A debate that frequently comes up in the FI/RE community is between two ETFs: VOO and VTI (both offered by Vanguard).
The sentiment from the community tends to be: “They’re both the same. Own one or the other, but not both”. While yes, on the surface, they’re similar, but they are not the same.
VOO is meant to track (or mirror) the S&P 500 which, as we know, is a collection of the 500 largest companies by market cap.
VTI is meant to track the CRSP US Total Market Index which is a collection of 3,500 companies across all sizes of market caps (small, medium, and large).
VTI is owning a tiny bit of every stock where VOO instead only owns 500 stock meaning it has a higher concentration of each of those 500 stocks.
Which investment is right for you?
Buy VTI if you want a tiny piece of every publicly traded business. Buy VOO if you only want a piece of the top 500 largest companies.
Either choice makes for a perfectly fine long term investment, but due to VOO’s higher concentration in the top 500, Winchell House recommends VOO over VTI. Yes, that might mean more volatility in the short term, but it’ll also mean more growth in the long term and we’re ok with that.
“Charlie and I would much rather earn a lumpy 15 percent over time than a smooth 12 percent.” – Warren Buffett.
Speaking of Warren Buffett (above quote), can you guess which ETF (VTI or VOO) he owns? That’s right, VOO.
So the next time you hear someone say VTI and VOO are the same; you can remind them that burritos and tacos also have the share same ingredients, but you wouldn’t call them the same meal, would you?
Visit the official Vanguard website for more information.
This article is part of the Winchell House Original Articles series.
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