How should you decide which stocks to buy in the market? In this article, we will compare two popular funds that you can include in your portfolio – VOO vs. VOOG.
If you are looking for ways to add up to your savings, investing is the most common answer you will find. Financial advisors usually provide different kinds of investment strategies relative to your financial plans and capacity.
But what if you don’t know which funds are really worth it? Which equities, commodities, mutual-fund, dividend stocks, or stock funds can provide the best yields and best total return on your investment.
Vanguard may be the answer. It is one of the most popular mutual funds and ETFs companies globally that offers low-cost options. Based on past performance, these provide among the best capital gains in the market.
Interested to know more? This article will give you a comparative analysis of the 2 Vanguard S&P 500 ETFs. Let’s explore VOO vs. VOOG.
VOO Vs. VOOG: A Comparative Analysis
VOO and VOOG are two of the most popular funds based on a major market index, the S&P 500. Both are high-value funds. They are also low-cost ETFs rather than mutual funds, which can be bought through reputable brokerage firms.
Unlike mutual funds, ETFs are constantly tracked and can be purchased or sold at any time during business hours. On the other hand, mutual funds can only be bought or sold at the end of the business day.
Both ETFs are issued by Vanguard, one of the best companies to invest in. Not only are they well-diversified, but they have low fees.
VOO: Vanguard S&P 500 ETF
Launched in 2010, the Vanguard S&P 500 ETF is one of the most popular funds in existence. VOO enables investors to achieve gains in the stock market and reduce losses by investing in the Vanguard S&P 500 Exchange Traded Fund (ETF) VOO.
The fund is highly liquid with high daily trading volumes, meaning you can buy and sell anytime you want.
VOO aims to track the S&P 500 index, representing the 500 biggest publicly traded companies in the US. This consists of companies operating in different sectors of the economy such as information technology, finance, communication, health care, and more.
The index is considered a great representation of the US market as it spans across different sectors. VOO ETF owns stocks in the exact same companies as the S&P 500 index. Around 88% of VOO are large-cap companies, and 12% are mid-cap stocks.
The ETF has an annual dividend yield of 1.64% and an expense ratio of 0.03%. It’s a good option for investors who have a low tolerance for risk, a shorter time horizon, and prefer income investment.
VOOG: Vanguard S&P 500 Growth ETF
VOOG is another Vanguard ETF, with the “G” representing growth. The index of this fund is the growth index of the S&P 500. The fund, therefore, invests in stocks that have a high potential for growth, also known as growth stocks.
Growth stocks are shares of companies that prioritize their growth and reinvest their earnings in new equipment, technology, and more. Their stock prices are relatively high as compared to their profits since many investors expect their earnings to grow higher in the future.
Growth stocks generally have higher volatility as compared to the value companies.
VOOG tracks 276 different companies that have the same benchmark. The ETF has an average capitalization of $502 billion and a median market cap of $184.6 billion. Currently, it has a return on equity of 22.5% and doesn’t hold any foreign companies.
VOOG tracks funds using three factors. These are:
- Sales growth
- Growth momentum
- The ratio changes in earnings to the stock price
Therefore, VOOG is considered to be a large-cap growth fund. Some of the popular growth stocks include Amazon, Apple, Facebook, Google, and Tesla.
VOO Vs. VOOG: Key Differences
Here are the major differences between the two:
The expense ratio OF VOO is 0.03%, one of the lowest you will find for the ETF industry. On the other hand, the expense ratio of VOOG is 0.10%. That means that the expense ratio of VOOG is thrice as high as that of VOO.
For instance, if you invest $10,000 in VOO, you will pay about $3 for VOO while paying $10 for VOOG.
This translates into a difference of $7 on a portfolio of $10,000. However, if the VOOG portfolio performs better, this would be a small price to pay, and VOOG may be cheaper in the long run.
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Another difference between the two funds is in the number of securities held. On average, an S&P 500 holds about 500 securities. However, VOOG holds 276 companies.
The annual volatility rate of VOO is 13.13% or 3.79% monthly. This is a fair figure that is in line with the volatility of the domestic US market in the recent past. Like the case with the fund, the large-cap companies are usually less volatile than small-cap stocks. This means that VOO is an excellent choice for investors who are searching for stability.
The annual volatility rate of VOOG is 12.89% or 3.72% monthly. This is slightly lower than VOO’s volatility. It’s quite reasonable when we consider the composition of VOOG. The long tail of the market is usually more volatile than companies with large capitalization. Therefore, investors who need a more stable portfolio may want to consider VOOG.
In most cases, VOO has heavier drawdowns as compared to VOOG. For instance, in 2011, 2012, and 2020, VOO shrank by 15 to 20%. However, VOOG still managed to minimize the overall loss and had the drawdown peaking at 13 to 16%. The difference was, therefore, more than 3%.
