Vanguard’s Total Stock Market ETF (VTI) is one of the most popular ETFs on the market. It aims to emulate the performance of the entire U.S. stock market by tracking over 3,500 securities. In this VTI review, I will look at the fund in detail. Is VTI still worth it? How does VTI perform compared to similar funds?
VTI holds more than 3,500 securites with an expense ratio of just 0.03%. It is exposed largely to the technology, healthcare and financial services sectors and is made up by more than 75% of large-cap companies. VTI experienced its maximum drawdown of -50.84% in 2008 with an annual volatility of 15.04%. The ETF has a compound annual growth rate (CAGR) of 7.97%.
Introduction
This VTI review will tell you all you need to know about Vanguard’s most popular ETF. First, we will look at the key facts of the fund such as expense ratio, index, and holdings. Once those basics are dealt with we’ll dive deeper and look at VTI’s composition and industry exposure.
In the later parts of this review, we’ll analyze potential risks through volatility and maximum drawdown and conduct a portfolio backtest to monitor historical performance.
The third and final section of this review will deal similar ETFs and how they compare to VTI. So, let’s get started!
VTI Review: Overview
| VTI | |
| Name | Vanguard Total Stock Market ETF |
| Index | CRSP US Total Market Index |
| Expense Ratio | 0.03% |
| Minimum Investment | ~ $150 |
| Issuer | Vanguard |
| Structure | ETF |
| Holdings | 3,513 |
| Inception Date | 05/24/2001 |
Index
The CRSP US Total Market Index is tracked by the Vanguard Total Stock Market ETF (VTI). This index contains more than 3,000 U.S. companies and seeks to replicate market performance as a whole. The index has a market correlation of 1.00 which means it does quite a good job.
Expense Ratio
VTI has a 0.03 percent expense ratio. While it is true that ETFs usually have fees lower than mutual funds, none have fees lower than 0.03%. The industry still hovers around 0.28 percent somewhere.
For a $10,000 portfolio, you ‘d pay $3 in annual fees for being invested in VTI on the entire U.S. market.
Issuer
VTI is released by Vanguard. As mentioned above Vanguard offers excellent investment products for us retail investors in particular.
They were also established and built upon the (at the time) unique business philosophy of Jack Bogle to put customers first and do whatever they can to give them the best chance of success.
- Read: Why Vanguard Is The Best
Structure
VTI forms an ETF. This means that the fund’s shares are not commonly purchased and sold from and to the market but are traded among investors on exchanges.
ETFs do have several advantages and disadvantages but the pros outweigh the disadvantages. Mutual funds will allow you to buy fractional shares and set a fixed sum per month to auto-invest but are only available via Vanguard. ETFs like VTI, on the other hand, are tradable by most brokers, are more tax-efficient and typically have lower fees.
Other Facts
The minimum VTI investment is simply the price of one share-at present around $150. VTI currently owns 3,513 securities and launched the fund in 2001.
VTI Review: Fund Composition
Now, we are going to review how VTI is being composed. The stock market capitalization reflects the ratios between big-, mid-, small-cap firms and the exposure to the industry would give us an idea of the weight of various sectors.
Equity Market Capitalization
Large-cap companies make up 76.1 percent of the fund market cap. Mid-cap firms make up 17.5 percent and small-cap stocks make up the remaining 6.4 percent. It closely reflects the structure and distribution of US financial markets as a whole.
Large corporations dominant the fund and the entire U.S. market. Even though more than 3,500 companies are included in VTI – a majority of them small-cap – they all together only make up 6.5%!
Industry Exposure
The technology industry accounts for more than 20 percent of each fund’s exposure, followed somewhere between 13-15 percent by health and financial services. At the low end, combined energy companies, basic materials, and utilities make up only about 6-7 percent.
Not only does the above chart depict the imbalances between industries that VTI is exposed to, it rather clearly also shows how the entire U.S. economy has shifted to the technology sector.
VTI Review: Analysis
We’ll look at some risk indicators like volatility and overall drawdown in the following section. Obviously, due to the similarity of VTI with the domestic market as a whole, the numbers will resemble those of the US stock market as a whole.
| Metric | VTI |
| Volatility (monthly) | 4.34% |
| Volatility (annualized) | 15.04% |
| Downside Deviation (monthly) | 3.00% |
| Max. Drawdown | -50.84% |
| US Market Correlation | 1 |
Volatility
VTI has 15.04 percent volatility per year. It makes VTI as competitive as the market at large. Since VTI encapsulates the performance of the domestic market it will experience similar volatility levels.
VTI is a proprietary fund and priced differently from a mutual fund. Its price fluctuates all day long because shares are purchased on an exchange sold by investors. However, the mutual funds are only purchased and sold at a closing price once a day.
Drawdown
Next, we ‘re going to look at the drawdowns VTI has experienced from 2002 through today. By far the largest drawdown happened when the financial crisis was in full bloom in 2008/2009.
VTI experienced a maximum drawdown of 50.84% in the market crash of 2008/2009. This was the highest drawdown either fund has ever lived through in its history.
