VOO or VTI? VTI has a much lower spending ratio of 0.03% vs. 0.20% than QQQ. In terms of holdings, ITOT holds about 100 more securities than VTI. The only real difference is the company which is behind the ETF. Vanguard’s Total Stock Market ETF is still one of the best in the business. It is one of the longest running total market ETFs. That means the post-tax return will be 0.35 percentage points higher on average for VTI vs. SCHB. Next, we ‘re going to look at the drawdowns VTI has experienced from 2002 through today. Considering VXUS ‘meandering success I still feel it is wise to devote some percentage of funds to international exposure. The biggest difference between VXUS and VTI is that of their goal. This minute difference in composition simply stems from the fact that ITOT includes around 100 more companies which are made up of the “long tail” of small-cap stocks.eval(ez_write_tag([[300,250],'mrmarvinallen_com-large-leaderboard-2','ezslot_4',111,'0','0'])); As with fund composition, exposure to various industry sectors can benefit a portfolio’s diversification. Unsurprisingly, its worst year was 2008. The solution seems pretty easy in light of that. Expense Ratio: 0.03%, or $3 annually per $10,000 invested One of the reasons why some of the best ETFs to buy are winners when it comes to tax-efficiency is that many of them track indexes. We use cookies to ensure that we give you the best experience on our website. If you were to superimpose a line graph of the Dow Jones Industrial Average you could not make out any differences. In 2008, VTI experienced a drawdown of 50.84% while ITOT hit rock bottom at 50.76%. In any case, getting ready for any number of potential situations seems prudent. Mid-cap companies cannot break through the 20% mark and small-cap stocks only make up a meager 6-7%. What is VTI Sharpe ratio? Created in 1992 with the help of John “Jack” Bogle, Vanguards founder, the Vanguard Total Stock Market Index Fund was designed to provide low cost, broad diversification, and the possibility for tax efficiency. Its price fluctuates all day long because shares are purchased on an exchange sold by investors. I am on a path toward financial freedom. Please discuss all financial and investment decisions with a registered investment advisor (RIA). These two graphs nearly look identical, but here’s what’s different: ITOT has a larger exposure to the healthcare sector than VTI. This represents more or less the average return of the entire market, and includes all reinvested dividends. Both funds are similar, in terms of composition.eval(ez_write_tag([[250,250],'mrmarvinallen_com-large-mobile-banner-1','ezslot_12',115,'0','0'])); But there’s one important distinction: In the long term, VTI outperforms VTSAX. The blue one has a allocation of 100% in VTI and the red on is 100% ITOT. This becomes apparent when looking at the graphs during those years: VTI is ahead for most of the time from 2009-2012. Once you’ve been convinced that index funds are the most efficient way to invest, the only decision you need to make is which index fund to invest in. ITOT followed about 3 years later in 2004. For most investors, the way to gain maximum diversification for minimum … VTI is not more tax-efficient than VTSAX. For example, Vanguard FTSE All-World ex-US ETF (VEU) has a 12-month dividend yield of 3.1%, versus 1.77% for Vanguard Total Stock Market ETF … Instead, focus your energy on investing early and often and staying the course. VTI experienced its maximum drawdown of -50.84% in 2008 with an annual volatility of 15.04%. QQQ has outperformed VTI with a compound annual growth rate ( CAGR) of 11.71 per cent over the past two decades. Coinbase vs. Coinbase Pro: What’s The Difference. At a market correlation of 1.0 it is doing a damn good job at this. The ITOT portfolio would have a final balance of $32,467 – around $800 less than VTI. 9. I agree with choosing a simple portfolio of low cost tax-efficient index funds that you can set and forget. First, we will look at the key facts of the fund such as expense ratio, index, and holdings. As is the entire U.S. stock market, VTI is made up of over three-quarters of large-cap stocks. However, if you invest for the long term, you might want to consider moving your assets slowly into Vanguard funds. As a famous investor once said: the first rule of investing is not to lose money. In fact, we’ll also be able to see the differences in behavior during the 2008/2009 market crash and subsequent recovery. That’s around $800 a year, you can get on a portfolio of $10,000 committed to VTI.eval(ez_write_tag([[320,50],'mrmarvinallen_com-leader-1','ezslot_19',112,'0','0']));eval(ez_write_tag([[320,50],'mrmarvinallen_com-leader-1','ezslot_20',112,'0','1'])); In this final section, we’ll briefly compare VTI to the most popular competitors out there and review the differences. As