VT vs VTI: Which total market exchange-traded fund is better? - Physician on FIRE (2024)

Are you looking for a total-market ETF to invest in? If so, you likely came across VT and VTI.

VT and VTI are two ETFs offered by Vanguard, and they are highly accessible, easy to invest in, and inexpensive compared to many other ETFs on the market.

The key question you must ask yourself when deciding between VT and VTI is: Do you want international market exposure, or do you want to remain domestic?

In this article, we will compare VOO and VTI, and you will understand the differences in diversification, expense ratios, performance, and the implications of investing internationally.

What is VT?

The Vanguard Total World Stock ETF or VT is an exchange-traded fund offered by Vanguard. VT tracks the performance of the FTSE Global All-Cap Index.

The FTSE Global All Cap Index is designed to provide coverage of the US stock market as well as the international stock market. The index covers both well-established markets and still-developing markets.

What is VTI?

The Vanguard Total Stock Market ETF, or VTI, is an exchange-traded fund offered by Vanguard. It is an index ETF that tracks the performance of the CRSP US Total Market Index, which is designed to cover 100% of the US stock market. As a result, the fund invests in small, medium, and large-capitalization companies and holds over 3,500 stocks.

VTI has a mutual fund alternative, VTSAX. If you are looking for a similar investment opportunity in a mutual fund form, VTSAX is the perfect option.

VTI vs. VT Summary

Diversification – VTI (less risky)

VT and VTI are two total stock market index funds. VT is more broad and covers developed and emerging markets. VTI, on the other hand, is designed to cover 100% of the US stock market.

VT tracks the performance of the FTSE Global All-Cap Index and the CRSP US Total Market Index. Understanding the differences between these indexes is important to understanding their diversification strategies.

• The CRSP US Total Market Index is intended to cover 100% of the US stock market and invest in over 3,500 stocks across small, mid, and large capitalization companies.
• The FTSE Global All-Cap Index is designed to include small, medium, and large market capitalization companies globally. It covers developed and emerging markets. Overall, the index typically holds approximately 60% of the US stock market and the remaining 40% in international stocks.

Below is the portfolio breakdown by sector for VTI and VT as of February 2024. Remember that these portfolios are not fixed and will change according to each ETF’s rebalancing schedule.

The table above shows that VTI and VT have very similar portfolio compositions by industry. Every industry in the portfolio is within 3% outside of information technology, which is the largest industry. The top three industries are the same; for VTI, they account for 55%, while VT’s top 3 industries account for 50%.

By industry, these ETFs are very similar and would have very little difference on your investment.

Likewise, we can look at each fund’s top 10 holdings to see how they differ.

From the table above, we can see the top 10 holdings within each ETF. VT and VTI hold 9 of the same top 10 holdings. Overall, VTI is slightly more concentrated than VT, with 27% of the portfolio held in the top 10 holdings. VT, on the other hand, only holds 17% of assets in the top 10 holdings.

VT and VTI have very similar diversification. Overall, the biggest difference between these two ETFs is that VTI only holds domestic stocks, which makes it less risky than VT. VT is a global fund that holds approximately 40% of international stock, including in developed and emerging markets. Since VT invests globally in stocks of all sizes, it is significantly more risky than VTI.

Minimum Investment – Tie

Both VT and VTI require a minimum investment of $1.00. Since these are both ETFs, they can be traded on fractional shares, allowing for even the smallest investment. In addition, since they are both offered by Vanguard, if you already have a brokerage account for Vanguard, you can easily invest in either ETF.

Expense Ratio – VTI

VTI and VT are offered by Vanguard, which is known for having some of the lowest expense ratios in the industry. VTI has an expense ratio of 0.03% compared to an expense ratio of 0.08% for VT. Overall, VTI has a clear edge with an expense ratio that is more than 50% cheaper than VT.

Both of these ETFs offer some of the lowest expense ratios on the market, and you are unlikely to find a lower expense ratio offered by any other ETF. The Industry average ETF expense ratio is approximately 0.25%.

Trading and Liquidity – Tie

Since they are both ETFs, VTI and VT have the same trading and liquidity characteristics.

