VTI vs. VOO: Picking the Right One For You
VTI and VOO are two of the most popular core investment holdings since they provide exposure to the overall market.
However, there are some differences you should understand before picking which is best for you!
VTI vs. VOO - Diversification Explained
The secret to a successful portfolio lies in diversification. Like spreading your eggs in different baskets, diversification reduces the risk associated with a single investment, balancing the highs and lows of your overall portfolio.
Both VTI and VOO offer exceptional portfolio diversification opportunities but in their unique ways.
VTI Diversification
VTI is designed for universal exposure to the U.S. equity market, including large-cap, mid-cap, and small-cap companies across multiple sectors. In a way, investing in VTI is like owning a fraction of every publicly traded company in the U.S.
VTI holds over 3,500 companies compared to the 500 in VOO, which means VTI is more diversified.
VOO Diversification
On the other hand, VOO aims to replicate the S&P 500 Index, providing exposure to 500 of the biggest U.S. companies.
While VOO offers less extensive diversification than VTI, its focus on large-cap stocks can provide investors with more concentration on the best companies.
Breaking Down the Differences
It’s easy to get confused between VTI and VOO, given their similar track records. However, some key differences lie in their coverage scope, holdings, and performance.
Coverage Scope
As mentioned, VTI provides a broader scope, offering exposure to the entire U.S. equity market.
In contrast, VOO focuses solely on the S&P 500 index, meaning its realm is confined to large-cap companies.
VTI vs. VOO - Expense Ratios
VTI and VOO both have an expense ratio of 0.03%, which is practically as low as it gets. Therefore, the expense ratio is not a significant determining factor for VTI and VOO.
VTI vs. VOO - Dividend Yield
Both VTI and VOO have a dividend yield of around 1.60%, making this an insignificant factor when comparing the two ETFs.
Holdings and Performance
The number of holdings plays a crucial role in distinguishing VTI from VOO. VTI’s vast reach includes virtually every publicly traded U.S. company, slightly diluting its top holdings compared to VOO.
The performance of both ETFs has been stellar, but there’s historically a slight edge for VOO, possibly due to its concentration in the 500 best companies rather than over the 3,000 companies held in VTI.
Why VTI?
Despite VOO’s slight historical outperformance, the choice of VTI as an investment cannot be discounted. The key reason is diversification and the opportunity to capitalize on up-and-coming companies.
By investing in VTI, you aren’t limited to large-cap stocks but have a chance to own a piece of smaller companies that may become future superstars of Wall Street.
Embracing the Philosophy of Index Investing
Index investing is about adopting a hands-off approach, letting your investment grow with the market while you sit back and relax.
Spreading your investments across the spectrum aligns with the philosophy of “buying the haystack.”
Based purely on this perspective, VTI seems to embody the idea of index investing more closely than VOO due to its broader diversification.
VOO vs. VTI - Which is Right For You?
Given their robust performance and diversification, both VTI and VOO make excellent additions to any investment portfolio. However, the final decision should be rooted in your risk tolerance, investment horizon, and financial goals.
VOO, with its concentrated focus on the S&P 500 index, is best suited for investors who prefer investing in stable, large-cap companies. However, if you prefer broader diversification, VTI would be a better fit.
Moreover, VTI can act as a hedge against any future market shifts favoring smaller companies.
In Conclusion
Both VTI and VOO are powerhouses in their own respects. Whichever ETF you choose, it’s crucial to align it with your investment philosophy and financial goals. Remember, the best time to invest is usually now, and the best strategy is one that consistently builds wealth over time.
Whether you’re a seasoned trader or just starting, understanding key investment principles like diversification and portfolio balance is essential to your financial journey.
If you want to learn more about the stock market, you should join the HaiKhuu Trading Community. HaiKhuu offers daily morning reports, live trading calls, and a community of thousands of traders willing to help you learn!
FAQ: VTI vs VOO
Is VOO or VTI a better investment?
The answer depends on your investment strategy. If you’re aiming for broad market exposure and diversification across company sizes and styles, VTI is a better choice. On the other hand, if you’re keen on focusing solely on large-cap companies, VOO would suit you more. Both ETFs have similar expense ratios, with an impressively low charge of 0.03%.
Is VTI less volatile than VOO?
Both VTI and VOO have small differences in volatility. Technically, VTI, with its exposure to more stocks, could be slightly less volatile. However, due to their broad diversification, both ETFs are much less volatile than individual stocks.
