Diversification of your financial portfolio is vital to ensuring that you have a good return on your investments. One of the ways many people look to do this is through the use of exchange-traded funds.
ETFs are a great way to allow you access to a wide range of companies all in one place. This offers diversification and stability that is easily achieved even by those without experience in investing.
Two of the most stable and popular ETFs are VOO and VTI. Both exchange-traded funds are underneath the umbrella company of Vanguard and follow large-cap stocks with a proven track record.
Both options are perfect for long-term investors, but you may be wondering which is the best for you. We’ll take a deep dive into both ETFs so that you are knowledgeable about each and can make an informed decision.
After all, when talking about investing your hard-earned money, that is very vital. So if you’re someone who’s looking to make some long-term investments to build a better portfolio, keep reading!
What is the Difference?
Both VOO and VTI are found underneath the Vanguard index and are exchange-traded funds. Exchange-traded funds are pulled investment securities that are traded very similarly to the stocks that are traded on the stock market.
Each option tracked a wide range of stocks by market cap-weighted indexes. That means that they are very similar in a plethora of different ways.
But just because they have the same basic function doesn’t mean that there are no differences. Here are some of the chief differences between these two Vanguard ETFs:
- Maybe the biggest difference is that they look at different indexes. VTi tracks the US total market index. On the other hand, VOO looks at the S&P 500 index.
- Each one allocates their funds differently. VTi takes your money and sits in more companies than the other ETF.
Each uses cap-weighted funds and favors tech stocks. Though they perform very similarly, VTI’s focus on tech could help make short-term investments more stable because it is not as VOO on this form of stock.
- Another big difference is the price. VOO Tends to deal with higher-priced trades than VTI.
- Lastly, they perform differently. Though they do Perform relatively, there is a slight variation in the returns. These slight differences could be more noticeable when a new investor is only spending a couple of $1000.
Which One is More Popular?
The popularity of either or is kind of a moot point. Rather than looking at which one is more popular, it’s better to look at which one matches your potential investment style.
For example, if you want to have the ability to invest in large and smaller or medium-sized companies, then you want to go with VTI.
However, if you are someone who wants to focus only on large-cap companies, then VOO is a better option. For us, it may be a great idea to look at both as an option so that you can further diversify your portfolio, thereby ensuring better profits.
Pros & Cons: VOO vs VTI
In order to really determine which ETF is the best option for you, it’s vital to understand the pros and cons of each. So we have created a quick pros and cons list for both ETFs and hope to do just that. Here are the pros and cons of both VOO and VTI:
VOO
Pros:
- The fees are quite cheap. Not only is the annual expense ratio simply .04% a year but individuals that use this ETF trade commission-free which saves money in the long run.
- Due to the tight spreads, the cost of ownership is quite low. In other words, it’s more liquid than other options.
- These ETFs are representative of the market. That means that the bigger companies are weighted higher.
Cons:
- Though it is also a benefit, the fact that it is representative of the market may not be such a good thing for a more stable investment.
- There is a concentration heavily on three specific sectors- health care, finance, and technology. This means that there is less versatility than the other option.
VTI
Pros:
- Wide range of versatility due to the fact it includes all US stock exchanges.
- Performance matches or underperforms the other option by fractions of a percentage point.
- Has a longer dividend growth history.
Cons:
- Stocks within the index are held in small amounts, which could show limited movement in performance results.
- Yields lower dividends.
Price Range: VOO vs. VTI
The truth is, of all the things to compare, the price of these two ETFs are relatively similar. In addition, both hold an expense ratio of just about .03%. On top of that, both of them have about $260 billion of assets under management.
If you’re looking for a comparison or some way to determine whether you should go with either of these price ranges is not really a factor.
Instead, looking at the versatility of the stocks available and the types of sectors you have access to is much more important when making such a big decision.
The Verdict: VOO vs. VTI
Both of these ETFs offer a wide diversity of options at a low cost, bringing a strong performance. VTI provides a more rounded portfolio as it has access to the entire US stock market. VTI also has a lower price, making it more accessible for beginning investors.
On the other hand, VOO will yield higher returns because it is more focused on certain sectors of a much smaller pool, thanks to its focus on the S&P 500.
However, because of this more focused attention to certain aspects of the stock market, it is also not as good a fit for beginning investors.
Final Thoughts on VOO Vs. VTI
In the end, hard-earned money is really up to you. VTI is great for more versatility and is much easier for newer investors to understand.
VOO has its pluses as well, as it is more focused and can be a great tool to diversify investors’ portfolios that have some experience with stocks and other indexes.