Would you like to invest in funds that are not only low-cost but also low maintenance? Then let’s look at two index fund options VT vs. VTI, and find out which one fits your situation.
VT and VTI are index funds. Unlike mutual funds that require active management, index funds are passively managed funds intended to automatically match a market index, for instance, the S&P 500.
Both VT and VTI are low-cost index funds offered by the Vanguard Group. While both are Exchange-Traded Funds (ETFs) that are pretty similar in various aspects, there are differences between the two. Their working and pricing are somewhat similar, but their composition varies.
There are multiple options for investing in ETFs. And the more you know, the better you can decide which option matches best with your investment goals. This article explores the various features of VT and VTI index funds and compares their composition and performance.
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VT: Vanguard Total World Stock Index Fund ETF
VT is an ETF offered by Vanguard, also called Vanguard Total World Stock Index Fund. This market cap-oriented index fund comprises the global stock market.
VT tracks the FTSE Global All Cap Index and constitutes both US-based and international companies. The FTSE Global All Cap Index is considered to cater to developing and established markets.
As the broadest index fund, VT holds around 8,500 stocks in almost every public company across all sectors, different market capitalization sizes, and countries.
The expense ratio of VT is at 0.07%. No initial investment is required.
Due to its composition, the performance of a particularly high-performing company, Apple, for instance, will not have much impact on your fund’s value. However, if foreign companies that are part of the fund, e.g., Nestle, perform well, your investment will benefit.
If you are not particular about investing in a specific location, you can invest in VT and wait to enjoy your gains. As long as the world economy flourishes, you are sitting on potential long-term gains since VT has almost every public company globally.
VTI: Vanguard Total Stock Market Index Fund ETF
VTI is an index fund also called Vanguard Total Stock Market. It tracks the underlying index CRSP US Total Market Index Fund and only includes US-based public companies.
VTI holds around 3,535 stocks in all the companies in the market, implying that VTI has all sectors, small-cap, mid-cap, and large-cap companies within the US.
VTI is a market-cap-weighted fund. Its expense ratio is 0.03%, making it a low-expense index fund. It also does not require a minimum initial investment.
If you are looking for different asset classes that have low management fees and pay dividends, VTI may be for you. The diversification and allocation of the underlying funds with over 3,500 stocks are quite favorable.
VT Vs. VTI: Key Differences
Both VT and VTI are market-cap-weighted index funds offered by Vanguard.
Now that we have an idea about the basic aspects of the two index funds, here is a brief round-up of the differences between them:
- VT tracks the FTSE Global All Cap Index, while VTI tracks the CRSP US Total Market Index Fund.
- The expense ratio for VT is 0.07%, and for VTI, it is 0.03%.
- VT has stocks in both US-based and international companies, while VTI has stocks in US-based markets only.
- The total number of stocks for VT is around 8,500, and for VTI, it is about 3,535 and does not have any international stocks.
- VT is much more diversified than VTI as it has stocks in almost every public company across all sectors. Plus, with VT, you invest in both emerging and developed markets. In contrast, VTI is concentrated in the US market.
We can see from the above points that while VT is more diverse, VTI has a lower expense ratio. VT caters to the global stock market, and VTI primarily caters to the US market.
Owing to these significant differences, we cannot consider one fund as a replacement for the other.
Next, we will talk about the differences in the composition and past performance of the two funds.
VT Vs. VTI: Composition Differences
The composition of the two funds is their major point of difference. VT invests in more than 8,500 different public companies across the world. On the other hand, VTI has over 3,500 stocks only in United States-based public companies.
In terms of composition, the top ten holdings for VTI comprise about 22.9% of its total holdings. VTI has around 99.91% of its companies in the US, whereas only 0.09% are in Canada.
On the other hand, VT’s top ten holdings constitute around 13.4% of its total assets. In its roster, VT has 57.08% US companies, 7.23% Japanese companies, almost 4.1% UK companies, and 2.69% French companies. Additionally, nearly 10.1% of its stocks are based in emerging markets.