mentioned above Vanguard offers excellent investment products for us retail investors in particular. How does VTI perform compared to similar funds? They are probably the most trusted asset management company out there and for a reason: Vanguard’s investors become owners of The Vanguard Group by investing in their funds. The third and final section of this review will deal similar ETFs and how they compare to VTI. It aims to emulate the performance of the entire U.S. stock market by tracking over 3,500 securities. So, what do we as retail investor do with this information? To conclude, Vanguard and iShares are both trusted companies that offer high-quality products. VTI is also much more diverse than QQQ which holds more than 3,500 U.S. securities. Both funds seem to perform about the same thing, these ETFs have more similarities than differences! The bigger question remains: should it invest in dividend stocks or in stocks for growth? However, the mutual funds are only purchased and sold at a closing price once a day. However, in terms of trading, both funds offer outstanding liquidity. So, I’ve done some work to find out which of these ETFs is the best investment. Besides, both ETFs offer a solid investment option. This VTI review will tell you all you need to know about Vanguard’s most popular ETF. few of them reach the same level of security, holdings, and tax efficiency that VTI does. However, dividend funds typically tend to do worse in bull markets and in rising interest rate settings. eval(ez_write_tag([[250,250],'mrmarvinallen_com-large-mobile-banner-2','ezslot_12',114,'0','0']));This graph shows the accumulated returns of two back-tested portfolios of $10,000 each. Since both funds have been in existence over 15 years they provide excellent historical data for the back-test we will perform later on. This preference indicates a slight edge over SPY judging from the return of the last 18 years. This is due to a patented structure. VTI is weighed a bit more towards large-cap stocks at 76.4% vs. 76.1%. VTI aims to watch the overall market while QQ aims to pick up mega-cap tech stocks to outperform the sector.eval(ez_write_tag([[300,250],'mrmarvinallen_com-leader-4','ezslot_18',116,'0','0'])); And for QQQ, this approach has been successful: tech stocks have far outperformed overall market returns over the past decade and beyond. 10. Both funds have an expense ratio of 0.03%. In top of that, over the past few years, the US economy has improved and expanded well beyond the typical European or Asian economy. Even FORTY YEARS down the road, the difference was only about 2%, or a single good or bad day in the market. You’ll also be part of a company that works for clients and builds on the legacy of Jack Bogle. 3-year beta is 1.05; 5-year beta is 1.04; 10-year beta is 1.04; 15-year beta is 1.03. It is exposed largely to the technology, healthcare and financial services sectors and is made up by more than 75% of large-cap companies. Neither have distributed capital gains. In considering asset locationkeep the following points in mind: 1. VTI is issued by Vanguard. In turn, VTI’s financial services industry represents a bigger chunk of net assets. Even though more than 3,500 companies are included in VTI – a majority of them small-cap – they all together only make up 6.5%!eval(ez_write_tag([[300,250],'mrmarvinallen_com-box-4','ezslot_21',109,'0','0']));eval(ez_write_tag([[300,250],'mrmarvinallen_com-box-4','ezslot_22',109,'0','1'])); The technology industry accounts for more than 20 percent of each fund’s exposure, followed somewhere between 13-15 percent by health and financial services. If you take a look at the two graphs from 2010 to 2012 you’ll the blue line representing VTI peak out from under ITOT several times. On this blog, I share thoughts and ideas on Personal & Financial Freedom. But both funds are practically similar in terms of composition. > You used the example of VTI and VTSAX. It would appear that the additional 100 small-cap stocks that are included in ITOT have a stabilizing effect on the fund. Mid-cap firms make up 17.5 percent and small-cap stocks make up the remaining 6.4 percent. VXUS is an ETF that offers investors broad exposure to global capital markets, while VTI focuses solely on U.S. capital. The industry still hovers around 0.28 percent somewhere. Generally, holding an ETF in a taxable account will generate less tax liabilities than if you held a similarly structured mutual fund in the same account. Mutual funds will allow you to buy fractional shares and set a fixed sum per month to auto-invest but are only available via Vanguard. ETFs are vastly more tax efficient than competing mutual funds. The Vanguard Total Stock Market ETF (VTI) tracks the CRSP US Total Market Index. And I put “faith” in quotation marks because trust is not in fact involved. Vanguard’s Total Stock Market