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VTI vs VOO - Which Is The Best Vanguard ETF Index Fund? S&P 500 Index vs Total Stock Market Index - YouTube
Channel: Jarrad Morrow
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vanguard index funds are the gold
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standard in terms of investment options
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out there
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but within the hundreds of funds that
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vanguard offers there are two
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specifically that stand out as the
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obvious choice for regular civilian
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investors like you and me
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and that is the vanguard s p 500 etf as
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well as the vanguard total stock market
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etf
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index fund but the real question is
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which one is better in this video we're
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going to take a look at both of them to
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find out what are the similarities
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what are the differences which one is
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better and which one should you actually
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be using
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within something like your roth ira or
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taxable investment accounts
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hey friends i'm jared with two a's and
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two rs and on this channel we like to
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talk about investing
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and financial independence hit that
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thumbs up button if you get some value
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from this video because it's free and it
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really helps support this channel and of
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course my dog
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molly feel free to leave any questions
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or comments down below and i will do my
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best to answer every single one of them
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for you the ticker symbols for each of
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these etfs are vti for
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the vanguard total stock market index
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fund and voo
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for the s p 500 index fund these
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technically aren't index funds but
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they're what i'll call
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etf index funds these exact same etfs
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with the exact same holdings are offered
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through vanguard directly
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and are also known as admiral shares
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under the ticker symbols
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vtsax and vfiax for these admiral shares
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we'll refer to these as traditional
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index funds aka
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tifs which begs the question why in the
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world would you choose to use the etf
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version
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as opposed to the admiral shares or
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traditional index fund version
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basically because the vanguard trading
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platform is essentially trash and if you
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want to buy the traditional index fund
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then you have to use it but with the etf
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version
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you can use any investment platform to
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trade them on like of course m1 finance
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which is my preferred investing platform
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link to check them out and get a free 30
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is in the description down below there's
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also no minimum to invest in the etf
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version either with the traditional
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index fund through the vanguard
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investing platform
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there's a minimum of three thousand
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dollars before you can actually start
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investing into that fund but yeah that's
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basically the reason as much as i love
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vanguard's investment options i want you
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to be able to invest in their products
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on the specific platform that works best
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for you with no limitations
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vti and vo are both similar in that
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they're passively managed etf which
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makes them
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dirt cheap to own now we'll talk about
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price here in just a minute so hang
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tight vti and vo
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are also similar in that they're both
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tracking a specific segment of the
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market
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but that specific segment is different
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for each with the vanguard s
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p 500 etf the goal is to only invest in
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the companies that make up the s p
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500 which represents the 500 largest
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u.s companies based on market cap how
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that market cap is calculated is by
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tracking the number of outstanding
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shares and multiplying it by the price
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per
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share so if sally's salad company was a
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publicly traded company who had one
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thousand outstanding shares
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and the current price per share was five
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dollars per share
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then the market cap of sally's salad
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company would be
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five thousand dollars because one
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thousand times five dollars
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is five thousand dollars hashtag math as
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companies get removed and added to the s
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p 500
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the vo etf will automatically follow
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suit
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by adding and removing the same stocks
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to make it simple think of voo as very
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picky
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they're only betting on the most stable
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and well known companies within the u.s
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stock market they're not looking to be
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friends with that random hot stock
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that has been pumped up for the past
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three months that will eventually go
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down in value
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once the hype wears off a little bit on
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the other hand the vanguard total stock
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market etf
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takes a more open-minded approach to
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what it does the goal of the vti
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etf is to match the performance of the
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total stock market as a whole
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because of this it's going to hold those
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large cap companies like the ones that
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are a part of voo
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as well as mid and small cap companies
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as we know the stock market as a whole
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has only gone up over time so when you
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invest in vti
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you're betting on the us stock market as
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a whole we could technically say that
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with voo
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you're also betting on a large portion
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of the u.s stock market as a whole
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because those 500 companies make up
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about 75 percent of it but with vti
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you're capturing that additional 25
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of the stock market think of vti as
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being a lot more inclusive
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than vo is because it holds the smallest
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of the small
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companies that are a part of the us
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stock market yes the percentage of those
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small companies that are held within vti
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might be small as well but more about
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that in a minute cost isn't everything
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when it comes to an etf but it's
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definitely something that you want to
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pay attention to because it's going to
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slowly eat away your returns
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over time because vti and vo are
