VTI vs VYM: A Comprehensive Comparison

When it comes to investing in the stock market, it is important to choose the right exchange-traded fund (ETF).

Two popular ETFs that investors often compare are the Vanguard Total Stock Market ETF (VTI) and the Vanguard High Dividend Yield ETF (VYM).

VTI vs VYM: While both ETFs are offered by the same company and have similar investment objectives, there are some key differences that investors should be aware of before making a decision.

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VTI is designed to track the performance of the CRSP US Total Market Index, which includes all the stocks in the U.S. equity market. VYM, on the other hand, tracks the FTSE High Dividend Yield Index, which focuses on stocks with high dividend yields. This means that VTI is a more diversified fund, while VYM is more focused on dividend-paying stocks. The performance of the two ETFs can vary depending on market conditions, with VTI typically performing better in bull markets and VYM performing better in bear markets.

Key Takeaways VTI vs VYM

  • VTI and VYM are two popular ETFs offered by Vanguard with similar investment objectives but key differences in their underlying holdings and performance.
  • VTI is designed to track the performance of the entire U.S. equity market, while VYM focuses on high dividend-yielding stocks.
  • The performance of the two ETFs can vary depending on market conditions, with VTI performing better in bull markets and VYM performing better in bear markets.

Overview of VTI vs VYM

When it comes to investing in the stock market, exchange-traded funds (ETFs) are a popular choice for many investors. Two of the most popular Vanguard ETFs are the Vanguard Total Stock Market ETF (VTI) and the Vanguard High Dividend Yield ETF (VYM). In this section, we will take a closer look at these two ETFs and compare their features.

Vanguard Total Stock Market ETF (VTI)

VTI is an ETF that seeks to track the performance of the CRSP US Total Market Index. This index includes stocks of all sizes, from large-cap to small-cap, and covers nearly 100% of the U.S. equity market. VTI has a low expense ratio of 0.03%, making it an attractive option for investors who want to keep their costs low.

One of the benefits of VTI is that it provides investors with exposure to the entire U.S. stock market. This means that you can invest in VTI and have a diversified portfolio that includes stocks from all sectors of the economy. VTI also has a high trading volume, which means that it is easy to buy and sell shares.

Vanguard High Dividend Yield ETF (VYM)

VYM is an ETF that seeks to track the performance of the FTSE High Dividend Yield Index. This index includes stocks of companies that have a higher-than-average dividend yield. VYM has an expense ratio of 0.06%, which is slightly higher than VTI.

One of the benefits of VYM is that it provides investors with exposure to companies that pay high dividends. This can be attractive to investors who are looking for income from their investments. VYM also has a high trading volume, which means that it is easy to buy and sell shares.

In summary, VTI and VYM are two popular Vanguard ETFs that offer investors exposure to different segments of the U.S. equity market. VTI provides exposure to the entire U.S. stock market, while VYM provides exposure to companies that pay high dividends. Both ETFs have a low expense ratio and high trading volume, making them attractive options for investors who want to keep their costs low and have easy access to their investments.

Performance Comparison VTI vs VYM

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Historical Performance

When comparing VTI and VYM, it’s important to look at their historical performance. Both ETFs have shown steady growth over the years, but VTI has consistently outperformed VYM.

Over the past 10 years, VTI has had an average annual return of 13.88%, while VYM has had an average annual return of 11.30%. This difference may not seem significant, but over time it can add up.

YTD, 1Y, 3Y, 5Y, and 10Y Returns

Looking at the year-to-date (YTD), 1-year, 3-year, 5-year, and 10-year returns can give you a better idea of how these ETFs have performed recently.

As of December 9th, 2023, VTI has a YTD return of 8.45%, a 1-year return of 20.15%, a 3-year return (ann.) of 16.98%, a 5-year return (ann.) of 15.44%, and a 10-year return (ann.) of 13.88%.

On the other hand, VYM has a YTD return of 6.72%, a 1-year return of 16.92%, a 3-year return (ann.) of 14.25%, a 5-year return (ann.) of 11.30%, and a 10-year return (ann.) of 11.30%.

Overall, VTI has outperformed VYM in terms of historical and recent performance. However, it’s important to note that past performance is not a guarantee of future results. You should always do your own research and consult with a financial advisor before making any investment decisions.

Dividend Analysis

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Dividend Yield and Growth

When it comes to dividend investing, yield and growth are important factors to consider. VYM has a higher dividend yield compared to VTI, which means that VYM pays out more in dividends relative to its stock price. As of December 9, 2023, VYM’s dividend yield is around 3.17%, while VTI’s dividend yield is around 1.48%.

However, VTI has a higher dividend growth rate compared to VYM. Over the past five years, VTI’s dividend growth rate has been around 10.56%, while VYM’s dividend growth rate has been around 6.48%. This means that while VYM has a higher current dividend yield, VTI’s dividend is growing at a faster rate.

