Index funds are in over their heads

If you are balancing VTI vs. VOO, you are probably looking at putting money into an index fund. This will generally be a good decision. Index funds allow you to diversify your portfolio even if you don’t have much to invest, and even investment professionals often fail to pick stocks that outperform the index.

But which of these funds to choose? Let’s start with the basics.

VTI vs VOO: By the numbers

VTI vs VOO - by the numbers
VTI VOO
Full name Vanguard Total Stock Market ETF Vanguard S&P 500 ETF
Index Tracked CRSP US Total Market Index S&P 500 index
Assets under management* $318.6 billion $339.7 billion
Number of holdings 3839 507
Cost ratio 0.03% 0.03%
Dividend yield* 1.54% 1.56%
Publisher Vanguard Vanguard

* Ace of September 2023

Five-year performance

VOO - VTI Five-year performance graph

Source: Barchat

VTI vs VOO: What’s the difference?

The most important difference between VTI and VOO is that each fund of the fund has a different index:

  • VTI is watching CRSP US Total Market index. The CRSP US Total Market index is an index of nearly 4,000 US-based companies ranging from mega to microcaps. This makes the index well representative of the entire US stock market, not just the largest companies.
  • VOO tracks the S&P 500. S&P 500 is an index of the 500 largest companies in the US.

These indices a ETFs that track them are weighted by market capitalization. This means that larger companies are given more weight.

📈 More information: Discover the basics of wealth building with our step-by-step guide investment guide for beginners.

VTI vs. VOO: Sector exposure

VTI and VOO use slightly different terms for dividing their sector exposure.

VTI sector breakdown

Sector Mass
Information Technology 30.20%
Consumer sector 14.40%
Industrials 13.00%
Health care 12.60%
Finance 10.30%
Consumer goods 5.10%
Energy 4.60%
Property 2.90%
Utilities 2.70%
Telecommunication 2.20%
Basic materials 2.00%

Division of the VOO sector

Sector Mass
Technique 28.20%
Health care 13.20%
Finance 12.40%
Consumer sector 10.60%
Communication services 8.80%
Industrials 8.40%
Consumer goods 6.60%
Energy 4.40%
Property 2.50%
Basic materials 2.50%
Utilities 2.40%

One thing that immediately stands out in these breakdowns is that both VTI and VOO are heavily weighted towards IT (tech & communications), especially VOOs, reflecting the current large market capitalization of these sectors in the US stock market.

  • VTI tracks a larger number of companies from a wider range of company sizes. It has more weight in the consumer and industrial sectors, which contain more medium and small enterprises. A larger number of holdings and greater variability in company profiles make it more diversified.
  • VOO follows a smaller number of companies with a slightly higher concentration in tech. Gives a higher part health care and finance, which tends to be dominated by large corporations (sometimes referred to as Big Banks and Big Pharma).

None of these options are fundamentally better or worse. They provide exposure to slightly different market sectors, which can lead to different performance characteristics.

VTI vs VOO: Similarities

VTI and VOO have a lot in common. Both are extremely large ETFs. He manages both funds Vanguardwhich has a reputation for providing low-cost funds.

If you’re looking for large, highly liquid funds with trusted management, both of these ETFs will pass your screen.

There are also less obvious similarities that explain the very similar performance graphs resulting from the three basic facts.

  • As market-cap-weighted indexes, both provide a predominant space of trillion-dollar mega-caps, mostly technology companies.
  • Much of the performance of the CRSP US Total Market Index is driven by the largest holdings, all of which are part of the S&P 500 Index.
  • The stock market value of mid- and small-cap stocks tends to move in line with larger-cap stocks.

What does this mean in practice? Let’s look at the ten largest VTI and VOO holdings.

Top Holdings: VTI vs. VOO

The top shares of both indexes are the same for the first 9 largest shares, only in a slightly different order. It includes:

  • Apple Inc.
  • Microsoft Corp.
  • Amazon.com Inc.
  • NVIDIA Corp.
  • Alphabet Inc. Class A
  • Alphabet Inc. Class C
  • Are you here
  • Facebook Inc. Class A
  • Berkshire Hathaway Inc. Class B

So the only difference between the top 10 holdings is that VTI contains insurance and healthcare fund UnitedHealth Group, while VOO contains oil & gas Exxon Mobil Corp.

The same can be true when looking at the other 10 holdings for each fund. The list is identical for the 9th of them, with a very similar order:

  • Exxon Mobil Corp or UnitedHealth Group
  • Eli Lilly & Co.
  • JPMorgan Chase & Co.
  • Visa Inc. Class A
  • Johnson & Johnson
  • Broadcom Inc.
  • Procter & Gamble Co.
  • MasterCard Inc Class A
  • Home Depot

The difference is in the 20th largest holding: the pharmaceutical company Merck & Co Inc. for VTI and energy Chevron Corp. for VOO.

The only real difference is that VTI’s top holdings are slightly less of the entire ETF, which creates room for smaller holdings of smaller companies.

which one is best for you?

Both VTI and VOO are good choices for an investor looking for a quality diversified index fund. Both are among the largest and most prominent ETFs in the country, both are highly liquid and have very similar results. They also have an equally low fee of 0.03%.

Your choice will be based on what you are looking for in an investment.

  • VTI gives some exposure to companies with lower market capitalization. This provides a slightly different profile when looking at the sectoral basis, giving more weight to the industrial and consumer sectors.
  • VOO is a more aggressive, less diversified fund focused on large technology companies. This gives it more potential for gains in bull market periods, but also opens up the possibility of significant losses in the va bear market.

How you see the markets makes a difference: if you think the markets will continue to favor large-cap companies, then you’ll prefer an index focused solely on them. If you believe that smaller companies may be able to outperform, you will prefer an index that is able to rebalance against them and increase their weighting in the index as their market capitalization grows.

If you’re considering VTI vs VOO and are having trouble deciding, consider allocating a portion of your portfolio to each fund. Keeping a few ETFs in your portfolio can provide the best of both worlds.

Leave a Comment