Both SPY and VTI are popular exchange traded funds (ETFs) that allows you to own a well diversified basket of stocks with a single trade. The key difference here is that SPY gives you exposure to the S&P 500 while VTI lets you own the entire market by tracking the Vanguard Total Stock Market Index.
If you’re looking for an ETF that gives you exposure to the US market, you may be weighing the difference between SPY vs VTI.
Here’s what you need to know before you pick the most suitable ETF for your portfolio:
Gives you exposure to 500 of the largest stocks listed in the US markets.
Gives you exposure to large, mid, small, and micro-cap stocks in the US markets.
Expense Ratio
0.0945%
0.03%
AUM (USD)
$536.15B
$1.5T
No. of Holdings
503
3731
Inception Date
22 Jan 1993
24 May 2001
Fund Manager
State Street Global Advisors
Vanguard
SPY vs VTI: Strategy
Before you invest in any ETFs, you should first understand what you’re investing in. Here’s what you’ll be investing in with the SPY and VTI ETFs respectively:
SPY is an S&P 500 index ETF, it gives you exposure 500 of the largest companies (by market cap) that are listed on stock exchanges in the United States.
VTI on the other hand, tracks the CRSP US Total Market Index which gives you exposure to all investable stocks listed in the U.S. markets.
Key differences that result from their respective strategies:
While their returns appear similar, they are not the same under the hood. Speaking of returns, let’s take a look at their historical performance:
SPY vs VTI: Performance
Both SPY and VTI offer very similar returns, with the SPY providing slightly better returns at 12.7% CAGR vs VTI’s 12.13% CAGR over the past 10 years.
For the detailed oriented investors, here’s a comparison of SPY vs VTI’s performance across various time periods:
1-yr
3-yr
5-yr
SPY
30.25%
11.76%
14.60%
VTI
29.37%
9.62%
14.25%
And, here’s a comparison of SPY (blue) vs VTI (red) returns on an annual basis:
Disclaimer: you should take this with a pinch of salt. After all, past performance is not a guarantee of future performance.
Now that we know what we’re investing in with SPY and VTI, and what their historical performance are, let’s take a look at how much these ETFs will cost us.
SPY vs VTI: Cost
SPY’s expense ratio is 0.0945% while VTI’s expense ratio is 0.03%.
(p.s. you can also consider cheaper S&P 500 index ETFs like VOO and IVV)
SPY vs VTI: Volatility
You may also be wondering about the volatility of these ETFs. Would SPY or VTI be less volatile (and provide less anxiety when the markets are haywire)?
To understand this, we compare their standard deviation and maximum drawdown over the past 10 years. At the point of writing, they are:
SPY
VTI
Standard Deviation
15.04%
15.48%
Maximum Drawdown
-23.93%
-24.81%
Although the difference are not very significant, the SPY offered less volatility over the past 10 years.
Conclusion: What is better VTI or SPY?
Although their returns are pretty similar, SPY and VTI gives you exposure to different portfolios. SPY gives you exposure to the S&P 500 index while VTI allows you to own a portion of all the investable stocks listed in the US markets.
If you prefer a more diversified portfolio, VTI is a better option.
If you’re looking for a lower cost ETF, VTI is also better than SPY. That said, you could also opt for the lower cost S&P 500 ETFs like VOO and IVV with expense ratios of 0.03% as well.
If you’re looking for dividends, then you might want to consider the SCHD ETF instead.
Or, you could also invest in both, for example, by putting half in VOO and half in VTI. Here's a summary of which one to choose: If you want to own only the biggest and safest stocks, choose VOO.If you want more diversification and exposure to mid-caps and small-caps, choose VTI.
The makeup of the funds has some differences, since VOO basically tracks the S&P 500 and VTI tracks the entire stock market. If you'd like to focus your portfolio primarily on large companies, VOO will generally perform the same way as the S&P 500.
Before we break down what they're invested in, let me take a moment to point out the expense ratios of these funds. VOO and VTI charge 0.03% annually, while SPY charges a slightly higher 0.09%.
VTI is an extremely diversified fund. Its large amount of holdings reflect the entire universe of investable U.S. securities. The fund has exposure to small-cap stocks which can be more volatile than mid- or large-cap holdings. The fund has a beta of 1.0 when compared to the larger market.
In the past year, VOO returned a total of 27.99%, which is slightly higher than VTI's 27.65% return. Over the past 10 years, VOO has had annualized average returns of 12.63% , compared to 12.03% for VTI. These numbers are adjusted for stock splits and include dividends.
Investors who prefer to trade during the day to take advantage of price fluctuations may prefer an ETF like VTI, whereas a more passive buy-and-hold investor may prefer a mutual fund like VTSAX.
Many people pair VOO with the Vanguard Total Bond Market ETF (BND) in a broader portfolio. The fixed income ETF has $95 billion in assets and is the largest bond ETF trading in the U.S. BND has two-thirds of its assets in U.S. government bonds, with most of the remainder in investment-grade corporate bonds.
The Vanguard Total Stock Market Fund (VTI -0.73%) is, like VOO, an index ETF that's popular because of the diversification it provides at an unbeatable price.
In the past year, QQQ returned a total of 29.88%, which is higher than SPY's 26.19% return. Over the past 10 years, QQQ has had annualized average returns of 18.31% , compared to 12.50% for SPY. These numbers are adjusted for stock splits and include dividends.
QQQ offers aggressive growth potential, especially within the tech sector, but comes with higher volatility. VTI, on the other hand, provides broad exposure to the U.S. stock market, accommodating a more diversified investment approach.
You can't go wrong with either the Vanguard Total Stock Market ETF or the Vanguard S&P 500 ETF. Both offer very low expense ratios and turnover rates, and the difference in their tracking errors is negligible. The overlap in their holdings ensures that you'll get very similar returns going forward.
One option for a solid three-ETF portfolio could be to include the Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard S&P 500 ETF (VOO), and the Invesco QQQ Trust (QQQ). The SCHD ETF focuses on high-quality dividend stocks, which can provide stable income and potential long-term growth.
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification. But the number of ETFs is not what you should be looking at.
Since VTI and VOO are both ETFs, they have the same trading and liquidity, tax efficiency, and tax-loss harvesting rules. There are two key differences between VOO and VTI: the diversification strategy and performance.
Investing in both index funds and ETFs can be beneficial, as they offer different advantages. While there may be some overlap in the investments they hold, there can still be value in holding both.
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