As an investor, I am always on the lookout for the best investment options that can help me achieve my financial goals.
One such question that I have come across is whether to invest in VTI or VTIP.
Both are popular ETFs offered by Vanguard, but they have some key differences that investors should be aware of. VTI vs VTIP:
VTI is the Vanguard Total Stock Market ETF that tracks the performance of the entire US stock market. On the other hand, VTIP is the Vanguard Short-Term Inflation-Protected Securities ETF that invests in US Treasury Inflation-Protected Securities (TIPS) with maturities of less than five years. In simple terms, VTI is a stock ETF, while VTIP is a bond ETF that protects against inflation.
While both VTI and VTIP have their pros and cons, the decision to invest in either one depends on your investment goals, risk tolerance, and investment horizon.
In this article, I will compare VTI and VTIP based on their expense ratio, performance, holdings, and how well they match their benchmark performance.
By the end of this article, you will have a better understanding of which ETF is the better investment option for you.
Table of Contents
Disclaimer
Before I dive into the comparison between VTI and VTIP, I want to make one thing clear: I am not a financial advisor.
I am just a curious person who likes to research and share my findings with others.
The information presented in this article is for educational purposes only and should not be taken as investment advice. Please consult with a professional financial advisor before making any investment decisions.
Also, keep in mind that past performance is not a guarantee of future results.
Just because VTI has provided higher returns than VTIP over the past ten years, it doesn’t mean that it will continue to do so in the future.
There are many factors that can affect the performance of an investment, such as market conditions, economic trends, and political events.
Furthermore, investing always involves some degree of risk. There is no such thing as a risk-free investment.
Even bonds, which are generally considered less risky than stocks, carry some risk of default or inflation.
VTIP, for example, invests in inflation-protected securities, which can be affected by changes in interest rates and inflation expectations.
So, before you decide to invest in VTI or VTIP, make sure you understand the risks involved and the potential rewards.
Consider your investment goals, time horizon, and risk tolerance. Don’t invest more than you can afford to lose, and diversify your portfolio to reduce your overall risk exposure.
Comparison of VTI vs VTIP ETFs
Description of VTI vs VTIP ETFs
VTI and VTIP are both exchange-traded funds (ETFs) offered by Vanguard. VTI, or Vanguard Total Stock Market ETF, tracks the performance of the CRSP US Total Market Index, which includes stocks of all sizes from various sectors.
VTIP, or Vanguard Short-Term Inflation-Protected Securities ETF, tracks the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities 0-5 Year Index, which includes short-term Treasury bonds that are adjusted for inflation.
Comparison of the two ETFs based on performance, industry exposure, annual returns, fund composition, and other factors
When comparing VTI and VTIP, there are several factors to consider.
| Factor | VTI | VTIP |
|---|---|---|
| Performance | Tracks the performance of the CRSP US Total Market Index | Tracks the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities 0-5 Year Index |
| Industry Exposure | High exposure to the technology sector | Mostly comprised of AAA bonds |
| Annual Returns | Higher returns than VTIP over the past ten years | N/A |
| Fund Composition | Includes stocks of all sizes from various sectors | Includes short-term Treasury bonds that are adjusted for inflation |
| Expense Ratio | 0.02 percentage points lower than VTIP’s (0.03% vs. 0.05%) | N/A |
Overall, VTI has provided higher returns than VTIP over the past ten years.
However, VTIP is mostly comprised of AAA bonds, making it a more conservative investment option.
VTI, on the other hand, has a high exposure to the technology sector, which may be more volatile but also has the potential for higher returns.
When considering which ETF to invest in, it’s important to consider your investment goals, risk tolerance, and overall investment strategy.
Both VTI and VTIP have their own unique advantages and disadvantages, and the best choice for you will depend on your individual circumstances.
Suitability of VTI and VTIP ETFs
Discussion of the suitability of VTI and VTIP ETFs for different types of investors
When it comes to investing in ETFs, it’s important to consider your individual investment goals and risk tolerance.
VTI and VTIP are two popular ETFs that offer exposure to different asset classes. VTI is a broad market ETF that provides exposure to U.S. equities, while VTIP is a short-term inflation-protected bond ETF.
For investors who are looking for long-term growth and are comfortable with the volatility of the stock market, VTI may be a suitable option.
On the other hand, investors who are looking for a low-risk investment that provides protection against inflation may find VTIP to be a better fit.
It’s also important to consider your investment horizon when choosing between VTI and VTIP.
If you have a long-term investment horizon, VTI may be a better option since it has historically provided higher returns than VTIP.
However, if you have a shorter investment horizon, VTIP may be a better choice since it is less volatile than VTI.
Explanation of the importance of considering individual investment goals and risk tolerance
When it comes to investing, there is no one-size-fits-all approach.
It’s important to consider your individual investment goals and risk tolerance before making any investment decisions.
Your investment goals will determine the types of investments that are suitable for you, while your risk tolerance will determine how much risk you are willing to take on.
Investing in VTI and VTIP can help you achieve your investment goals, but it’s important to understand the risks associated with each ETF. VTI is a stock ETF, which means that it is more volatile than bond ETFs like VTIP.
