ETF Comparison: Vanguard Total Stock Market ETF (VTI) Versus Vanguard S&P 500 ETF (VOO)

VTI vs VOO: Total cost of ownership

Both VTI and VOO are dirt-cheap, each with an expense ratio of 0.03%, or $3 annually for a $10,000 investment.

Their large assets under management (AUM), high volume, and liquid underlying holdings mean bid-ask spreads are very low as well—0.01% for VTI and 0.004% for VOO.

It’s a tie here—either way, you pay very little in terms of fees and implicit trading costs.

VTI vs VOO: Methodology and holdings

The index methodology is where the two ETFs begin to differ, albeit not markedly in terms of expected outcomes for investors.

VOO tracks the well-known S&P 500 index, comprising 500 large-cap U.S. stocks selected by an S&P committee. These stocks must meet certain criteria such as positive earnings, volume, available float, and sufficient market capitalization.

VTI, on the other hand, tracks the CRSP U.S. Total Market Index, a much broader benchmark with over 2,400 market-cap weighted holdings. This means that, unlike VOO, VTI includes mid-cap and small-cap exposure.

Practically, the sector compositions of VTI and VOO are more or less identical, though VOO has a slightly higher concentration in tech stocks, which tend to be large-caps.

Because both are market-cap weighted, VTI still has nearly identical top holdings as VOO but in lower weights, as some of the allocation is redistributed to mid and small caps.

The end result is a slightly less top-heavy portfolio for VTI, with the top 15 holdings accounting for 34.72% of the portfolio versus 39.72% for VOO.

VTI vs VOO: Risk and return

Over the long term, we should expect VTI to outperform VOO due to the size effect, which posits that smaller companies (mid and small caps included in VTI) tend to offer higher returns compared to their larger counterparts due to their higher risk premium.

However, in recent years, the opposite has been true. Over the three-year, one-year, and year-to-date periods, VOO has outperformed VTI. This outperformance is attributed to the recent dominance of large-cap stocks, which have pulled ahead significantly.

Given that VOO holds a greater emphasis on these large-cap stocks, it has benefited more from this trend. Still, VTI’s performance remains commendable, and both ETFs continue to grow with steady inflows.

In terms of risk characteristics, both ETFs are virtually identical. Their volatility is very similar, and their maximum drawdown depth and duration are comparable, meaning both ETFs experience similar fluctuations and downturns.

Personally, I prefer VTI because the idea of “buying the haystack” for a mere 0.03% resonates with me, offering broad market exposure. However, VOO is equally commendable for investors focusing more on large-cap stocks.

Additionally, they serve as excellent tax loss harvesting partners due to their similar holdings and performance but different indexes. You can’t go wrong with either choice.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.