And unsurprisingly – just like the U.S. market as a whole – VTI dealt with the drawdown and recovered after. If you were to superimpose a line graph of the Dow Jones Industrial Average you could not make out any differences.
VTI Review: Performance
In the next section of this VTI Analysis we will look at the output of the fund and model a $10,000 portfolio growth over an 18-year time span. The annual returns will give us some indication of which years and stock market cycles have been of particular benefit to VTI.
Annual Returns
VTI’s strongest years with returns of 25%+ were 2003, 2009, 2013, and 2019. Unsurprisingly, its worst year was 2008. However, also 2002 was a year substantially negative returns up to -20%.
Overall, the graph above illustrates the sustained bull market we have experienced over the past decade. Returns in general have been far above the historical average for a while now. Perhaps this trend will continue or the stock market and VTI will fall back to their historical averages of 7.5% p.a.
Portfolio Growth
| Portfolio | Initial Balance | Final Balance | CAGR |
| VTI | $10,000 | $41,078 | 7.97% |
An investment of $10,000 in VTI would have contributed to $41,078 with an annual compound growth rate (CAGR) of 7.97%. This represents more or less the average return of the entire market, and includes all reinvested dividends. That’s around $800 a year, you can get on a portfolio of $10,000 committed to VTI.
VTI vs. Other Funds
In this final section, we’ll briefly compare VTI to the most popular competitors out there and review the differences. I will link the corresponding full article I wrote of each comparison at the end of each section.
VTI vs. ITOT
Both funds have an expense ratio of 0.03%. VTI has more than $135B assets under management, compared to ITOT’s $23.7B. In terms of holdings, ITOT holds about 100 more securities than VTI. Overall, however, VTI yields higher returns with a compound annual growth rate (CAGR) of 8.15% vs. 7.98% for ITOT.
The only significant difference between VTI and ITOT lies in the number, composition, and exposure of the holdings. And somewhat interestingly, these disparities – plus the tax-efficiency of VTI – actually affect performance in such a way that VTI gets out $800 ahead of ITOT.
If the two of you are undecided, pick VTI. VTI has traditionally outperformed the ITOT. You’ll also be part of a company that works for clients and builds on the legacy of Jack Bogle.
On the other hand, if you are already investing in ITOT, you don’t need to make the switch to VTI for the short term. However, if you invest for the long term, you might want to consider moving your assets slowly into Vanguard funds. There is a reason that for the past 12 years they have been the most successful asset management firm.
VTI vs. SCHB
VTI and SCHB are the same, in terms of performance. Both VTI and SCHB have the very same amount of costs and charges. VTI may be considered the better choice because it is issued by Vanguard, a company formed with a specific ownership structure that makes each investor a shareholder. Besides, both ETFs offer a solid investment option.
Both funds seem to perform about the same thing, these ETFs have more similarities than differences! How to pick one over the other?
The only real difference is the company which is behind the ETF. With my retirement path and my financial freedom, I have chosen to “trust” Vanguard. And I put “faith” in quotation marks because trust is not in fact involved. You are a real shareholder within the company as investors in a Vanguard fund.
Therefore the disparity between these two funds in company theory may be the only true differentiating factor. Perhaps, in the end, it’s all down to which fund you’ve got access to!
VTI vs. VOO
In terms of total returns with an annual compound growth rate ( CAGR) of 11.65% vs. 11.18%, VOO is better than VTI. VTI does hold a much larger number of securities, however. The funds, VOO and VTI have a 0.03 percent cost ratio.
Starting with a comparison of the differences in key facts and composition, on a more detailed level we have seen how VOO and VTI differ.
The composition of VOO does not involve any small-cap firms and is heavily biased towards large-cap inventories. Among its holdings, VTI contains some more real estate and protective consumer goods. VOO is less volatile than VTI, and has fewer drawdowns. And all of this, in the end, created a difference in results of over $1,000 over 8 years.
So, which of the two funds really is better? VOO or VTI? Okay, looking at the results the solution appears to be obvious: VOO.
Nonetheless, I want to put forward a case for the additional diversification that VTI offers in small-cap firms. I assume that in more arduous economic times, small-cap companies will play a vital role, more so than we have seen over the past few years.
VTI vs. SPY
Vanguard Total Stock Market ETF or SPDR S&P 500 ETF Trust (VTI vs SPY). All of these ETFs tend to deliver sustainable growth in the long term, which will give your portfolio a strong heart. So, I’ve done some work to find out which of these ETFs is the best investment.
The simple takeaway from that comparison should be: either!
And because all of your investment decisions will be focused on a long-term growth strategy any of these funds would be a good long-term addition to your portfolio.
Personally, for its exposure to small market cap companies, I prefer VTI, which can boost growth in strong bull markets. That, though, is just a personal preference. This preference indicates a slight edge over SPY judging from the return of the last 18 years.
Always bear in mind that historical performance doesn’t guarantee future successes as well as the fact that we didn’t compare returns before 2002 due to the younger start date of VTI.
