We are going to explore the difference between Vanguard S&P 500 ETF (VOO) vs Vanguard Information Technology ETF (VGT).
Vanguard has a ton of options when it comes to exchange-traded funds (ETFs). Choosing between two funds can be difficult, but I will make it easy for you to decide between VOO and VGT.
VOO vs VGT
The primary difference between VOO and VGT is the index they track.
VOO aims to track the S&P 500 index
VGT is aiming to track higher growth companies with the MSCI US IMI Info Technology 25/50 Benchmark Index
- Tracks the performance of the MSCI US IMI Info Technology 25/50 Benchmark Index.
- Has an expense ratio of 0.1%
- No minimum initial investment
- Holds 357 stocks
- Tracks the performance of the S&P 500 Index
- Has an expense ratio of 0.03%
- No minimum initial investment
- Holds 508 stocks
VOO vs VGT Performance
VOO and VGT have performed differently over the last 10 years. This is expected since they track different indexes.
VOO’s total return over 10 years is 15.30% per year, while VGT’s total return over 10 years is 22.03% per year. This is a difference of 6.73% each year!
Here is a chart illustrating this difference:
VGT (Blue) VOO (Yellow)
Similarities between VOO and VGT:
- Vanguard Funds
- Low Expense Ratios
- Exchange-Traded Funds (ETFs)
VOO and VGT Differences
VOO vs VGT primarily differs in that VOO tracks the S&P 500. VGT tracks a higher growth index with companies in information technology. By tracking high-growth technology companies, VGT has been able to return a better performance but with higher volatility.
Differences between VOO and VGT:
- Different Number Of Holdings (~500 vs ~357)
- Level Of Diversification
- Fund Inception: 2010
- Expense Ratio: 0.03%
- Number Of Stocks: 508
- Top 10 Holdings: 28%
Vanguard S&P 500 ETF (VOO) received a big endorsement when Warren Buffett himself recommended it!
Here are VOO’s Top 10 Holdings:
The fund, as of April 30th, 2021, has $731.5 billion total net assets.
VOO is largely made up of Microsoft, Apple, Alphabet, Amazon, and Facebook and provides exposure to over 500 stocks.
No Minimum Investment
VOO and VGT are exchange-traded funds (ETFs) which mean there is NO minimum investment. Investors looking to buy fractional shares can use platforms like M1 Finance.
Normally, fractional shares are not available for ETFs but with M1 Finance you can purchase fractional shares with no commission.
Buying fractional shares allows you to maximize your investment. You no longer have to keep your money sitting idle until you have enough to purchase a full share. This is especially beneficial when it comes to ETFs with a high share price like VOO and VGT (~$400/Share and $415/Share).
VOO Historical Returns
Take a look at the historical chart below. You will see VOO and the S&P 500 closely overlap:
- Fund Inception: 2004
- Expense Ratio: 0.1%
- Number Of Stocks: 357
- Top 10 Holdings: 57.1%
Here are the top 10 holdings for the Vanguard Information Technology ETF (VGT):
The fund, as of June 30th, 2021 has $54.1 billion total net assets.
VGT is largely made up of Apple, Microsoft, NVIDIA, VISA, and Paypal and provides exposure to over 300 stocks. However, with the top 10 holdings making up over 50% of the portfolio, it isn’t very diversified compared to other ETFs such as Vanguard Total Stock Market Index Fund ETF (VTI).
Which is Better VGT or VOO?
VGT and VOO are significantly different investments. VGT offers a more aggressive allocation geared towards high growth but that can mean much bigger swings in day-to-day price. Investors who have been able to hold during the ups and downs have been rewarded with ~6% higher returns every year compared to VOO.
Still, this doesn’t mean the next 10 years will look the same.
For those reasons, I would say that both are great options for long-term investors but you should know that with VGT you have the potential for higher returns but also greater risk. If having a larger basket of stocks helps you sleep at night, then VOO would be a better option.
Another big difference is that with VOO the top 10 holdings make up 28% of the total portfolio while with VGT they make up 57%. That means the performance of the top 10 companies will have a bigger impact on returns with VGT compared to VOO.
Lastly, it’s important to consider costs and fees because they can cost you in the long run. The good news here is you can buy both ETFs commission-free with M1 Finance. You can purchase fractional shares for free which is something you can’t do on the Vanguard platform.
Is VGT or VOO Better for Financial Independence?
Both VGT or VOO can get you to Financial Independence Retire Early (FIRE). They both have strong long-term investment returns and low expense ratios.
I personally feel more comfortable with owning VOO because of the increasing diversification and lower expense ratio.
My Winner: VOO
My winner is VOO based on it having a more diversified portfolio and a lower expense ratio. This is only my opinion. Feel free to tell me your pick in the comments below.
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This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.