VOO Vs. VOOG: Composition Differences
One clear thing is that the Vanguard S&P 500 Growth ETF (VOOG) leans more on information technology stocks. This is because these are the stocks that are considered to have high growth and high volatility.
More than 30% of the VOOG assets are invested in the tech sector are as follows:
- Apple: 6.4%
- Microsoft: 5.6%
- Amazon: 4.8%
- Facebook: 2.3%
- Alphabet Inc A: 1.79%
- Alphabet Inc C: 1.76%
- Berkshire Hathaway Class B: 1.46%
- Johnson & Johnson: 1.33%
- Procter & Gamble: 1.26%
- NVIDIA Corp: 1.14%
This can be broken down according to the sector as follows:
- Information technology: 27.5%
- Healthcare: 14.1%
- Consumer discretionary: 11.06%
- Communication services: 11.1%
- Financial: 9.8%
On the other hand, the Vanguard S&P 500 Value Fund (VOO) is also titled towards the technology and finance sectors that are highly predictable and pay more dividends.
Nearly 25% of the fund’s total investment is in technology. This is followed by the healthcare and financial sectors at 15% and 13% respectively.
On top of that, these value funds have a higher percentage of energy, utility, industrial, material, and consumer items than the growth and the balanced funds. The top 10 VOOG holdings are:
- Apple: 10.6%
- Microsoft: 9.28%
- Amazon: 7.83%
- Facebook: 3.83%
- Alphabet: 2.93%
- Alphabet: 2.90%
- NVIDIA: 1.87%
- Visa Inc: 1.86%
- Mastercard: 1.54%
- Paypal: 1.32%
Therefore, VOOG leans more on the technology sector as compared to VOO. The tech stocks in VOOG comprise around a third of the total market capitalization of the fund. This means that it invests relatively little in other sectors.
But it also invests in communication, financial services, healthcare, and consumer cyclical. All these industries tend to make about 10% of VOOG.
VOO Vs. VOOG: Performance Differences
Since these two S&P 500 funds invest in different industries, there will be some performance differences. In the last 5 years, VOOG had a higher annual return than VOO (21.66% vs. 17.60%). Also, when it comes to the last 10 years, VOO had a higher annual return than VOOG (17.13% vs. 14.80%).
If you had invested $10,000 in VOO In 2010, at a compound growth rate of 12.09%, this would have resulted in $31,308.96, which is a fantastic return. That means in 10 years, you will have more than tripled your money.
On the other hand, if you invested $10,000 in VOOG 10 years ago, at a compound annual growth rate of 14.30%, this would have resulted in $38,059.43. This is definitely much better.
The VOO performance and returns are as follows:
- One-month return: 2.26%
- Three-month return: 8.39%
- One-year return: 40.97%
- Three-year return: 18.56%
- Five-year return: 17.60%
- Ten-year return: 14.80%
The performance and returns of VOOG are as follows:
- One-month return: 5.64%
- Three-month return: 11.83%
- One-year return: 41.46%
- Three-year return: 22.98%
- Five-year return: 21.66%
- Ten-year return: 17.13%
Why does VOOG perform better than VOO? This is due to the composition of the fund. The large-cap companies have performed exemplary well in the last decade, and tech giants like Apple, Amazon, and Google had very profitable years.
VOO has a higher dividend yield than VOOG (1.34% vs. 0.66%). When there is economic growth, VOOG tends to outperform VOO. A good example is in 2014, 2015, and 2017. There are only a few years when the contrary is true.
VOO Vs. VOOG: Fees
When it comes to the fees of VOOG, it is absolutely free, except for their yearly expense ratio of 0.10%. Similarly, VOO has no fees or other expenses but is subjected to an expense ratio of 0.03%.
On A Final Note, VOO Vs. VOOG – Which One Should You Choose?
There are several circumstances when VOO is a better investment option than VOOG. If you already have ample mid and small-capitalization funds in your portfolio, buying more would cause redundant holding. In such an instance, it would make more sense to invest in VOO. This is also a good investment option for investors with a low-risk appetite.
On the other hand, VOOG is a better choice for investors with a higher risk appetite. Fast growth but with increased risk. Your growth stock in VOOG may provide you better returns if the market is right.
Whether VOO or VOOG, it all depends on your preferences. Again, with the right due diligence and understanding, you will succeed, but of course, every investment has its own risk. It is always your choice which funds best suit your financial situation and investment needs. Do your own due diligence so that your projections for your positions are already risk-adjusted.
Get over your fear of the stock market and start investing!
Marjolein is a financial consultant who has built over €4,000 monthly passive income and saves over 70% of her income. Read Radicals’ inspiring story, from stuck in the 9-to-5 to loving life. Feel free to send Radical a message at the bottom of this page