Are you thinking of building up your investment portfolio? With all the investment products out there, which one suits you? Let’s check two popular ETFs – VUG vs. VOO, and check if they fit the bill for your strategy.
Investing is one of the better ways of building your wealth. It is a proven method if you ask any financial advisor or read through financial books available today. Whether you want to grow your bank account, save up for your retirement account, or increase your passive income streams, investing is a common practice for everyone.
With all the investment products out there, which one should you choose? What should you consider a safe and sound investment strategy for an entry-level investment or a seasoned and experienced investor?
Read through this article to compare VUG and VOO, see the differences, and see how they fit your needs. This can surely help as you navigate your way into the investment world today. Buckle up and get ready.
VUG Vs. VOO: An Overview
Exchange-Traded Funds (ETFs) can be a great way to diversify your investments, reduce downside risks, and benefit from capital appreciation. Vanguard funds are well-known low-cost ETFs. Two of their most popular funds In the US market are Vanguard Growth ETF (VUG) and Vanguard S&P 500 ETF (VOO).
VUG tracks the CRSP, the US large-cap growth index that focuses on the big and medium cap stocks with growth characteristics. The index uses 6 growth factors to choose stocks, like earnings per share (EPS) growth, return on assets, and sales per share.
VOO tracks the market capitalization-weighted index of the large and medium-capitalization stocks in the S&P 500. Both ETFs have a lot of similarities and differences. Let’s compare and contrast the two.
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VUG: Vanguard Growth ETF
As we have already seen, the VUG fund tracks the benchmark index’s performance that measures the returns of the large- and mid-cap growth stocks. Vanguard Growth ETF used an indexing investment method or passive management to track the performance of the MSCI US Prime Market Growth Index.
In 2013, the fund switched to the CRSP index that picks stocks depending on 6 growth factors. These are:
- Last three years growth of EPS
- The expected increase in the EPS
- Expected short term increase in EPS
- The last three years increase in growth per share
- Investment to assets ratio
- Return on assets
Fund managers try to copy the target index and invest all of their assets in the growth stocks of big companies. They hold each stock in a diversified index. For investors who are searching for growth, VUG can be a good option. It’s also perfect for those who need diversified exposure in the space. This is because it has a low expense ratio of 0.04%.
However, investors should be careful that the fund doesn’t overlap with many large- and mid-capitalization stocks in their portfolio. But the good thing is that Vanguard discloses holdings on a monthly basis.
VOO: Vanguard S&P 500 ETF
VOO Vanguard S&P 500 ETF tracks the Standard & Poor 500 index that assesses the performance of mid-and large-cap stocks. It uses an indexing investment method that keeps an eye on the S&P 500 Index, one of the well-known benchmarks in the United States stock market consisting of 12% mid-cap companies and 88% large-cap companies.
The advisors seek to copy the target index by investing all of their assets in the index’s stock. They hold all their stocks in almost an equal portion as the index weighting.
While VOO tracks very well, it follows the companies in the S&P 500.
However, it still offers great US coverage. While it’s not as timely as VUG in disclosing holdings, it’s very effective if you plan to reinvest the dividends that you earned previously.
VUG Vs. VOO: Key Differences
Both VUG and VOO ETFs trade in the US market. While VOO was launched on the 9th of July 2010, VUG made its debut on the 26th of January 2004.
The Vanguard Growth ETF (VUG) consists of over 250 stocks from companies with higher growth potential. Growth ETFs have a higher risk than S&P 500. But on the other hand, growth companies have better return potential than many of the established companies. With more than 250 stocks, they can help investors to diversify their portfolios and minimize their risk.
The S&P 500 consists of the 500 biggest companies that are publicly traded in the United States. Since the VOO tracks the S&P 500 index, which means that they trade for the exact similar stocks, it is very appealing for many investors. The fund has a lower risk than VUG because of its bigger portfolio. Since its inception, it has always recovered from market corrections, crashes, and downturns.
VUG Vs. VOO: Composition Differences
Since VUG only includes companies under the growth category, they have fewer stocks than VOO. On the other hand, VOO keeps track of the S&P 500 index. The index is mostly dominated by the stocks of the big companies in the US. The S&P consists of a mixture of value and large growth companies. This is why it consists of a big number of stocks.
The top 10 holdings of VUG are:
- Apple Inc: 11.03%
- Microsoft: 9.13%
- Amazon: 7.55%
- Facebook: 3.57%
- Tesla: 2.91%
- Alphabet (GOOGL): 2.67%
- Alphabet (GOOG): 2.67%
- Visa: 1.94%
- Mastercard: 1.72%
- NVIDIA: 1.67%
These top 10 holdings make up 45.01% of the total net assets of the fund. This is almost half of the fund index. If anything happens to these stocks, the returns on VUG will be greatly affected.