This means that VTI is more suitable for investors who are comfortable with taking on more risk in exchange for higher potential returns.
On the other hand, VTIP is a bond ETF that is designed to provide protection against inflation. While it is less volatile than VTI, it also has lower potential returns.
This makes it more suitable for investors who are looking for a low-risk investment that provides protection against inflation.
VTI vs VTIP Comparison Table
| ETF | Asset Class | Expense Ratio | Yield |
|---|---|---|---|
| VTI | U.S. Equities | 0.03% | 1.29% |
| VTIP | Inflation-Protected Bonds | 0.05% | 0.51% |
The table above provides a quick comparison of VTI and VTIP, including their asset class, expense ratio, and yield.
It’s important to consider these factors when choosing between VTI and VTIP, as they can have a significant impact on your investment returns.
Fund Composition
When it comes to investing in ETFs, it’s important to understand the composition of the funds you’re considering.
In this section, I’ll provide an overview of the holdings of VTI and VTIP, as well as an analysis of the top holdings of each ETF and their weightage.
Overview of the holdings of VTI and VTIP
VTI, or the Vanguard Total Stock Market ETF, is designed to track the performance of the CRSP US Total Market Index.
This index includes over 3,500 stocks, representing nearly 100% of the investable U.S. equity market.
VTIP, on the other hand, is the Vanguard Short-Term Inflation-Protected Securities ETF, which seeks to track the performance of the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index. This index includes TIPS with maturities of 0-5 years.
As you can see, VTI is primarily invested in U.S. equities, while VTIP is invested in TIPS. This means that VTI is more exposed to the stock market, while VTIP is more focused on protecting against inflation.
Analysis of the top holdings of each ETF and their weightage
When looking at the top holdings of VTI, we can see that the ETF is heavily invested in the technology sector. As of March 31, 2023, the top 10 holdings of VTI are:
| Company | Weightage |
|---|---|
| Apple Inc. | 6.95% |
| Microsoft Corporation | 6.64% |
| Amazon.com Inc. | 4.44% |
| Facebook Inc. Class A | 2.52% |
| Alphabet Inc. Class A | 2.46% |
| Alphabet Inc. Class C | 2.42% |
| Berkshire Hathaway Inc. Class B | 1.79% |
| Johnson & Johnson | 1.62% |
| NVIDIA Corporation | 1.61% |
| Procter & Gamble Company | 1.40% |
On the other hand, the top holdings of VTIP are primarily U.S. Treasury securities. As of March 31, 2023, the top 10 holdings of VTIP are:
| Security | Weightage |
|---|---|
| United States Treasury Note/Bond 0.125% due 1/31/2023 | 0.86% |
| United States Treasury Note/Bond 0.125% due 12/31/2022 | 0.85% |
| United States Treasury Note/Bond 0.125% due 11/30/2022 | 0.85% |
| United States Treasury Note/Bond 0.125% due 10/31/2022 | 0.85% |
| United States Treasury Note/Bond 0.125% due 9/30/2022 | 0.85% |
| United States Treasury Note/Bond 0.125% due 8/31/2022 | 0.85% |
| United States Treasury |
Industry Exposure
Overview of the industry exposure of VTI and VTIP
When it comes to industry exposure, VTI and VTIP have some notable differences.
VTI is an ETF that tracks the performance of the entire U.S. stock market, while VTIP is an ETF that invests in short-term inflation-protected securities.
As a result, VTI has a much broader industry exposure than VTIP, which is more focused on fixed-income securities.
VTI has exposure to a wide range of industries including technology, healthcare, consumer goods, financials, industrials, and more.
In contrast, VTIP is mostly comprised of AAA-rated bonds issued by the U.S. Treasury, which are designed to protect investors from inflation.
Analysis of the weightage of each industry in each ETF
Let’s take a closer look at the weightage of each industry in VTI and VTIP:
| Industry | VTI Weightage | VTIP Weightage |
|---|---|---|
| Technology | 23.4% | 0% |
| Healthcare | 14.1% | 0% |
| Consumer Goods | 11.3% | 0% |
| Financials | 10.9% | 0% |
| Industrials | 10.0% | 0% |
| Energy | 5.6% | 0% |
| Consumer Services | 5.3% | 0% |
| Basic Materials | 3.5% | 0% |
| Utilities | 2.8% | 0% |
| Telecommunications | 2.4% | 0% |
| Real Estate | 2.0% | 0% |
| Other | 9.7% | 100% |
As you can see, VTI has a much more diversified industry exposure than VTIP.
The top industries in VTI are technology, healthcare, and consumer goods, which together make up almost half of the ETF’s weightage. In contrast, VTIP is almost entirely invested in U.S. Treasury bonds, with no exposure to other industries.
Overall, it’s important to consider the industry exposure of an ETF when making investment decisions. VTI provides exposure to a wide range of industries, while VTIP is more focused on fixed-income securities.
Depending on your investment goals and risk tolerance, one ETF may be a better fit for your portfolio than the other.