Dividend Comparison

When comparing the dividend-paying stocks held by VTI and VYM, there is some overlap but also some differences. Both ETFs hold stocks from various sectors, including technology, healthcare, and consumer goods. However, VYM has a higher concentration of stocks in the consumer goods and healthcare sectors, while VTI has a higher concentration of stocks in the technology and financial sectors.

In terms of individual stocks, VYM’s top holdings include Johnson & Johnson, Procter & Gamble, and Verizon Communications, all of which have a history of paying and increasing their dividends. VTI’s top holdings include Apple, Microsoft, and Amazon, which also have a history of paying dividends, but are more focused on growth than income.

When it comes to expenses, VYM has a slightly higher expense ratio compared to VTI. VYM has an expense ratio of 0.06%, while VTI has an expense ratio of 0.03%. While this may not seem like a significant difference, over time, it can add up and eat into your returns.

Overall, when it comes to dividend investing, both VTI and VYM have their pros and cons. VYM has a higher current dividend yield, while VTI has a higher dividend growth rate and a more diverse selection of stocks. It’s up to you to decide which ETF aligns better with your investment goals and risk tolerance.

Risk and Volatility

Risk Assessment

When comparing VTI and VYM, it is important to consider the risk involved with each security. Both VTI and VYM are considered to be relatively low-risk investments as they are index funds that track the performance of the stock market. However, VYM is considered to be slightly riskier compared to VTI due to its focus on high dividend yielding stocks. This means that VYM is more susceptible to market fluctuations as companies that pay high dividends may not always perform well in the market.

Volatility Metrics

When it comes to volatility, both VTI and VYM have similar daily standard deviation values, which measure the amount of variation or dispersion in the daily returns of the security. However, VYM has a higher maximum drawdown compared to VTI. Maximum drawdown measures the largest percentage drop in value from a security’s peak to its trough. This indicates that VYM is more likely to experience larger losses during market downturns compared to VTI.

In terms of risk-adjusted performance comparison, VTI has a slightly better Sharpe Ratio compared to VYM. The Sharpe Ratio is a measure of risk-adjusted return, which takes into account the volatility of the investment. A higher Sharpe Ratio indicates better risk-adjusted performance.

Overall, while both VTI and VYM are considered to be relatively low-risk investments, VYM is slightly riskier due to its focus on high dividend yielding stocks. Additionally, VYM has a higher maximum drawdown compared to VTI, indicating that it is more likely to experience larger losses during market downturns. However, VTI has a slightly better risk-adjusted performance compared to VYM.

Cost Considerations

When it comes to investing, cost is an important factor to consider. In this section, we will discuss the cost considerations of investing in VTI and VYM.

Expense Ratio Analysis

The expense ratio is the fee charged by the fund manager for managing the ETF. VTI has an expense ratio of 0.03%, while VYM has an expense ratio of 0.06%. This means that VTI is cheaper to invest in than VYM.

Broker and Transaction Fees

In addition to the expense ratio, you may also incur broker and transaction fees when buying or selling ETFs. These fees can vary depending on your broker and the size of your investment. It is important to factor in these fees when considering which ETF to invest in.

When it comes to broker and transaction fees, VTI and VYM are similar. However, it is important to note that these fees can add up over time and can have a significant impact on your overall returns.

Overall, when it comes to cost considerations, VTI is the cheaper option with a lower expense ratio. However, it is important to consider all fees when making your investment decision.

Investment Strategies

When it comes to investing in ETFs, you have a variety of strategies to choose from. Here are a few investment strategies to consider when deciding between VTI and VYM.

Growth vs. Value Investing

One of the most fundamental investment strategies is the choice between growth and value investing. Growth investing focuses on companies that are expected to grow at a faster rate than the overall market, while value investing looks for companies that are undervalued by the market.

VTI is a growth-oriented ETF that tracks the performance of the overall stock market. It includes a broad range of companies, from large-cap to small-cap, that are expected to grow over time. On the other hand, VYM is a value-oriented ETF that focuses on high-dividend-yielding companies that are considered undervalued by the market.

If you are looking for long-term growth potential, VTI may be a better choice. If you are looking for a steady stream of income, VYM may be the better option.

Building a Diversified Portfolio

Another important investment strategy is diversification. Diversification is the practice of spreading your investments across different asset classes, sectors, and geographic regions to reduce risk.

Both VTI and VYM can be used to build a diversified portfolio. VTI provides exposure to the overall stock market, while VYM provides exposure to high-dividend-yielding companies. By combining the two, you can create a portfolio that is both growth-oriented and income-generating.

Investment advice varies depending on your individual financial goals and risk tolerance. It is always a good idea to consult with a financial advisor before making any investment decisions.

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