VOO vs. VTI: Unraveling the Distinctions Between Two Top Vanguard ETFs (2024)

Broad-based ETFs present investors with natural diversification advantages, offering exposure to a group of stocks or securities at a minimal expense rate. As a result, these ETFs can serve as a fundamental element in wealth-building strategies for numerous investors.

Among the biggest ETFs, two notable offerings from the Vanguard Group are the Vanguard 500 Index Fund ETF (VOO) and the Vanguard Total Stock Market Index Fund ETF (VTI). Evaluating which one serves as a superior investment when constructing a portfolio will be the focus of this article. We'll delve into the similarities and distinctions between VOO and VTI to aid in making an informed investment decision.

VOO invests in stocks of the S&P 500 Index, comprising 500 major U.S. companies, with an impressively low expense fee of 0.03%. It has shown strong performance, returning 13.95% yearly average since inception in 2010 and 20.63% year-to-date. Notably, the fund's largest sector is information technology at 28.30%, with Apple being its top holding at 7.67%.

VTI provides exposure to the entire U.S. market by closely tracking the performance of the CRSP US Total Market Index. With an exceptionally low expense fee of 0.03%, the fund has demonstrated strong historical performance, delivering an impressive 8.21% yearly average return since its inception in 2001 and an outstanding 20.32% year-to-date return. The technology sector holds the highest weight in the fund's portfolio, accounting for 29.90% of its total assets, and Apple stands as its leading holding, representing 6.66% of the fund's holdings.

The similarities between VOO and VTI are remarkable, with an 85% overlap in terms of portfolio weight. This significant overlap is due to the fact that nearly all of the companies listed in VOO are also included in VTI, as 99.4% of VOO's 508 holdings are present in VTI. Additionally, both funds have exhibited strikingly similar performance over various timeframes, including 1, 3, 5, and 10 years, with no difference greater than 0.8% between them.

The primary difference between VTI and VOO lies in their market coverage. VTI offers a broader scope, encompassing a comprehensive representation of the U.S. market with exposure to large-, mid-, and small-cap equities diversified across growth and value styles. On the other hand, VOO is more concentrated, focusing solely on large-cap stocks from the S&P 500. While VOO maintains diversity across growth and value styles within the large-cap space, it lacks the extensive range of companies that VTI provides.

In conclusion, VTI and VOO offer distinct investment approaches, catering to different investor preferences. For those seeking comprehensive market exposure and diversification across various company sizes and styles, VTI emerges as an attractive choice. On the other hand, investors with a specific focus on large-cap companies may find VOO more suitable. Regardless of the selection, both funds can serve as excellent core holdings in any portfolio, particularly for long-term objectives where sustained capital growth is of paramount importance.