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passively managed etf index funds
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their expense ratio is extremely low at
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point zero three percent this is well
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below the industry standard from that
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perspective so vti
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and vo are extremely cost effective the
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fees don't get any lower than that
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except for the free ones offered through
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fidelity which i'll cover in another
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video
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when it comes to the number of holdings
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this is where the big difference is
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vo holds 508 different companies while
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vti
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holds a little over 3 800 stocks the
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holdings for vo
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shouldn't increase by much if any at all
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but they will for
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vti as time goes on vti will continue to
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increase as more publicly traded
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companies enter the us stock market
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because it's trying to match the
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performance of the total stock market so
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by default it's forced to add those new
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companies i remember just a year or two
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ago it was only made up of a little over
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3 600 companies
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so this has the potential to change as
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we see more things like
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ipos and specs both of these are on the
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rise so i could see vti growing to
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say 4 000 different stocks within the
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next couple of years when we look at the
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top 10 sectors held within vti and voo
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we noticed something interesting the
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holdings from a percentage basis are
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pretty darn close
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now most of them are only off by less
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than one percent
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vti holds about two percent less in tech
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which isn't very much of a difference
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it's basically like saying for every 100
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invested you're putting two dollars more
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into technology with vo
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as opposed to vti where that two dollars
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would be spread among a lot of other
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sectors take a look at this
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even though vo only holds 508 stocks
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the weighting in regards to sectors is
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almost identical to the total u.s stock
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market which tells us that those 508
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companies within voo
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kind of naturally mimic what the total
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stock market is doing from a sector
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perspective
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investing in voo is kind of like saying
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hey i want to match the returns of the
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stock market as a whole
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but i want to do it with the top 500
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most stable companies traded on the
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stock market we want to look at the top
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10 breakdown of the stocks held within
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each etf and how much of the overall
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fund it makes up
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because that's going to tell us what's
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really going to make the price of each
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one move the most with the vanguard
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s p 500 etf we see that the top 10
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companies make up 27
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of the holdings it's like saying that
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for every 100 you invest
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into vo 27 of it is going to be put into
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these 10 companies this is a big amount
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but nothing to be concerned about
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because as you can see
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these are the 10 largest publicly traded
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companies they are very stable right now
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and as time goes on
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if any of them slip then they'll move
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move out of the top 10 and less of your
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money will be allocated towards them
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that's the one thing that i love about
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these index funds they are
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self-cleansing and automatically take
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care
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of removing the losers and adding the
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winners whenever things change with the
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vanguard total stock market etf
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we see that the top 10 companies are
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exactly the same which tells us
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that it's most likely going to be
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tracking pretty close to vo
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where the big difference is is the
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weighting towards the top ten
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it only makes up 22 or 22 dollars of
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every 100
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invested this makes sense because vti is
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forced to spread its overall weighting
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among almost 3 300 more companies so
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there's less that can be concentrated
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into those top 10 stocks looking at the
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breakdown from a cap perspective
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voo is of course going to be the
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majority of large cap because it's
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naturally tracking
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the 500 largest publicly traded
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companies on the stock market
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not a big shocker there when it comes to
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vti we see it spread out a little bit
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more with 10
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in mid cap 2.5 in small cap and less
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than one percent
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is made up of micro cap stocks because
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vti is holding about 13
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in stocks outside of large cap it's
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going to give you more exposure to those
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potential up and coming stocks
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that could be the future top 500. tesla
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was added to the s p 500
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at the end of 2020 so if you invested in
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vo
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leading up to that point then you
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wouldn't have profited from that insane
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rise
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during that time but if you were holding
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the vanguard total stock market etf
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then you would have been a part of the
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upside that tesla saw in 2020
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because the etf holds a little bit of
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all stocks so then how does the
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performance compare between the two i
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first need to give a warning when it
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comes to looking at past performance to
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decide which one of these to invest in
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and
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anything you invest in for that matter
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this should not 100
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dictate how you invest your money it's a
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good indicator of how things have done
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in the past but it tells us
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nothing about where each of these will
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go in the future yes let's be aware of
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this
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but it's one piece to the whole puzzle
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that helps us decide which one to invest
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in i created a whole video where i walk
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you through how to pick the right etf
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for you which i'll link up above my head
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down in the description and at the end
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of this video i first need to mention
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that vti and vtvo haven't been around
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for the same amount of time in that vti
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was created in 2001 and vo was created
