Mutual funds, index funds, and exchange traded funds should be a staple for any serious investor’s portfolio. Both are safer investments than any individual stock and can offer diversification. You can spend hours or days sifting through hundreds if not thousands of different funds. Or, you can go with two tried and true funds.
There’s no doubt that Vanguard offers some of the most popular mutual funds and ETFs out there. One of these options is VTI (Vanguard Total Stock Market Index ETF).
Many funds aim to track specific indexes. An example here is SPY, which aims to track the S&P500 market index.
Both VTI vs SPY are excellent funds to have as part of your investment portfolio, but which is better to invest more in or to start investing with. Below, we’ll go through a comparison of each fund.
VTI vs SPY: Issuer
When it comes to VTI vs SPY from an issuer standpoint, you’re dealing with two very large firms. VTI is issued by Vanguard, the largest issuer of mutual funds in the world. They are also the second-largest issuer of ETFs. Needless to say, you don’t get to be that large without knowing what you’re doing.
State Street Global Advisors is the creator of SPY (SPDR® S&P 500® ETF Trust), and has over 4.1 trillion in managed assets as of December 2021.
Either issue is a large player in the issuing of mutual funds and exchange-traded funds and neither is going anywhere, anytime soon.
VTI vs SPY: Underlying Index Followed
VTI looks to track the CRSP US Total Market Index. What this means is that it will tend to track the market as a whole. As the market rises and falls, so will VTI. Typically, tracking the market as a whole means a fund will have thousands of different stocks that are of different cap sizes (small cap stocks, midcap, and large cap) and in several different sectors. These stocks will also tend to be spread across several growth and value styles as well.
As mentioned early, SPY aims to track the S&P500 market index. The S&P 500 aims to track the 500 leading publicly traded US companies. Market cap is the primary criterion for a company to be included in the S&P 500 index fund, but it is not the only criterion.
Investing in the top 500 companies in the U.S. will mean mostly large-cap stocks. However, there could be a few mid-cap and small-cap investments as well.
Both funds will have many stocks, however, since VTI aims to track the market as a whole, not just the top 500 as with SPY, it holds over 4000 stocks. With more stocks in the fund, it could be less subject to overall market volatility.
VTI vs SPY: Expense Ratios
Expense ratios can be a vital piece of information when deciding what fund to invest in. Even a small difference can become thousands of dollars over the course of investing in a fund for 10 or 20 years.
Essentially, with managed funds, there are expenses that go along with it. These expenses could be salaries to pay analysts or portfolio managers, management fees, rent for office space, and many others. Many funds will pass some or all of these expenses on to you, the investor. The amount that will be passed to you is shown as the expense ratio.
While it might not seem like much on the surface, there is a difference in expense ratios when looking at VTI vs SPY. SPY has an expense ratio of about .09%. VTI has one of the lowest expense ratios you’ll find and a measly .03%. At only a .06% difference, you might not think much of it at first, but over the course of 10,20, or 30 years of investing, that .06% difference could add up to a lot of extra fees out of your pocket.
VTI vs SPY: Minimum Initial Investments
Minimum initial investments (MII) will vary per fund and firm. The minimum initial investment only applies the first time you invest in a fund. Many funds require anywhere from $100 – $5000 or more for your first investment. After that, you are free to invest any amount you wish on subsequent investments with the same fund.
VTI vs SPY from a minimum initial investment standpoint is relatively the same as both only require the purchase of one share As of writing this, SPY stands at about $389 per share while VTI is at roughly $195 a share.
VTI vs SPY: Net Assets and Holdings
When looking at actual assets under management, there is no comparison in VTI vs SPY. VTI holds over 250 Billion in assets compared to SPY’s 364 million. As for their top holdings, they have similar stocks in their top 10.VTI holds about 24% of its total asset in these stocks while SPY holds roughly 27% of its total assets.
VTI Top Holdings
SPY Top 10 Holdings
VTI vs SPY: Compositions
As mentioned earlier SPY aims to track the S&P 500 index, so it holds about 500 individual stocks overall. VTI aims to track the market as a whole and therefore holds over 4000 different individual stocks.
The more stocks a fund holds, the less volatile it typically is. As we’ve seen, the top 10 holds are similar, and both hold roughly a quarter of each fund’s total assets, so the difference in volatility for each might not be as much as you think, but still something to consider.
VTI vs SPY: Overall Performance
Of course, what most investors will put at the top of their criteria when determining which fund to invest in will be performance! See below for VTI vs SPY in overall performance.
VTI Overal Performance:
As you can see, each fund has very similar returns over the course of 1, 3, 5, and 10 years. They typically only differ by less than 1% in overall returns for each time frame.
VTI vs SPY: Which is better?
Before investing in any stock, mutual-fund, or anything else, it’s always a good idea to do your research. Whether it will be a short term investment or long term investment, you can never have too much information.
When making any investment, it comes down to what you are comfortable with and your investment strategy. The big factor in VTI vs SPY is not performance as neither will greatly outperform the other. For me, it comes down to the expense ratio.
It’s possible that either fund outperforms the other during any stretch of time. Which one is better would be anyone’s guess. However, the expense ratio is a known value and in this case, VTI comes out as a clear winner.
VTI vs SPY: Final Thoughts
VTI vs SPY is a close call no matter how you look at it. Both funds have issuers that are large asset managers in Vanguard and State Street Global Advisors. A diversified portfolio is always important. VTI is more diversified so the volatility could be less, but the overall performances don’t typically differ too much.
Where the real difference comes in is the expense ratio, with SPY’s being about triple that of VTI. That small amount might not seem like much, however, over 10, 20, or even 30 years of investing, that could mean tens of thousands of dollars, if not more.