VTI vs. VXUS
The biggest difference between VXUS and VTI is that of their goal. VXUS is an ETF that offers investors broad exposure to global capital markets, while VTI focuses solely on U.S. capital. VXUS has a higher spending ratio of 0.08% compared to 0.03% of VTI. VTI has consistently yielded considerably higher returns in terms of results with an average compound growth rate of 13.04 percent compared to VXUS at 4.72 percent.
As we have shown, their target locale is the principal disparity between VXUS and VTI. Simply comparing the individual funds without taking global economic growth into account remains difficult.
Nonetheless, both the metrics of the funds and the economic dimensions give VTI a major advantage. The fund itself has less expenses, obviously. In top of that, over the past few years, the US economy has improved and expanded well beyond the typical European or Asian economy.
Considering VXUS ‘meandering success I still feel it is wise to devote some percentage of funds to international exposure. After all, the U.S. economy has become a global economy and is so interconnected with Europe, Asia , and South America that it really no longer makes sense to have an independent economy.
In addition, future trends may vary from those of the past 10 years, and markets in Europe or Asia may return stronger than ever before. In any case, getting ready for any number of potential situations seems prudent.
As creditors, by diversification, we can hedge those risks. Nonetheless, your personal decision remains whether you eventually assign 10, 15, or 20 percent to foreign markets.
VTI vs. VTSAX
VTI is marginally better than VTSAX, in terms of overall efficiency. VTI has a 7.97 percent compound annual growth rate ( CAGR) compared to VTSAX’s 7.95 percent growth rate. The cost ratio for VTSAX is also 0.01 percent higher than for VTI. The only distinction other than that is that VTSAX is a mutual fund and VTI is an exchange-traded fund. But both funds are practically similar in terms of composition.
There are marginal differences between VTSAX and VTI; VTSAX is a mutual fund which acts as an index while VTI is an ETF. VTSAX charges 0.04 per cent marginally higher fees compared to 0.03 per cent of VTI. Both funds are similar, in terms of composition.
But there’s one important distinction: In the long term, VTI outperforms VTSAX. This is largely due to the lower VTI charges and the improved tax-efficiency that ETFs have over the. VTSAX vs. VTI – which is better? The solution seems pretty easy in light of that. VTI is.
VTI vs. VIG
VTI has a lower cost ratio of 0.03% vs. 0.06% than VIG. VIG is also less diversified than VTI, which only holds about 200 securities while VTI holds over 3,000. The overall output of both funds was very similar: VTI has a compound annual growth rate ( CAGR) of 8.64% over the past decade and VIG has a CAGR of 8.51%. Therefore, VTI has traditionally yielded marginally higher returns than VIG.
VTI and VIG are, conclusively, two Vanguard ETFs of quality that clearly have different objectives. The bigger question remains: should it invest in dividend stocks or in stocks for growth?
As yet another type of fixed income, dividend funds such as VIG will make sense. However, dividend funds typically tend to do worse in bull markets and in rising interest rate settings. On the other hand, VIG will secure your bear market portfolio.
Overall, VTI remains my personal choice. You literally can not overcome a lower cost ratio of greater diversification.
Read: VTI vs. VIG – Which Vanguard ETF Is Better?
VTI vs. QQQ
QQQ has outperformed VTI with a compound annual growth rate ( CAGR) of 11.71 per cent over the past two decades. VTI ‘just’ yielded 8.36 percent over the same timeframe. However, VTI did actually perform better than QQQ between 2002 and 2008. VTI has a much lower spending ratio of 0.03% vs. 0.20% than QQQ. VTI is also much more diverse than QQQ which holds more than 3,500 U.S. securities.
VTI and QQQ, in essence, are two very different funds with different targets. VTI aims to watch the overall market while QQ aims to pick up mega-cap tech stocks to outperform the sector.
And for QQQ, this approach has been successful: tech stocks have far outperformed overall market returns over the past decade and beyond.
The question is, is QQQ really the best fund to open yourself to the technology sector? Certainly there are other funds that get the job done at much lower rates. VGT is an excellent alternative which forms part of the Vanguard Group and charges far lower than QQQ.
Ultimately, maybe QQQ or VGT is a nice addition to your portfolio. But I still believe that a broad-based exchange-traded fund like VTI is a more stable framework for a long-term portfolio.
Conclusion
Vanguard’s Total Stock Market ETF is still one of the best in the business. The sheer number of holdings at such a low expense ratio is an undeniably good value proposition.
Furthermore, it is to be expected that Vanguard will lower fees in the future once it becomes feasible. They just recently did so for some Bond ETFs and mutual funds in early 2020, lowering the respective fees from 0.04% to 0.035%.
Investing in VTI is just like investing in the entire U.S. economy. While there are other options available to do so (ITOT, SCHB, etc.) few of them reach the same level of security, holdings, and tax efficiency that VTI does.
In my humble opinion, VTI should be a cornerstone of every well-designed financial freedom ETF portfolio.
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