Performance
Overview of the performance of VTI and VTIP over the past 10 years
When it comes to the performance of VTI and VTIP over the past 10 years, VTI has provided higher returns than VTIP.
VTI has had an annualized return of 16.29% while VTIP has had an annualized return of 2.29%. It’s important to note that these returns are not guaranteed and can change in the future.
Analysis of the annual returns of each ETF
To get a better understanding of the performance of VTI and VTIP, let’s take a look at their annual returns.
According to Minafi, VTI has had positive returns every year except for 2018 where it had a negative return of -5.24%. VTIP, on the other hand, has had positive returns every year except for 2013 where it had a negative return of -0.74%.
It’s important to note that past performance is not a guarantee of future results. It’s also important to consider other factors such as the expense ratio and holdings of each ETF before making any investment decisions.
To summarize, VTI has provided higher returns than VTIP over the past 10 years. However, it’s important to consider other factors before making any investment decisions.
Portfolio Growth
Overview of the portfolio growth of VTI and VTIP
When it comes to investing, one of the most important things to consider is portfolio growth. After all, we all want to see our investments grow over time. So, how do VTI and VTIP stack up in terms of portfolio growth?
VTI, or the Vanguard Total Stock Market ETF, is designed to track the performance of the CRSP US Total Market Index. This means that it invests in a wide range of stocks across the US market, giving investors exposure to a broad range of companies.
VTIP, on the other hand, is the Vanguard Short-Term Inflation-Protected Securities ETF. It invests in short-term Treasury Inflation-Protected Securities (TIPS), which are designed to protect investors from inflation.
So, how have these two ETFs performed in terms of portfolio growth? Let’s take a closer look.
Analysis of the compound annual growth rate (CAGR) of each ETF
When it comes to analyzing portfolio growth, one of the most important metrics to consider is the compound annual growth rate (CAGR).
This metric gives us an idea of the average annual growth rate of an investment over a certain period of time.
So, what is the CAGR of VTI and VTIP?
According to a comparison by Mr. Marvin Allen, VTI has a CAGR of 14.69% over the past 10 years, while VTIP has a CAGR of 1.79% over the same period.
This means that VTI has significantly outperformed VTIP in terms of portfolio growth. In fact, a $10,000 investment in VTI 10 years ago would be worth $48,740 today, while the same investment in VTIP would be worth just $11,305.
It’s important to note, however, that these two ETFs serve different purposes in a portfolio. VTI is designed to provide exposure to the US stock market, while VTIP is designed to protect against inflation.
As such, it’s important to consider your investment goals and risk tolerance when deciding which ETF to invest in.
Risk Metrics
Discussion of the risk metrics of VTI and VTIP
When it comes to investing, risk is always a factor to consider. VTI and VTIP have different risk metrics that investors should be aware of.
VTI is an equity fund that tracks the performance of the CRSP US Total Market Index. This means that VTI is more volatile than VTIP, which is a bond fund that invests in short-term Treasury Inflation-Protected Securities (TIPS).
VTI has a higher standard deviation than VTIP, which means that its returns are more dispersed and less predictable.
VTI’s beta is also higher than VTIP’s, which means that VTI is more sensitive to market movements. On the other hand, VTIP has a lower standard deviation and beta, which makes it less risky than VTI.
Another risk metric to consider is the expense ratio.
VTI has a lower expense ratio than VTIP, which means that VTI is more cost-efficient. However, investors should not base their investment decisions solely on expense ratios. Other factors such as risk and performance should also be taken into account.
Explanation of the importance of considering risk when making investment decisions
As an investor, it’s important to consider risk when making investment decisions. Risk can be defined as the chance of losing money or not achieving expected returns.
Investing in VTI or VTIP is not risk-free, and investors should be aware of the potential risks involved.
By considering risk, investors can make informed decisions that align with their investment goals and risk tolerance.
For example, investors who are more risk-averse may prefer to invest in VTIP, which is less volatile and less risky than VTI. On the other hand, investors who are more risk-tolerant may prefer to invest in VTI, which has the potential for higher returns but also comes with higher risk.
It’s important to consider risk as part of the investment decision-making process.
By understanding the risk metrics of VTI and VTIP, investors can make informed decisions that align with their investment goals and risk tolerance.
Verdict: VTI vs VTIP
So, after considering all the factors, which ETF is the better choice for you? It ultimately depends on your investment goals and risk tolerance.
However, here are some key takeaways to consider:
| VTI | VTIP |
|---|---|
| Higher returns over the past ten years | Mostly comprised of AAA bonds |
| High exposure to the technology sector | Effective inflation hedge |
| Lower expense ratio | Short-term TIPS considered better hedge against unexpected inflation |
Personally, I prefer VTI due to its higher returns and exposure to the technology sector. However, if you are looking for a low-risk inflation hedge, VTIP may be the better choice for you.
Regardless of which ETF you choose, it’s important to remember to diversify your portfolio and consider your long-term investment goals. Happy investing!
Stay and read these other articles to retire safely
- SCHG vs SCHX
- VTV vs VOO
- SCHD vs VYM vs VIG
- Groundfloor Review
- SCHG vs QQQ
