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TOTAL STOCK MARKET vs S&P 500 - VTI vs VOO (Which Vanguard ETF is Best?) - YouTube
Channel: Sean Lei on Investing
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if you want to invest in stocks there is
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a crucial term you need to know
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diversification with an s p 500 or a
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total u.s stock market index fund you
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will not only diversify across
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many different companies but accumulate
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wealth alongside the stock market in a
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safe way you should be including one of
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these two indexes in your investment
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portfolio and i'll explain
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why in this video you will learn what is
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the s p 500
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what is the total u.s stock market the s
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p 500 and total u.s stock market etfs
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a comparison of the etf's voo versus
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vti and which is better
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the s p 500 stands for standard and
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poor's 500
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index which tracks the top 500
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largest u.s companies the index is
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regarded as the best indicator of
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all large cap us equities aka
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the performance of large company stocks
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okay so
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standard and poor's confusing name right
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the names from the financial services
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company s p
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global where in 1941 standard statistics
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merged with poor's publishing s p global
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is known for creating investment indexes
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we track
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different parts of the market the most
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popular one
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s p 500 the s p 500 is a market
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capitalization weighted
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index a fancy way of just saying
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companies with a
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higher market capitalization make up a
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larger percentage
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of the index market capitalization or
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market cap
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is simply the company's worth on the
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stock market it's calculated by
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multiplying the stocks current price
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with the number of shares open to
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investors
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us let's take a look at the market
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capitalization of the top
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five holdings in the s p 500. we have
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apple at 1.97 trillion dollars
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microsoft at 1.58 trillion amazon also
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at 1.58 trillion
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alphabet otherwise known as google at
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just a bit over
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one trillion dollars and then facebook
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at 744.22 billion dollars
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even though the s p 500 contains 500 us
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companies
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about 20 is made up of just the top five
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holdings
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the greatest thing about index fines is
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that it's self-cleaning
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the companies value the highest rise to
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the top and make up a larger percentage
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of the fun
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while the allocation for smaller
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companies valued less make up
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a smaller portion of the fund the total
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u.s stock market tracks the entire
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u.s stock market meaning it contains all
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u.s companies publicly traded on the
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stock market
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ranging from large cap to small cap
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companies
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it contains about 3 500 us companies
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ranging from
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large cap to small cap companies this
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means all the companies
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in the s p 500 are included as well as
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all the companies not in the s p 500
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we're going to compare the two indexes
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and determine whether or not
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the addition of small and mid cap
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companies makes a difference in
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long term growth the s p 500 and the
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total u.s stock market are
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two indexes to actually buy the indexes
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you need to do so through a low-cost
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mutual fund
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or an etf i have a detailed video
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explaining the differences between
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etfs mutual funds and low-cost index
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funds and i'll link it here in
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description below
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to compare the s p 500 and the total u.s
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stock market indexes
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let's compare the etfs for both
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there's vanguard's vo for the s p 500
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and vanguard's vti for the total u.s
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stock market index
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in terms of holdings vanguard's vo
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contains 509 companies
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while vanguard's vti contains 3 529
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companies
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keep in mind that vti contains all 500
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companies within
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voo in fact about 80 percent of vti
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is vo the expense ratio of both etfs is
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the same at .03 percent
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this is extremely low because the
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founder vanguard is
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john c bogle which is credited for
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creating the first
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index fund vanguard does not have to
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adhere to
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any private investors because vanguard
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is owned by
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its funds who are in turn owned by
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investors like
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us which means vanguard's interest is
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directly tied to benefiting us
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the dividend yield for vo is 1.28
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while the dividend yield for vti is 2.02
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percent
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let's take a look at the historical
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performance for both etfs
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i'll break down the average annual
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returns for the 1
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5 10 and since inception year marks
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and keep in mind that annual total
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returns includes
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capital appreciation dividends and
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expenses
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since one year ago voo returned 11.87
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percent
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while vti returned 10.82 percent
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since five years ago vo returned 11.44
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and vti returned 10.87
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for the 10-year mark vo is one month shy
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of being
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founded 10 years ago but we'll take a
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look at the nine
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year and 11 month return which is 14.02
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with vti returning 13.58
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for performance in a longer term horizon
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like 15 years out let's take a look at
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vti versus the s
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p 500 index itself the historical
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performance has been gathered by
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morningstar
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and the s p 500 tr stands for total
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return
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where dividends are reinvested back into
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the fund
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the s p 500 index outperforms vti for 1
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3
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5 and 10 years but at 15 years out the
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average annual return of vti
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is greater than the s p 500 the addition
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of small and mid cap companies
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gave vti a slight edge in growth over
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the 15-year
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time period and at the time of making
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this video vo is worth
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311 dollars while vti is worth 172
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dollars
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so which is better vo or vti they're
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both tremendous
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investment vehicles that offer
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diversification and growth with the
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stock market
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the s p 500 actually comprises about 80
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percent of the total u.s stock market
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which is why the returns of vo and vti
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are very similar one could say the
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companies in the s p
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500 are less volatile especially in a
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capitalistic economy
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like the united states large companies
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are considered
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more stable because they have the money
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and resources to stay afloat
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in troubling times one interesting thing
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to note is the
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google effect the night google was
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announced to join the s
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p 500 the company stock price shot up
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7.3 all in
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one night by simply announcing that a
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company will join the s p 500
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may make the stock jump up this can be
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seen as well with the
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recent announcement of tesla in the s p
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500
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those who held a total u.s stock market
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index fund
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benefited from this because they already
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owned google before it was added to the
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s p 500
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while those holding an s p 500 missed
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out on those
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gains because it simply wasn't added to
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the fund
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those investors only acquired google
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after the announcement was made
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the stock price jumped up and then added
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to the s p
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500 fund vti's holdings of small and mid
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cap companies potentially allows it to
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outpace
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voo in the long run there's higher risk
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with smaller mid cap companies but also
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potentially
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higher rewards vti has extra
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diversification
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about 3 000 companies more than vo but
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the extra 3000 companies only make
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up about 20 of the fund
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i don't plan on cashing out my
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investments for several decades
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which is why i invest in vti
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but if the idea of holding large stable
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us companies is more comforting to you
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then investing in voo may be a better
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play
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in the end you should be investing in
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whatever keeps your mind at ease
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and allows you to keep investing more
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let's keep this conversation going and
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let me know which you like better vo
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or vti i'll see you all in the comment
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section below
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[Music]
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peace
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[Music]
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you
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