Did You Need VTI Instead of VOO? What History Says About the Differences

• Vanguard Total Stock Market ETF (VTI) tracks the entire U.S. stock market including small and mid cap stocks with a 0.03% expense ratio.

• Vanguard S&P 500 ETF (VOO) limits exposure to the 500 largest U.S. companies, providing more mega-cap and tech concentration than VTI.

• Both funds charge identical 0.03% expense ratios and maintain low turnover strategies for long-term passive investors.

• Some investors get rich while others struggle because they never learned there are two completely different strategies to building wealth. Don’t make the same mistake, learn about both here.

I’ve long been a proponent of diversification, and investing for the long-term in a structured and coherent fashion. Up until recently, most investors looking to create diversified portfolios had to do so on their own, or with the help of an advisor. And before zero trading fees became commonplace (largely due to payment for order flow and the rise of high-speed quantitative investing companies, but that’s a story for another day), it was a costly endeavor to do so.

That said, the rise of exchange traded funds (ETFs) have completely changed the game in providing investors with the sort of low-cost diversification they’re after. Within the ETF sector, there are a number of fantastic options, from ETFs that track entire indices to some that track sectors or even single stocks.

In this article, I’m going to highlight two of the top broader market index ETFs out there, the Vanguard Total Stock Market Index Fund (VOO) and the Vanguard S&P 500 ETF (VOO), and specifically how these two large-cap ETFs differ.

One of the top ETFs I continue to pound the table on is the Vanguard Total Stock Market Index Fund (VTI), and for good reason. This ETF is aimed at investors looking for the broadest possible market exposure, with the fund tracking the entire U.S. market.

That means that unlike other ETFs which are beholden to the 500 largest companies (see below), VTI provides the kind of exposure to small and mid cap companies many investors want. While this fund is still market cap weighted, so there’s plenty of exposure to the top high-flying names, an investor can view this ETF as a way to buy a slice of the entire market at a very low cost. In fact, the expense ratio for VTI is among the lowest in the industry, with investors paying only 3 basis points (0.03%) for exposure to this high-quality portfolio of companies.

One of the ways VTI is able to manage this ultra-low cost is one of the lowest turnover ratios (how often the fund buys and sells stocks), at just 2.1%. Indeed, buy and hold is the strategy most long-term investors are after. The good news is that VTI’s managers understand this, and want to provide exactly this kind of exposure to passive investors who are more than comfortable being patient for an extended period of time.

The Vanguard S&P 500 ETF (VOO) is very similar in many ways to VTI, in the sense that this is an index fund that tracks a broad swath of the market.

That said, as I mentioned earlier, the Vanguard S&P 500 ETF tracks “just” the S&P 500, so investors in such a fund will need to be willing to accept the returns of the largest companies in the market. Now, there’s some upside to such a strategy. In general, the largest companies in the market are often viewed as the safest. These are companies with wide moats and strong balance sheets that have proven their ability to compound year after year.

Thus, for investors looking to steer clear of some of the more speculative areas of the market, this would be the blue-chip index fund I’d pick. Investors are also able to generate this kind of exposure with the same expense ratio (just 0.03%), so there’s a lot to like about the long-term compounding potential of such a fund.

In essence, investors in VOO vs. VTI will get more mega-cap tech exposure and higher weightings toward some of the best growth stocks in the world. While such investors may miss out on rallies in small and mid caps as interest rates come down, the added stability may be desired by some investors. To each their own.