for investors looking for diversified investments with low expenses.

Key Differences Between VTI and VOO

VTI and VOO differ in terms of their minimum investment requirements, exposure to different sectors, top holdings, expense ratio, assets under management, and management approach.

Minimum investment required

To invest in VTI or VOO, you don’t need a lot of money. Both ETFs have low minimum investment requirements, making them accessible to investors with different budget sizes. With VTI, you can start investing with as little as one share, which is currently priced at around $200.

On the other hand, VOO requires an initial investment that’s equivalent to the price of one share, which is also around $200. So whether you’re a new investor or someone looking to diversify their portfolio without breaking the bank, both VTI and VOO offer affordable options for getting started in the stock market.

Exposure to different sectors

VTI and VOO have different levels of exposure to various sectors. VTI offers more diversified exposure by including stocks from small-cap and mid-cap sectors, in addition to large-cap stocks.

This means that VTI can provide a broader representation of the overall stock market compared to VOO, which focuses solely on large-cap stocks from the S&P 500 index. So, if you’re looking for a wider range of sector exposures, VTI might be the better choice for you.

Top holdings

VTI and VOO have different top holdings, which can impact their performance. VTI’s top holdings include Apple, Microsoft, Amazon, Alphabet (Google), and Facebook. On the other hand, VOO’s top holdings consist of Microsoft, Apple, Amazon, Alphabet (Google), and Facebook.

Both ETFs have technology giants as their main holdings but in slightly different order. These top holdings play a significant role in determining the overall returns and market exposure of each ETF.

Expense ratio

Expense ratio is an important factor to consider when comparing VTI and VOO. Both ETFs have different expense ratios, with VTI typically having a slightly higher ratio. The expense ratio represents the annual fee charged by the fund to cover operating expenses.

It is expressed as a percentage of the total assets under management (AUM). A lower expense ratio is generally favorable for investors because it means they are paying less in fees.

However, it’s also essential to evaluate other factors such as returns and market exposure before making investment decisions based solely on expense ratios.

Assets under management

VTI and VOO have different levels of assets under management. As of [latest available data], VTI has a larger AUM compared to VOO, with its total assets reaching [specific amount].

On the other hand, VOO has a slightly lower AUM at [specific amount]. It’s important to note that both ETFs are backed by well-established management companies and continue to attract investors due to their strong track records and broad market exposure.

Management approach

Both VTI and VOO are managed by Vanguard, a well-known investment management company. However, they have slightly different management approaches. VTI aims to track the performance of the CRSP US Total Market Index, which represents about 100% of the investable U.S. stock market across all capitalizations.

This means that VTI provides investors with exposure to a broader range of companies, including small-cap and mid-cap stocks. On the other hand, VOO seeks to replicate the performance of the S&P 500 Index, focusing solely on large-cap stocks from this index.

As a result, VOO may be more concentrated in larger companies compared to VTI’s more diversified approach.

Performance Comparison

We will analyze the historical returns of VTI and VOO and explore the correlation between these two ETFs to determine which one offers better performance in the market. Read on to find out the results.

Historical returns of VTI and VOO

VTI and VOO have both shown strong historical returns. Based on market price, VTI has had an average annual return rate of 12.07% over the past 10 years, slightly lower than VOO’s 12.61%.

Despite this difference, both ETFs have provided positive returns to investors.

Correlation between the two ETFs

VTI and VOO, two popular ETFs offered by Vanguard, have a strong correlation due to their similar investment strategies. They both aim to provide broad exposure to the US stock market and track different indexes.

While VTI tracks the Total Stock Market Index with over 4,000 stocks, VOO focuses on large-cap stocks from the S&P 500. As a result of their shared objective of investing in US equities, these two ETFs generally move in sync with each other.

However, it’s important to note that there may be slight differences in performance based on the specific sectors they invest in. Despite these variations, investors can expect a high level of correlation between VTI and VOO when analyzing their returns and overall market exposure.

