VOO vs VTI: Which Vanguard ETF Will Win Over the Next 5 Years?

There really aren’t two more vital and closely-watched exchange traded funds (ETFs) out there than the Vanguard S&P 500 ETF (VOO) and the Vanguard Total Stock Market Index Fund (VTI). Indeed, these are two top holdings of mine, and I do look at rebalancing them from time to time with my own set of concentration criteria. On this front, every individual investor will differ.

That said, I think there are important differences between the two funds worth exploring. And while I think both ETFs can play a significant role in bringing about long-term financial security and wealth generation to today’s investor, I also think it’s important to assess how to weight such holdings in the context of a broadly diversified portfolio.

Let’s dive in!

Vanguard S&P 500 ETF (VOO)

I’ve long thought VOO is the go-to option for most investors, largely due to the advice that Warren Buffett and others have given on simply buying the 500 largest U.S. companies and sitting on this investment for a very long time. 

Such a strategy would certainly have paid off very handsomely for most investors, with VOO seeing an impressive five year return of more than 100%. That’s right, investors who bought shares of VOO in the midst of the pandemic would have doubled their money holding to today. Not bad. 

What will the next five years bring? It’s hard to say. 

But I think most investors would agree that the U.S. market is the most developed and sought-after in the world. Until those dynamics change, it’s hard to argue that VOO and its 0.03% expense ratio aren’t worth at least considering for a slice of one’s portfolio. With the best companies in the U.S. tracked by this index, investors gain the kind of high-quality and diversified exposure they’re looking for, at the cheapest cost in the investing game. That’s a strong enough thesis for me. 

Vanguard Total Stock market Index Fund (VTI)

In this current environment, I tend to lean more toward VTI as the ETF I would weight heavier in my portfolio, and I have. In addition to VTI, I’ve also been increasingly focused on adding additional international exposure, as I do think the rally we’ve seen in mega-cap U.S. tech stocks could be starting to wane. That’s what the data appears to show, to me at least. 

Indeed, if I had to choose a winner between these two in terms of expected performance over the course of the next five years, I’d have to pick VTI. That’s primarily due to my view that international stocks have much more to gain than U.S. equities that have already rallied to incredibly high levels (and valuations). International stocks are simply cheaper, have more exposure to counter-cyclical areas of the economy I think will perform well, and don’t have the sort of policy uncertainty certain U.S. stocks have under the current administration.

With that said, VTI does come with a lower average return than VOO in recent years, and some investors may be turned off by this fact alone. Investing in growth has been the winning strategy for most investors, and veering away from that path may seem scary.

That said, I’m of the view that buying stocks (or ETFs) when they’re cheap on a relative basis is the best way to build long-term wealth. On that basis, VTI would be my winning pick, and it’s a higher weighting in my portfolio right now for this reason.