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in 2010. but the good news
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is that the traditional index fund for
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each of them was created at the exact
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same time in the year 2000 and because
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the traditional index fund holds the
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exact same stocks at the exact same
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weighting as the etf index fund
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we can use the tif to get an idea of how
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they compare over the longest period of
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time possible more is better in that the
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more years worth of data that we have
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the better we can understand how these
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things move through bull and bear
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markets for now let's compare the
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returns over the past 10 years
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then we'll move out to the 20 year mark
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using the traditional index funds
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as you can see they're both pretty darn
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close from year to year over the past 10
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years the biggest
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difference at this point in time is the
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one year performance vti
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is outperformed by about 2.5 percent if
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you look at the graph
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you'll notice that around the november
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december time frame vti gets a little
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bump
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up in return to understand why that
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might be we have to look at what makes
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up vti
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versus voo now vo is made up of large
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cap
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only stocks while vti is made up of
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large
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mid small and a few micro cap stocks as
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well so the biggest driver and
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difference between the two would most
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likely come from those mid
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small and micro cap companies and if i
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pull up a graph comparing
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vti and vo along with a mid small and
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micro cap
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etf you can see what's really happening
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here voo is the very bottom dark green
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line and vti
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is the dark blue line right above it you
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can see the color coding right there
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vo is a mid cap etf vb is going to be a
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small cap etf
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and iwc is a micro cap etf notice how at
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the same time that vti's return
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increased and pulled away from vo in the
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roughly november december
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time frame so did those mid small and
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micro cap companies which tells us that
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right now within one year time period
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vti has outperformed voo because mid
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small and micro cap stocks have
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performed well during that time but if
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you're investing for the long term so
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five plus years then this one year
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performance is irrelevant
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especially when we talk about reversion
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to the mean when it comes to stock
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returns i'd imagine as time goes on
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we'll see these mid small and micro cap
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companies slightly underperform
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where they have been over the past year
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which means that the return of a total
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stock market index fund will eventually
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align a little bit closer to an s
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p 500 index fund to show you what i mean
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let's look at the 21 year track record
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of the traditional index fund
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for vti and voo which are vt sax
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and vfiax since inception vfiax or voo
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has had a return after taxes and sales
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of 6.52 percent
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while vts ax or vti has had a return of
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seven point
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zero one percent a lot closer than that
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two point five percent difference that
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we've seen over the past one year so
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which one is better and which one should
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you actually invest in to be honest with
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you they're both great and you can't go
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wrong with picking either one
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if you want a little bit of exposure to
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those mid small and micro cap companies
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while still playing it safe with the
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majority of your money then vti
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is going to be the etf for you if you
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are not interested in messing with any
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of those smaller companies and want to
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stick with the heavy hitters in the
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stock market that'll that you know will
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keep you safe
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then go with vo and if you still don't
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know and you can't decide
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then put a little bit of money into each
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one every time you invest not investment
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advice but i can tell you that i
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personally hold both of them within my
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overall money invested
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i do have more money put into an s p 500
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index fund like voo
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because my 401k through my employer is
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one of my larger accounts
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and that employer of course doesn't
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offer something equivalent
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to the vanguard total stock market index
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fund so i don't really have a choice no
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matter what i think that one of these
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two
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if not a little bit of both should make
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up a decent portion of your
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overall invested money to set yourself
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up for retirement the more important
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thing is to just get your money invested
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as quickly as possible
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no matter what the stock market is doing
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because timing is everything and
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when you invest will determine your
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returns more than anything heck vo
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has outperformed vti in my public m1
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finance investment account once again
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link to check them out is in the
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description in my m1 finance roth ira
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account i hold vti
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and i've had a 63 return while in my m1
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finance future car
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investment fund i hold vo and the
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returns over there are
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sitting at almost 80 percent not because
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i chose one over the other but because
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of the date i invested into each one
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every single month now unfortunately we
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can't predict what the stock market is
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going to do
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on a day-to-day basis so we might as
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well hedge our bets
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by just getting the money invested and
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let the stock market gods handle the
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rest don't forget to hulk smash
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that thumbs up button before you go
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leave any questions or comments down
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below as well and i'll do my best to
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answer every single one of them for you
[840]
check out the description for a bunch of
[841]
ways to get some free stocks and more
[843]
investing
[844]
and financial independence resources
[846]
check out these other investing videos
[847]
to your left next
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i'll see in the next one friends done
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