Fund is one of the most popular ETFs on the market. SCHB tax-cost ratio is 0.84%. The majority of Vanguard mutual funds have the same tax efficiency as their ETFs. However, VTI did actually perform better than QQQ between 2002 and 2008. Investing in VTI vs. VTSAX. Even though the charts look almost identical, there are some slight differences. Index funds —whether mutual funds or ETFs (exchange-traded funds) —are naturally tax-efficient for a couple of reasons:. Starting with a comparison of the differences in key facts and composition, on a more detailed level we have seen how VOO and VTI differ. This means their tax efficiency has been identical. I assume that in more arduous economic times, small-cap companies will play a vital role, more so than we have seen over the past few years. This index contains more than 3,000 U.S. companies and seeks to replicate market performance as a whole. Historically, VTI has outperformed ITOT. Obviously, due to the similarity of VTI with the domestic market as a whole, the numbers will resemble those of the US stock market as a whole. That means on average, your post-tax return is lower by 0.87% compared to the pre-tax return. That said, as a general rule, ETFs like VTI are more tax efficient than mutual funds like VTSAX. You’ll also be part of a company that works for investors and is built on Jack Bogle’s legacy. Read: VTI vs. VIG – Which Vanguard ETF Is Better? Large corporations dominant the fund and the entire U.S. market. The ETF has a compound annual growth rate (CAGR) of 7.97%. Compare fees, performance, dividend yield, holdings, technical indicators, and many other metrics to make a better investment decision. This index aims to replicate the performance of the entire U.S. stock market. VTI is released by Vanguard. As a result, VTI has been amazingly tax-efficient when it comes to capital gains. VOO is less volatile than VTI, and has fewer drawdowns. SCHB tax-cost ratio is 0.84%. Fidelity is the clear winner of this round. It was precisely in the economic growth times after 2008. VTI is a proprietary fund and priced differently from a mutual fund. That means the post-tax return will be 0.35 percentage points higher on average for VTI vs. SCHB. While there is no "one rule fits all" concept, the strategies presented here are mostly intended to provide guidance to investors in the accumulation phase (saving for retirement). VTI does hold a much larger number of securities, however. This is followed by financial services and healthcare in descending order at around 15% exposure. ETF vs. Mutual Fund Tax Efficiency: An Overview . What’s striking is, first of all, how close to identical both funds perform. How to pick one over the other? But dividing by Fidelity’s zero expense ratio doesn’t work. VTSAX vs. VTI – which is better? But why? As we have seen, the only significant difference between VTI and ITOT lies in the number of holdings, composition, and exposure. VXUS has a higher spending ratio of 0.08% compared to 0.03% of VTI. What is VTI beta? Over a period of 15 years this boils down to a compound annual growth rate of 8.15%. 35% Vanguard Total Stock Market Index It makes VTI as competitive as the market at large. It just doesn’t need to sell stocks in order to refresh its index; they’re already all in there. Especially, over the last 5 years, iShares has become the clear second choice for fund investors as seen above. In general, index funds are more tax-efficient than actively managed funds because index funds are passively-managed. This is perhaps less surprising now that we have seen only very little difference in their composition. As with VTI, basic materials, energy, and utilities are the least covered industries in this fund. A good way to maximize tax efficiency is to put your investments in the "right" account. The least represented sector by market cap is basic materials, energy, and utilities. The only distinction other than that is that VTSAX is a mutual fund and VTI is an exchange-traded fund. Although the difference is minute and VTI also includes small-cap stocks, we will see later whether this will have an impact on overall performance and returns. This means that the fund’s shares are not commonly purchased and sold from and to the market but are traded among investors on exchanges. 