Is Duplicating Vanguard VTI and VOO ETFs Redundant for Investors?

Introduction

Vanguard Total Stock Market ETF (VTI) and Vanguard SP 500 ETF (VOO) are popular choices among investors. Understanding whether holding both of these ETFs is redundant or beneficial can help you make an informed decision based on your investment goals.

Similarities Between VTI and VOO

Overlap in Holdings: Both VTI and VOO track major parts of the U.S. stock market. VOO tracks the SP 500, which includes the top 500 U.S. companies, while VTI covers the entire U.S. stock market, including small-, mid-, and large-cap stocks. Since a significant portion of the SP 500 companies are also included in the U.S. stock market, there is considerable overlap in their holdings.

Market Exposure: Both ETFs provide exposure to U.S. equities, which means that investing in both may not significantly diversify your portfolio. They are highly correlated, meaning they often move in similar directions, which can lead to a less diversified risk profile.

Differences Between VTI and VOO

Broader Exposure: VTI offers a broader exposure to the U.S. stock market by including small- and mid-cap stocks, which VOO does not cover. This can be advantageous during specific market conditions where small-cap stocks may outperform large-cap stocks in the SP 500.

Performance: Historically, small-cap stocks included in VTI have had different performance metrics compared to large-cap stocks in VOO. For example, during periods of economic recovery or growth, small-cap stocks might perform better, whereas during market downturns, large-cap stocks might outperform.

Conclusion

If your goal is to achieve broad exposure to the entire U.S. stock market, VTI alone may be sufficient.

If you specifically want to focus on large-cap stocks, VOO is a better choice.

If you want to balance your portfolio with both large-cap and small-to-mid-cap exposure, holding both can make sense. However, it's important to be aware of the redundancy and the correlation between the two ETFs.

Redundant or Not?

Many investors find that holding both VTI and VOO can be redundant. This is because these ETFs offer similar and often highly correlated performance. Therefore, it's common for people to eventually streamline their portfolios by removing VOO in favor of VTI, as VTI may offer slightly better performance in some cases.

Final Thoughts

Your decision to hold both VTI and VOO should align with your risk tolerance, investment strategy, and diversification goals. Always monitor the performance and adjust your portfolio as needed to optimize your returns and mitigate risks.