The Vanguard Dividend Appreciation Index Fund ETF Shares (VIG) and the iShares TIPS Bond ETF (TIP) are both among the Top 100 ETFs. VIG is a Vanguard Large Blend fund and TIP is a iShares Inflation-Protected Bond fund. So, what’s the difference between VIG and TIP? And which fund is better?
The expense ratio of VIG is 0.13 percentage points lower than TIP’s (0.06% vs. 0.19%). VIG also has a high exposure to the industrials sector while TIP is mostly comprised of AAA bonds. Overall, VIG has provided higher returns than TIP over the past ten years.
In this article, we’ll compare VIG vs. TIP. We’ll look at holdings and industry exposure, as well as at their performance and fund composition. Moreover, I’ll also discuss VIG’s and TIP’s annual returns, portfolio growth, and risk metrics and examine how these affect their overall returns.
|Name||Vanguard Dividend Appreciation Index Fund ETF Shares||iShares TIPS Bond ETF|
|Category||Large Blend||Inflation-Protected Bond|
The Vanguard Dividend Appreciation Index Fund ETF Shares (VIG) is a Large Blend fund that is issued by Vanguard. It currently has 71.92B total assets under management and has yielded an average annual return of 13.35% over the past 10 years. The fund has a dividend yield of 1.56% with an expense ratio of 0.06%.
The iShares TIPS Bond ETF (TIP) is a Inflation-Protected Bond fund that is issued by iShares. It currently has 28.3B total assets under management and has yielded an average annual return of 4.07% over the past 10 years. The fund has a dividend yield of 1.87% with an expense ratio of 0.19%.
VIG’s dividend yield is 0.31% lower than that of TIP (1.56% vs. 1.87%). Also, VIG yielded on average 9.27% more per year over the past decade (13.35% vs. 4.07%). The expense ratio of VIG is 0.13 percentage points lower than TIP’s (0.06% vs. 0.19%).
FYI: The best way I've found to invest in ETFs is through M1 Finance. It's free and you even get an instant line of credit! Have a look here (link to M1 Finance).
|JPMorgan Chase & Co||3.8%|
|Johnson & Johnson||3.67%|
|Visa Inc Class A||3.22%|
|UnitedHealth Group Inc||3.22%|
|The Home Depot Inc||2.91%|
|Procter & Gamble Co||2.82%|
|Comcast Corp Class A||2.21%|
VIG’s Top Holdings are Microsoft Corp, JPMorgan Chase & Co, Johnson & Johnson, Walmart Inc, and Visa Inc Class A at 4.19%, 3.8%, 3.67%, 3.38%, and 3.22%.
UnitedHealth Group Inc (3.22%), The Home Depot Inc (2.91%), and Procter & Gamble Co (2.82%) have a slightly smaller but still significant weight. Comcast Corp Class A and Coca-Cola Co are also represented in the VIG’s holdings at 2.21% and 1.98%.
|TIP Bond Sectors||Weight|
TIP’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.31%, 0.69%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
The Vanguard Dividend Appreciation Index Fund ETF Shares (VIG) has a Alpha of 0.12 with a Sharpe Ratio of 1.01 and a Beta of 0.86. Its Standard Deviation is 12.25 while VIG’s Treynor Ratio is 14.33. Furthermore, the fund has a R-squared of 92.2 and a Mean Return of 1.09.
The iShares TIPS Bond ETF (TIP) has a Beta of 1.18 with a Sharpe Ratio of 0.62 and a Standard Deviation of 4.33. Its Treynor Ratio is 2.24 while TIP’s Mean Return is 0.28. Furthermore, the fund has a R-squared of 66.57 and a Alpha of -0.58.
VIG’s Mean Return is 0.81 points higher than that of TIP and its R-squared is 25.63 points higher. With a Standard Deviation of 12.25, VIG is slightly more volatile than TIP. The Alpha and Beta of VIG are 0.70 points higher and 0.32 points lower than TIP’s Alpha and Beta.
BTW: Uncorrelated crypto assets such as Bitcoin can serve as a hedge and mitigate risk. I've allocated around 5% of my portfolio to crypto assets through Coinbase - the simplest and cheapest broker I've found! Click here to read more (link to Coinbase).
VIG had its best year in 2019 with an annual return of 29.71%. VIG’s worst year over the past decade yielded -2.02% and occurred in 2018. In most years the Vanguard Dividend Appreciation Index Fund ETF Shares provided moderate returns such as in 2012, 2016, and 2010 where annual returns amounted to 11.61%, 11.84%, and 14.67% respectively.
The year 2011 was the strongest year for TIP, returning 13.4% on an annual basis. The poorest year for TIP in the last ten years was 2013, with a yield of -8.65%. Most years the iShares TIPS Bond ETF has given investors modest returns, such as in 2014, 2016, and 2010, when gains were 3.49%, 4.56%, and 6.1% respectively.
|Fund||Initial Balance||Final Balance||CAGR|
A $10,000 investment in VIG would have resulted in a final balance of $37,951. This is a profit of $27,951 over 11 years and amounts to a compound annual growth rate (CAGR) of 13.35%.
With a $10,000 investment in TIP, the end total would have been $15,229. This equates to a $5,229 profit over 11 years and a compound annual growth rate (CAGR) of 4.07%.
VIG’s CAGR is 9.27 percentage points higher than that of TIP and as a result, would have yielded $22,722 more on a $10,000 investment. Thus, VIG outperformed TIP by 9.27% annually.
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
3) If you are interested in crypto, check out Coinbase. I've started allocating a small amount of assets to the growing crypto space and Coinbase has just been a breeze to use. Once you register, make sure to also open an Coinbase Pro account to buy crypto at the lowest fees on the market (just 0.1%!).
To see all of my most up-to-date recommendations, check out the Recommended Tools section.