The top 10 holdings of VOO consist of:
- Apple Inc: 6.67%
- Microsoft: 5.28%
- Amazon: 4.36%
- Facebook: 2.06%
- Tesla: 1.68%
- Alphabet (GOOGL): 1.65%
- Alphabet (GOOG): 1.60%
- Berkshire Hathaway: 1.72%
- Johnson & Johnson: 1.30%
- JPMorgan Chase & Co.: 1.22%
These top 10 holdings consist of 27.21% of the total net assets of the fund. However, there are some overlapping counters between the two ETFs. Out of 257 companies that are in VUG, 180 are also in VOO. Therefore, there are only 77 companies that are unique to VUG.
VUG Vs. VOO: Performance Differences
VOO has a dividend yield of 1.57%, which is higher than that of VUG, with a dividend yield of 0.63%.
One of the reasons for the difference is the fact that VUG is made up of growth companies. These companies often spend a big part of their earnings on the growth of the company. Unlike the value companies that distribute most of their profits to shareholders.
If you invested $10,000 in January 2011, VUG would have given you a return of $46,694 as of Dec 2020. This is as compared to VUG that would have given you returns of $36,488. This means that VUG would have given you more returns by 27% over 10 years.
When it comes to the annual returns, 2018 is the only year when the two ETFs returned negative growth. VUG had returns of -3.31%, while VOO had returns of -4.5%.
Between 2011 and 2020, VUG delivered better returns in seven out of the nine positive years. VOO only outperformed VUG in 2011 and 2016.
In 2020, the returns of the two funds were as follows:
| One year | Five years | Ten years | |
| VUG | 40.22% | 20.32% | 16.66% |
| VOO | 18.29% | 15.18% | 13.82% |
Looking at past performance, the VUG Vanguard Growth ETF has better returns. You may get a 27% better performance in 10 years and a 40% better performance in 15 years The drawdowns of both ETFs are similar when there is a downturn.
Will VUG stocks continue with their upward trends in the future? There are high chances that it will. However, it’s important to remember that past performances aren’t a guarantee of future results.
VUG Vs. VOO: Fees
One of the reasons why Vanguard funds are popular is because of their low cost. This means that these two funds also have some of the lowest fees.
VUG has fees of 0.04%, while VOO has fees of 0.03%. In other words, when you invest $10,000, you will pay $4 and $3 respectively every year for the management fees.
VUG Vs. VOO: Which ETF Is Better?
The choice fund will depend on your investment goal. If your goal is to see growth in your portfolio, you should go for VUG. In the last 10 years, VUG delivered a better performance of 27%. In the last 15 years, it has delivered 40% better performance.
However, VUG isn’t as diversified as it’s heavily tilted towards tech companies that have the potential for greater returns. Therefore, it may be more volatile. Since half of the fund comprises the top 10 holdings, it will be highly impacted if anything should happen to these funds. Therefore, VOO offers a more diversified portfolio.
Also, if you would like to experience stability in your portfolio, you should go for VOO. If you want a diversified investment rather than a highly concentrated top 10 holdings, then you should go for VOO. Since it’s more diversified, it’s usually less volatile. If dividends are your goal, you should go for VOO, which has a higher dividend yield than VUG.
No matter where you choose to invest, ensure that you use a long-term approach. This is important as the stock market isn’t a get-rich-quick scheme. It takes time to get substantial returns.
Conclusion – VUG Vs. VOO
Now that you have learned about the finer points of VUG and VOO, it’s time to assess if these ETFs can work for you. Both offer their own unique sets of pros and cons. It all depends on what suits your current condition and financial capacity.
So know where you currently stand and check what goals you have set for yourself in life. Once you know and understand this can you make an informed and educated decision on which ETF suits your needs.
It is important to start your investment journey towards your goal of financial independence. It starts with understanding where you are now so you can choose your ETF wisely. Always remember that this is a marathon and not a sprint.
It takes a while for your investments to start to compound, so make the choice and start your investment journey now, and you will see results down the road.
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- VOO Vs. VOOG – Which One Should You Choose?
Founder of Spark Nomad, Radical FIRE, Journalist
Expertise: Personal finance and travel content
Education: Bachelor of Economics at Radboud University, Master in Finance at Radboud University, Minor in Economics at Chapman University.
Over 200 articles, essays, and short stories published across the web.
Experience: Marjolein Dilven is a journalist and founder of Radical FIRE, a personal finance platform, and Spark Nomad, a travel platform. Marjolein has a finance and economics background with a master’s in Finance. She has quit her job to travel the world, documenting her travels on Spark Nomad to help people plan their travels. Marjolein Dilven has written for publications like MSN, Associated Press, CNBC, Town News syndicate, and more.