VOO vs VTI

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.

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The real difference, in numbers

The debate sounds dramatic, but the numbers make it boring in the best way. Both funds charge 0.03 percent, which is $3 a year on a $10,000 investment. VOO holds about 505 stocks; VTI holds about 3,500. And because both are weighted by company size, the extra 3,000 companies in VTI barely move the needle: roughly 72 cents of every dollar in VTI sits in the same large caps VOO holds, with the remaining 28 cents spread across mid caps (17%) and small caps (11%).

So the top 10 holdings are nearly identical in both funds, Nvidia, Apple, Microsoft, Amazon, Alphabet, and friends, making up about 38% of VOO and 33% of VTI. Performance reflects that: the two funds move together, with VOO slightly ahead over the last decade because large caps have beaten small caps. The entire argument reduces to one question. Do you want the small and mid-cap tail, or not?

Which investment is right for you?

What the video is actually saying

The embedded clip is Buffett at Berkshire’s 2008 annual meeting, answering the question every amateur investor should ask: if you have a full-time job and cannot study businesses all day, what should you do? His answer is the S&P 500 index fund. Not because he thinks it is exciting, but because the alternative, picking stocks part-time against professionals, is a reliable way to underperform. The professional managers charging high fees, he argues, will in aggregate do worse than the person who simply buys the index and sits still.

That is the whole video, and it is worth more than the rest of this debate. The choice between VOO and VTI is a rounding error next to the choice between an index fund and stock picking. Get the big decision right and the small one barely matters.

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.

Buffett has never named a ticker he personally holds, but his will directs 90% of his wife’s inheritance into a very low-cost S&P 500 index fund, which is as close to an official endorsement as VOO gets.

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.