15. ITOT is another option which historically has been more tax-efficient than VTI while tracking total US as well. It is not intended to be investment advice. I consider them all equivalent in taxable and tax-loss harvest amongst them. This is perhaps where VTI outperformed ITOT. Not only does the above chart depict the imbalances between industries that VTI is exposed to, it rather clearly also shows how the entire U.S. economy has shifted to the technology sector. What is VTI tax efficiency (tax-cost ratio)? There are marginal differences between VTSAX and VTI; VTSAX is a mutual fund which acts as an index while VTI is an ETF. VTI has 15.04 percent volatility per year. They just recently did so for some Bond ETFs and mutual funds in early 2020, lowering the respective fees from 0.04% to 0.035%.eval(ez_write_tag([[320,50],'mrmarvinallen_com-large-mobile-banner-2','ezslot_13',117,'0','0'])); Investing in VTI is just like investing in the entire U.S. economy. If you are investing for the long run, however, you might want to consider slowly moving your assets to Vanguard’s funds. Now that we have examined how VTI and ITOT differ in composition, exposure, and risk, the last – and perhaps the most important – question is how these differences affect each fund’s returns. In this section, we’ll take a closer look at the subtle differences in fund composition between VTI and ITOT. Now, we are going to review how VTI is being composed. Which fund do you prefer? However, also 2002 was a year substantially negative returns up to -20%. Among its holdings, VTI contains some more real estate and protective consumer goods. While there are other options available to do so (ITOT, SCHB, etc.) VTI holds more than 3,500 securites with an expense ratio of just 0.03%. While total funds are generally tax efficient because stocks rarely leave the benchmark, shareholder redemptions can force managers to sell appreciated stock to raise cash. All of these ETFs tend to deliver sustainable growth in the long term, which will give your portfolio a strong heart. What is the Minimum Investment for Cardone Capital? Overall, however, VTI yields higher returns with a compound annual growth rate (CAGR) of 8.15% vs. 7.98% for ITOT. We will assume a 15% qualified dividend tax rate, a 24% nonqualified dividend tax rate, and a 2% dividend yield. Essentially, both indices strive to accomplish the same thing. One of these is the one we’re going to talk about today: iShares’ Core S&P Total U.S. Stock Market ETF. There are several competitor funds that aim to achieve the same returns. As I have pointed out before, VTI had a higher drawdown in 2008 bu also recovered much quicker than ITOT. We’ll look at some risk indicators like volatility and overall drawdown in the following section. Nonetheless, both the metrics of the funds and the economic dimensions give VTI a major advantage. VTI has a 7.97 percent compound annual growth rate ( CAGR) compared to VTSAX’s 7.95 percent growth rate. Once those basics are dealt with we’ll dive deeper and look at VTI’s composition and industry exposure.eval(ez_write_tag([[320,50],'mrmarvinallen_com-box-3','ezslot_3',106,'0','0']));eval(ez_write_tag([[320,50],'mrmarvinallen_com-box-3','ezslot_4',106,'0','1'])); In the later parts of this review, we’ll analyze potential risks through volatility and maximum drawdown and conduct a portfolio backtest to monitor historical performance. This is largely due to the lower VTI charges and the improved tax-efficiency that ETFs have over the. The CRSP US Total Market Index is tracked by the Vanguard Total Stock Market ETF (VTI). iShares Core S&P Total U.S. Stock Market ETF. All information on this site is for informational and educational purposes only. VTI has more than $135B assets under management, compared to ITOT’s $23.7B. Both VTI and SCHB have the very same amount of costs and charges. Overall, VTI remains my personal choice. If you continue to use this site we will assume that you are happy with it. On the other hand, VIG will secure your bear market portfolio. VTI is marginally better than VTSAX, in terms of overall efficiency. VTI has more than $135B assets under management, compared to ITOT’s $23.7B. In the next section of this VTI Analysis we will look at the output of the fund and model a $10,000 portfolio growth over an 18-year time span. VTI has a lower cost ratio of 0.03% vs. 0.06% than VIG. Tax considerations for mutual funds and exchange-traded funds (ETFs) can seem overwhelming but, … VTI vs. ITOT – What’s The Difference? Vanguard Total Stock Market ETF or SPDR S&P 500 ETF Trust (VTI vs SPY). If your investments are all in tax-advantaged accounts, fund placement will not have a large impact on your ret… Both funds have an expense ratio of 0.03%. This means ITOT includes a “long tail” of small-cap market stocks that are missing in VTI. VGT is an excellent alternative which forms part of the Vanguard Group and charges far lower than QQQ. VTI vs. VIG – Which Vanguard ETF Is Better? Below is the comparison between VTSAX and VTI. The answer: tax efficiency. Full stop. Conversely, mutual funds aren't inherently tax-inefficient. A negligible amount when looking at the big picture. As yet another type of fixed income, dividend funds such as VIG will make sense. But what exactly is the difference between VTI vs. ITOT and which of these funds is better? On this blog, I share thoughts and ideas on Personal & Financial Freedom. We