Other Factors to Consider

In addition to returns and market exposure, there are several other factors to consider when comparing VTI and VOO. Read on to discover the dividend yield, trading volume, number of stocks in each ETF, sector exposure, Morningstar ratings, and sustainability ratings.

Dividend yield

The dividend yield is an important factor to consider when comparing VTI and VOO. The dividend yield represents the annual dividend payment as a percentage of the ETF’s current share price.

Currently, VTI has a slightly higher dividend yield compared to VOO. This means that investors in VTI may receive a slightly higher return from dividends relative to their investment.

However, it is important to note that both ETFs have relatively low dividend yields compared to other investments, as they focus primarily on capital appreciation rather than generating income through dividends.

Trading volume

VTI and VOO have different trading volumes. VTI generally has higher trading volume compared to VOO, which means that there is more liquidity and ease of buying or selling shares in VTI.

This can be beneficial for investors who prefer frequent trading or want to enter or exit positions quickly. On the other hand, VOO may have lower trading volume, but it still offers sufficient liquidity for most investors.

So, when considering investing in either ETF, it’s important to take into account the trading volume and assess how it aligns with your investment goals and preferences.

Number of stocks in each ETF

VTI and VOO differ in the number of stocks they hold. VTI provides exposure to over 4,000 stocks, making it more diversified compared to VOO. On the other hand, VOO focuses solely on large-cap stocks from the S&P 500 index.

This means that while VTI offers a broader market exposure with its larger number of holdings, VOO is more concentrated in large-cap stocks from a specific index.

Exposure to specific sectors

VTI and VOO have different exposures to specific sectors. VTI offers more diversified exposure, including the mid-cap and small-cap sectors. This means that VTI includes a wider range of companies in its portfolio, allowing investors to potentially benefit from the growth of smaller companies.

On the other hand, VOO focuses solely on large-cap stocks from the S&P 500 index. While this provides concentrated exposure to well-established companies, it may limit opportunities for growth outside of these larger corporations.

It’s important for investors to consider their investment goals and risk tolerance when deciding between these two ETFs. If they prefer a broader market exposure with potential for growth from smaller companies, VTI may be a better choice.

Morningstar and sustainability ratings

Morningstar and sustainability ratings are important factors to consider when comparing VTI and VOO. Morningstar provides ratings based on a fund’s performance, risk, and cost, helping investors make informed decisions.

VTI has a four-star rating from Morningstar, indicating above-average performance compared to similar funds in its category. On the other hand, VOO has a five-star rating, signifying excellent performance relative to its peers.

Additionally, sustainability ratings assess how well companies within an ETF manage environmental, social, and governance (ESG) risks. Both VTI and VOO have strong sustainability scores, suggesting their commitment to sustainable practices.

Conclusion: Which ETF Is a Better Investment?

In conclusion, when comparing VTI and VOO, it’s important to consider your investment goals. If you’re looking for broad market exposure with a focus on large-cap stocks, VOO might be the better choice.

However, if you want more diversification with exposure to mid-cap and small-cap stocks, as well as a slightly higher average annual return rate, then VTI could be the right ETF for you.

Ultimately, both options have their merits and it’s essential to do thorough research before making an investment decision.

FAQs

1. What is the difference between VTI and VOO?

VTI offers broad US market exposure, including large-cap stocks and others, while VOO only focuses on large-cap stocks.

2. Can you compare the returns of VTI and VOO?

Yes, by looking at annualized return rates we can tell which fund has outperformed or underperformed over time.

3. How does comparing these ETFs help in portfolio management?

Comparing VTI vs. VOO helps investors make better choices to reach their financial goals based on factors like low-cost fees and expected returns.

4. Do I need to know about financial markets before investing in either ETF?

Yes, understanding financial markets gives you a clearer view of how your investment may grow over time with these broad US market exposures.

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