If you're exploring top investment options for 2024, you may have already come across my recent blog post on the Top S&P 500 ETFs & Funds for 2024. While S&P 500 ETFs like VOO offer focused exposure to large-cap companies, today we will dive into Vanguard's VTI ETF—a broader market option that might be the ultimate buy-and-hold investment. Let’s explore how VTI compares and why it could be a game-changer for your portfolio.
What?
The Vanguard Total Stock Market ETF (VTI) could easily be considered the ultimate buy-and-hold investment. This flagship fund from Vanguard offers investors exposure to the entire U.S. stock market in a single, affordable, and easy-to-manage package. Unlike the S&P 500 ETFs (e.g., VOO), which focus solely on the largest companies, VTI includes a much broader range of stocks. Here’s what makes it stand out:
Broad Market Exposure: VTI provides ownership in nearly every publicly traded U.S. company, spanning over 3,700 stocks as of 2024. It covers small-cap, mid-cap, and large-cap companies across all sectors.
Market Capitalization Weighting: VTI weights its holdings by market cap, meaning larger companies like Apple, Microsoft, and Amazon dominate the portfolio. Smaller-cap stocks, while included, have less influence due to their smaller market values.
Index Tracking: It tracks the CRSP US Total Market Index, ensuring comprehensive representation of the U.S. economy.
Low Costs: With an expense ratio of just 0.03%, VTI is among the most cost-efficient ways to invest in the stock market.
Simplicity and Scale: Launched in 2001, VTI has grown to manage over $1.7 trillion in assets, making it a cornerstone for countless investor portfolios.
One-Stop Diversification: By investing in VTI, you gain exposure to thousands of companies, eliminating the need to pick individual stocks or sectors.
So What?
Key Differences Between VTI and VOO
Broader Coverage:
VTI includes the entire U.S. stock market—over 3,700 companies, spanning small-, mid-, and large-cap stocks.
VOO, on the other hand, tracks the S&P 500 index, limiting its exposure to the 500 largest companies.
This broader exposure means VTI captures opportunities in small- and mid-cap stocks, which historically have offered higher growth potential under certain market conditions.
Performance:
As shown in the Annual Returns table below, VOO has slightly outperformed VTI in recent years. This can largely be attributed to the growing dominance of mega-cap tech companies, such as Apple, Microsoft, Amazon, and Nvidia, which have played a significant role in driving the market performance in recent years.
VTI, however, still provides a more diversified exposure, including small- and mid-cap stocks, which can outperform under certain market conditions. For example, VTI outperformed VOO in 2012, 2013, 2016, and 2020, as smaller-cap companies rallied strongly during those periods, contributing to better overall returns for VTI. This highlights the value of broader exposure in certain market conditions.
Why This Matters
For investors, understanding these differences helps tailor investment decisions to individual goals:
If you value broader diversification and exposure to the full spectrum of U.S. companies, VTI provides a more inclusive option.
If you prefer focusing on large-cap stability, particularly in today’s tech-driven market, VOO might be a better fit.
Now What? - How to Use These ETFs
As Core Holdings: Both VTI and VOO can serve as the foundation of a well-diversified portfolio.
Choose VTI if you prefer exposure to the entire U.S. market.
Opt for VOO if you want concentrated exposure to the largest 500 companies.
Pair with Complementary Funds:
For global diversification, consider pairing VTI or VOO with international ETFs like VXUS (Vanguard Total International Stock ETF).
For a balanced asset allocation, consider adding bond funds such as BND (Vanguard Total Bond Market ETF) .
Use Dollar-Cost Averaging (DCA): Gradually build your position in either ETF over time to reduce the risk of market timing.
Rebalance Periodically: Monitor your portfolio and adjust allocations as needed to stay aligned with your goals.
Concluding Remarks
Both VTI and VOO are exceptional tools for building long-term wealth, offering investors low-cost, diversified exposure to the U.S. stock market. Choosing between the two ultimately depends on your personal investment goals:
VTI provides a more inclusive approach, covering the entire U.S. market and capturing growth opportunities across small-, mid-, and large-cap companies.
VOO focuses on the stability and performance of the largest 500 companies, making it an excellent choice for those prioritizing mega-cap exposure, especially in today’s tech-driven market.
For many investors, VTI and VOO can serve as reliable cornerstones of a diversified portfolio. The key to success lies in staying disciplined, focusing on long-term objectives, and using strategies like dollar-cost averaging to navigate market fluctuations. Investing is a marathon, not a sprint—by aligning your portfolio with your financial goals and remaining consistent, you can harness the power of compounding to grow your wealth over time, whether you’re a beginner or an experienced investor.