VT vs. VTI – Which is the Better Stock Market Index Fund?

The Vanguard Total Stock Market Index Fund (VTI) is an index fund for American Public Companies that have been around for 20 years. The Vanguard Total World Stock Index Fund (VT) was created in 2008 as a response to the global financial crisis. VT offers investors exposure to international stocks.

VT vs VTI! Both are pretty popular stock market index funds from Vanguard. To many people, they may seem to be identical, but they differ in terms of their returns, expense ratios, yield, and many other things that I will discuss further.

The Vanguard Total Stock Market Index fund holds enough stocks to gain exposure to the US stock market. On the other hand, the Vanguard Total World Stock ETF is a way for most investors looking for exposure to international stocks beyond their domestic investments.

Both have many similarities and dissimilarities, which I will explain so that nobody who invests in these funds gets the money plunge.

Let’s take a look at what each exchange-traded fund offers:

Key Takeaways

• Vanguard issues both VT and VTI.
• VTI ​​only tracks the future performance of the CRSP US Total Market Index.
• However, VT Tracks the performance of the FTSE Global All Cap Index.
• VT is more diversified than VTI as it covers the international market.
• VT’s expense ratio is 0.08%.
• The expense ratio of VTI is 0.03% making it much more viable.
• There is no minimum initial investment required in both VTI and VT.

VT vs. VTI – Composition

As stated above, both have similarities and little downside, making them two different category index funds. Both stocks can’t be used to replace one another as their concentrated market and relevancy have a huge difference.

The VT stocks have a heavy concentration in the US, which is not surprising since it was created to mimic the VTI. It holds over 57% of its portfolio in companies from the US but also has significant exposure to foreign markets like Japan and the United Kingdom. The Vanguard Total International Stock Index Fund (VT) currently offers investors a meager expense ratio of 0.08%.

On the other hand, VTI consists of companies traded on both the NYSE & NASDAQ and smaller markets, thus lower concentration in different countries. By name, it might sound like it is also an international stocks market fund like VT; However, it’s a total U.S stock market fund. 

It covers all market-cap sizes, sectors, styles within the USA. VTI doesn’t hold any internal stocks and is more concentrated than VT, which holds the US plus internal stocks. Moreover, the mutual funds equivalent of VT and VTI are VTWAX and VTSAX. 

The VT funds provide a hundred percent stocks without betting on countries or market cap size. It means zero hassle in terms of the investing process. Just buy VT and have over 9000 stocks in the portfolio that will provide huge gains over time.

But, when considering the VTI stocks as an option, to get international reach, I will pair it with VXUS, which is an international stock ETF. By doing so, I can invest more in the US stock market by overweighting it against the global market.

I hope you have understood the basics so far. Now let’s take a look at this table which shows the overview of the differences of both index funds.

Holdings

When it comes to the holdings of VT and VTI, I see not much difference even when both have different market concentrations. The companies they both invest in are pretty identical. But when it comes to the holding weights, VTI is the clear winner with over 24.85% of the total weighting.

The list of top 10 Holdings of VT and VTI are as follows –

Allocations

The next big difference is in terms of their allocations. VT invests in countries outside the US. The nations top on the list are Japan, Hong Kong, the United Kingdom, France, Canada, Switzerland, Germany, Australia, and Taiwan. VT allocates its large share of 57.08% in the US alone as its more home country bias, and so that more US citizens can take advantage of it.

The allocation list of VTI is very comprehensive, with US and Canada being the only two countries on the list. It allocates 99.91% in the US and rests 0.09% in Canada.

Diversification

Further moving to geographic diversification, I can make the difference cloudless by saying that VT is more diversified than VTI. It is because of its investment range in the international market. The allocation clarifies that VT is tracking the FTSE Global All Cap Index. On the other hand, VTI tracks only the US Total Market Index.

Therefore, when looking for a fund with diversification, choosing VT will be the right choice. There won’t be any need to pair up with any global mutual fund.

VTI vs. VT – Historical Performance

The VT and VTI performance is analyzed from both the international and American funds.

As for performance, my research shows the US and the global market stocks have taken many turns. There were many instances when one was outperforming the other for over five decades, and it is still like that. But, when it comes to the last decade, both are performing similarly, and VTI is currently outperforming VT by 4% annually.

This is the current scenario, but when I analyzed the historical performance of both funds, VTI was still the one that outperformed VT every time.

The return percentage of VTI is another factor that has always been ahead of VT. In 2022 the total return percentage of VTI is 19.61%, whereas VT stands at 13.73%. This gap in their percent is very significant for long-term investment.

One area where the VT leaps is in terms of volatility. It has always been less volatile than VTI due to its allocation in more than 9,000 companies. This means that the disturbance caused by a company in the total fund in VTI is more than VT. Finally, the historical performance depicts that the VT portfolio has a higher risk-adjusted return than VTIs.

Moreover, with an initial balance of $10,000 each, the VTI provides a way better return of $48,856 (inflation-adjusted end balance = $38,345) compared to the $29,038 (inflation-adjusted end balance = $22,790) of VT. That means VTI can yield about $15,555 more than the VT in the same time frame with an inflation-adjusted CAGR of 10.47%. It is a very significant difference when it comes to long-term investment.

VTI vs. VT – Fees, Expense Ratio, AUM, Tax Efficiency

The VT has a higher expense ratio than that of VTI. In simple terms, for a $1000 investment in VT, the investor will have to pay 0.8 dollars. For VTI, the expense will be only 0.3 dollars. Therefore, VTI is more economical when it comes to significant investments.

Fees and AUM

Moreover, there are low fees for both funds, the price of one stock. And the assets under management for VT are $26.28B which is too less than VTI, which has a massive $296.72B AUM.

Tax

Talking of tax efficiency, to be very honest, I will give you the tax advice that the efficiency will depend on the income bracket. But, in general, VT is a more tax-efficient fund. The VT owns everything, which enables no real index rebalancing, which leads to capital gains. This results in very low turnover, allowing VT to be a tax-efficient ETF.

VTI vs. VT – ESG Ratings and Impact

The MSCI ESG Fund Rating is essential as it measures the pliability of portfolios to recover back in long-term investments. It covers the long-term risks and opportunities that can arise due to environmental, social, and governance factors.

I always prefer to go through the ESG history before investing in any funds. It’s available for our benefit, increasing transparency regarding the long-term risks involved.

Here are the ESG ratings of VT and VTI!

Therefore, VT is a much better performer in the ESG ratings. But is it the right index fund for you to choose?

Which One Is Right For You?

To answer this, I will recommend judging the portfolio first before choosing emerging markets ETF for the portfolio. Considering the VT index fund will be the best choice if the current investment portfolio consists of holdings primarily from the US. It can provide the exposure to widen the portfolio outside the US.

However, if investments are more in outside countries, then simply invest in VTI funds to increase exposure in the US market. It’s a simple vice-versa process for both kinds of investors.

VT vs. VTI – Wrap Up

VT has a higher dividend yield and lower turnover than VTI. VT also does a much better job of managing risk (and volatility) in the portfolio than VTI. Therefore, choosing it will be the ideal choice for many.

But, between VT vs VTI, if I had to pick only one, I would buy VTI because of its diversification in the US, historical performance, higher return, and low expense ratios. However, I also believe anyone can invest in these two funds based on the desired asset allocation.

Finally, as both ETFs are Vanguard funds, that means they will continue to offer low-cost ETFs. So, it all depends on you in the end, and I hope this guide will help you to choose the right fund for you.

Was this story helpful? Why not share?