use cookies to ensure that we give you the best experience on our website. In terms of holdings, ITOT holds about 100 more securities than VTI. The index has a market correlation of 1.00 which means it does quite a good job.eval(ez_write_tag([[300,250],'mrmarvinallen_com-medrectangle-3','ezslot_1',107,'0','0']));eval(ez_write_tag([[300,250],'mrmarvinallen_com-medrectangle-3','ezslot_2',107,'0','1'])); VTI has a 0.03 percent expense ratio. VTI has consistently yielded considerably higher returns in terms of results with an average compound growth rate of 13.04 percent compared to VXUS at 4.72 percent. At the low end, combined energy companies, basic materials, and utilities make up only about 6-7 percent. The annual returns will give us some indication of which years and stock market cycles have been of particular benefit to VTI.eval(ez_write_tag([[300,250],'mrmarvinallen_com-large-leaderboard-2','ezslot_5',111,'0','0'])); VTI’s strongest years with returns of 25%+ were 2003, 2009, 2013, and 2019. For the risk-averse investor, a fund’s volatility and maximum drawdown represent important metrics when choosing the appropriate investment vehicle. That, though, is just a personal preference. Vanguard’s investors become owners of The Vanguard Group. VTSAX has a higher 5-year return than VTI (18.37% vs 17.92%). For example, VTI is 33% more expensive than SWTSX, ITOT and SPTM. The funds, VOO and VTI have a 0.03 percent cost ratio. A difference of 0.08%.eval(ez_write_tag([[336,280],'mrmarvinallen_com-large-mobile-banner-1','ezslot_11',113,'0','0'])); If we plot the drawdowns each year for VTI and ITOT the graph looks something like this: What’s noteworthy is that although VTI lost slightly more value in the 2008 crash, it seemed to recover more swiftly than ITOT. Ultimately, maybe QQQ or VGT is a nice addition to your portfolio. The index comprises more than 3,500 securities including large-, mid-, and small-cap companies. Even though companies like Fidelity offer total market ETFs at 0% fees, they can only do so by promoting them as loss-leaders and making up for this by collecting more fees on their higher-priced products. As creditors, by diversification, we can hedge those risks. With my retirement path and my financial freedom, I have chosen to “trust” Vanguard. VTI is. It is not intended to be investment advice. While it is true that ETFs usually have fees lower than mutual funds, none have fees lower than 0.03%. ITOT vs. VTI: Head-To-Head ETF Comparison The table below compares many ETF metrics between ITOT and VTI. VTI forms an ETF. "The overwhelming amount of an ETF's tax efficiency is due to it being an index fund, and index funds are typically more tax efficient than active … VTI and VTSAX have had identical pre-tax returns and identical payouts with identical percentage of qualified dividends. Here’s what I’d say. eval(ez_write_tag([[300,250],'mrmarvinallen_com-leader-3','ezslot_16',114,'0','0']));eval(ez_write_tag([[300,250],'mrmarvinallen_com-leader-3','ezslot_17',114,'0','1']));The simple takeaway from that comparison should be: either!And because all of your investment decisions will be focused on a long-term growth strategy any of these funds would be a good long-term addition to your portfolio. In turn, mid-cap companies also resemble a slightly smaller part of 17.3% vs. 17.4%. And somewhat interestingly, these disparities – plus the tax-efficiency of VTI – actually affect performance in such a way that VTI gets out $800 ahead of ITOT. How would you assess VTI risk? There is a slightly bigger divide between healthcare and financial services however. Is VTI still worth it? Here, the variance is a bit more pronounced and adds up to 0.15% increased volatility for VTI on an annual basis. Your life as a saver starts today. Simply comparing the individual funds without taking global economic growth into account remains difficult. But I still believe that a broad-based exchange-traded fund like VTI is a more stable framework for a long-term portfolio. The annualized numbers look similar. VTI and ITOT both have an expense ratio of 0.03%. Overall, the graph above illustrates the sustained bull market we have experienced over the past decade. After all, the U.S. economy has become a global economy and is so interconnected with Europe, Asia , and South America that it really no longer makes sense to have an independent economy. The overall output of both funds was very similar: VTI has a compound annual growth rate ( CAGR) of 8.64% over the past decade and VIG has a CAGR of 8.51%. The cost ratio for VTSAX is also 0.01 percent higher than for VTI. mrmarvinallen.com is not a registered investment or financial advisor. However, Vanguard gets the win here because of company structure and underlying philosophy and values. Typically ETFs would be more tax efficient. If you’re undecided between the two, pick VTI.