Investors can buy and sell ETFs throughout the day at any time during market hours. This is not the case with mutual funds, which are only traded at the end of the day based on Net Asset Value (NAV).

ETFs’ trading flexibility doesn’t come without drawbacks, though—they typically trade at prices slightly different from their NAV. This difference is called a bid-ask spread.

ETFs offer an advantage to investors who trade daily or change positions frequently. Since they can trade throughout the day, whereas mutual funds, you have to wait until the day is closed.

Tax Efficiency – Tie

When comparing two different investment options, it’s essential to consider the tax implications and not only the returns they generate. The tax implications of an investment can have a significant impact on which investment generates higher after-tax returns.

Generally, ETFs will have a slight edge from a tax efficiency perspective. ETFs tend to distribute comparatively fewer capital gains to shareholders – these same gains are simply more challenging to manage efficiently from a mutual fund.

Overall, VT and VTI are considered to have the same level of tax efficiency.

Tax Loss Harvesting – Tie

As ETFs, both VT and VTI have the same rules and regulations.

Tax-loss harvesting is a strategy that involves selling investments at a loss to offset gains (and up to $3,000 in ordinary income). Tax-loss harvesting only matters in taxable investment accounts since you aren’t taxed on capital gains in tax-deferred accounts.

While this strategy can be implemented using any type of investment (stocks, ETFs, mutual funds, or other property), mutual funds have an advantage because of how they are traded.

When you sell an ETF, you’ll have to wait for the funds to settle before reinvesting the proceeds. This wait, commonly referred to as T+2, may be one or two days before you have access to the funds.

If you prefer the tax-loss harvesting rules of a mutual fund, opting for a similar indexed mutual fund might be a better option.

Performance & Dividends – VOO slight advantage

The performance of an investment option is often one of the most critical aspects investors consider.

Both of these ETFs are designed to generate returns similar to those of the overall market. VTI is focused on the US stock market, while VT is focused on the global market.

The table below shows the total annual returns between VTI and VT.

The table above shows that VTI has outperformed in 8 out of 10 years from 2014 to 2023. On average, VTI outperformed VT by an average of 4.96%. VTI only outperformed in 2 years, from 2014 to 2023, by an average of 2.39%. Overall, VTI has a clear advantage when it comes to annual returns and consistent outperformance.

The table below will show the dividend yield for both ETFs.

The table shows that VT has an advantage in dividend yield. VT has outperformed VTI over the last 10 years, from 2014 to 2023, on average by 0.48%.

If you are trying to maximize annual returns, VTI is the better option, and on average, you can expect to earn approximately 5% more than VT. On the other hand, if the dividend yield is the top priority, VT has a slight advantage, but overall, VTI and VT are both great options since VT has only outperformed VTI by an average of 0.48% over the last ten years.

VTI vs VT: Where Should You Invest?

VTI and VT are two index exchange-traded funds that aim to track the overall market’s performance.

The key difference between these two ETFs is that VTI aims to track the performance of the overall US stock market. VT is a broader ETF that also invests in the international stock market, including developed and emerging markets.

VT holds over 9,000 stocks, while VTI holds approximately 3,500 stocks. That said, VTI is a bit more concentrated in the top 10 holdings but less risky. Since VT invests in the international market, it has a higher potential for growth but also more risk.

Since VTI and VT are both ETFs, they have the same trading and liquidity, tax-efficiency, and tax-loss harvesting rules. The key differences between them are expense ratio and performance.

VTI has an advantage with an expense ratio of 0.03% compared to 0.06% of VT. Another key difference is the performance in annual returns and dividend yield.

VTI has a clear advantage in annual returns; it has outperformed VT by an average of 5% in 8 of the last ten years. In terms of dividend yield, while VT has a slight advantage over VTI, the performance differences between these two have only been approximately 0.48%.

Overall, VTI has an advantage when it comes to expense ratio, annual returns, and similar performance when it comes to dividend yield. As a result, I would recommend that VTI is a better investment option.

The only exception is that VT is a better option if you want to diversify into the international market. It’s important to note that VT offers international exposure; international exposure has a higher growth potential and also has a higher risk.