Here are the top 10 countries for VT:
VT top ten holdings, which are about 13.4% of its total holding:
|Alphabet, Inc. (Class A)||1.11%|
|Alphabet, Inc. (Class C)||1.02%|
|Berkshire Hathaway Inc. (Class B)||0.69%|
|Meta Platforms Inc. (Class A)||0.68%|
|UnitedHealth Group Inc. (UNH)||0.63%|
VTI top ten holdings, which are about 22.9% of its total holding:
|Alphabet Inc. (Class A)||1.82%|
|Alphabet Inc. (Class C)||1.63%|
|Berkshire Hathaway Inc.||1.30%|
|Meta Platforms, Inc.||1.12%|
|UnitedHealth Group Inc.||1.05%|
VT Vs. VTI: Fees
You, as an investor, also need to take into account the management costs that the fund charges.
Expense ratio refers to the fee that investors are charged by a mutual fund or an ETF. If the expense ratio is low, the charges you have to pay will also be lower.
Taking a look at VT and VTI’s expense ratios, we can see that VT is at 0.07% while VTI is at 0.03%. That means having a VT index fund costs more than a VTI.
VT vs. VTI: Performance Differences
If we look at the performance of American and international stocks historically, even before the inception of VT and VTI, we will find that they have taken turns outperforming each other during the past 50-odd years.
While US public companies have mostly stayed at the top, international public companies haven’t been far behind.
Since VT has a wider portfolio, it is much less volatile than VTI. It implies that one company’s performance will have a lesser impact on VT than it would have on VTI. Another aspect is that VT portfolios experience a higher risk-adjusted return than VTI.
Let’s have a look at a five-year performance comparison of VT and VTI.
VT Performance & Returns:
VTI Performance & Returns:
Here’s a comparison of VT and VTI’s annual total return for the past 10 years:
From these tables, we can see that while VT is more diverse than VTI, its performance has been lower than that of VTI.
The fact that VTI has been excelling in terms of performance during the past five years also shows that US companies have been doing better than global companies in recent years.
So, if you want to focus on investing in VTI, you may have to assess the US business landscape and the overall climate relative to the international market. However, we cannot ignore market volatility and the uncertainty of the future.
While the US market has been outperforming the global market in the past, we cannot say with certainty that the trend will continue in the future in the same manner.
VT Vs. VTI: Which Is Better?
Now, the most important question: where to invest?
There is no one definite answer to this. It mainly depends on your investment strategies and your current investment portfolio dynamics. If your current investment portfolio primarily leads to US holdings, but you want to have a more diversified portfolio with exposure to other countries, you may consider investing in VT.
On the other hand, if your existing portfolio has holdings from the international market and you want exposure to the US market, you can consider VTI for future investment.
Since there are no definite rules to the game, you can consider a combination of VT and VTI for your investment portfolio.
As a newbie in stock investment, it makes sense to invest where there is potential for your money to compound in value.
Frequently Asked Questions – VT vs. VTI
Is Vanguard VT A Good Investment?
The Vanguard VT is a good investment choice, particularly if you want to diversify your investment portfolio. It is low-cost, easy to maintain, and provides profits in the long term.
Is VT The Same As VTI?
VT and VTI, both index funds, are offered by Vanguard. However, VT has stocks in both US-based and international companies, while VTI has stocks in US-based markets.
Is VT Too Diversified?
VT has stocks from the entire global market, while VTI only caters to the US-based market. So, compared to VTI, VT is quite diversified.
VT Vs. VTI: Which ETF Should You Invest In?
Both VT and VTI are low-cost and passively managed, low-maintenance investments. As discussed in this article, they have their own selling points and limitations.
Before choosing between these two investment options, determine and take into account your investment objectives and financial goals.
But now, congratulations are in order. You have taken the first step to your financial empowerment by learning about these index funds. Knowledge is power!
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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