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VYM vs VOO: Which Vanguard ETF Is Better Long Term?

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We compare VYM vs VOO:

Vanguard is one of the earliest investment management companies in the world and the second-largest advisory firm in the US.  Vanguard carved a niche for itself through low prices and a large variety of offerings which includes Vanguard High Dividend Yield ETF (VYM) and Vanguard S&P 500 ETF (VOO).

VYM and VOO are both Vanguard ETFs.

Deciding between VYM vs VOO therefore may not be simple since they both belong to the same brokerage.

What makes them different Exchange Traded Funds (ETFs) is that VOO represents the S&P 500 while VYM is a dividend ETF.

Also, VOO includes REITs, VYM does not.

Taking a deeper look into the goal and values of each ETF will give you a better understanding of the difference between the two.

This comprehensive analysis of VYM vs VOO will also help you decide which is better for a long-term investment.

VYM vs VOO Graphic Comparison

 

VYM vs VOO What’s The Difference?

The key difference between VYM and VOO is that VYM tracks the FTSE High Dividend Yield Index while VOO tracks the S&P 500 Index.

This means that VYM is more focused on U.S. large-cap dividend value stocks while VOO cuts across both growth and value U.S. large-cap stocks.

Secondly, VOO includes REITs, VYM does not.

VYM tracks the FTSE Custom High Dividend Yield which invests in stocks whose dividend yields are above average and REITs do not fit into this category.

VYM vs VOO Comparison Chart

Since the FTSE index seeks to forecast dividend yields, it excludes stocks that are forecasted to have no dividend yield or have no record of dividend payment in the past 12 months.

In this way, it makes no room for large-cap growth stocks which do not pay dividends. It is solely exposed to large-cap value stocks.

Both VYM and VOO are popular Vanguard U.S. stock funds.

 

VYM vs VOO Holdings

When it comes to weighting in terms of sector, VYM and VOO differ significantly.  Focusing on both growth and value stocks, VOO spreads its holdings across more sectors than the VYM.

Here is VYM and VOO holdings side by side:

VYM vs VOO Top Holdings

VOO is more suitable if you target a well-diversified portfolio.

VYM may be best for dividend investors who seek to overweight high dividend stocks in their portfolios.

It might not be perfect alone as a core holding if you seek a diversified investment portfolio.

 

VYM vs VOO Costs

Although both of these funds are very popular funds in the US, VOO is more popular than VYM.  VOO has over $550 billion in assets, in contrast to roughly $43 billion for VYM.

More so, VYM and VOO both offer low-cost investing following one of the major ideas behind the initiation of ETFs.  They both have low expense ratios.

VYM Expense Ratio = 0.06%

VOO Expense Ratio = 0.03%

VOO is cheaper with an expense ratio of 0.03% against 0.06% for VYM.

 

VYM Description

Vanguard’s High Dividend Yield ETF (VYM) was launched in 2006 and is one of Vanguard’s ETFs that seeks to track the performance of the FTSE High Dividend Yield Index.

The FTSE High Dividend Yield Index originated from the FTSE Global Equity Index Series (GEIS) in the United States.

VYM

  • Tracks The FTSE High Dividend Yield Index
  • Expense Ratio 0.06%
  • Holds 413 stocks
  • Dividend Yield 2.66%
  • Passively Managed
  • Admiral Shares (VHYAX)

The FTSE index is made up of selected US-based stocks based on above-average dividend yields.

It measures the returns of common stocks of high dividend-yielding companies and serves as a benchmark for the performance of these stocks.

VYM is a large-cap weighted index, providing broad exposure to the large-cap value stocks in the Equity market.

The fund excludes Real Estate Investment Trusts (REITs) from its holdings.

 

VYM Top 10 Holdings

The top 10 holdings make up 24% of VYM’s total net assets.

Here are the top 10 holdings for VYM:

VYM Top 10 Holdings

Vanguard’s VYM is largely made up of JP Morgan, Johnson & Johnson, Home Depot, Procter & Gamble, and Pfizer but also provides exposure to over 400 stocks.

 

VOO Description

Vanguard’s S&P 500 ETF (VOO) was launched in 2010 and is also a popular Vanguard ETF.  The fund tracks the performance of the popular S&P 500 index which holds over the 500 largest U.S. stocks, weighted by market capitalization.

The S&P 500 usually serves as a benchmark for measuring the performance and overall health of the U.S. stock market.

VOO

  • Tracks The S&P 500 Index
  • Expense Ratio 0.03%
  • Holds 513 stocks
  • Dividend Yield 1.21%
  • Passively Managed
  • Admiral Shares (VFIAX)

Vanguard S&P 500 ETF attempts to duplicate the result of its underlying index, the S&P 500, by investing almost 100% of its assets in the same securities held in the index.

As such, each stock in the fund holds almost the same proportion of its weighting in the S&P 500 index.

VOO has a heavy large-cap weighting toward both the growth and value stocks.  This is another way to say that its holdings are not just focused on the large-cap value category of the US market, but also in the large-cap growth sector.

This makes VOO more diversified compared to VYM.

 

VOO Top 10 Holdings

Here are the top 10 holdings for VOO:

VOO Top 10 Holdings

We can see, VOO is largely made up of Apple, Microsoft, Alphabet, Amazon, and Tesla, but also provides exposure to over 500 other stocks.

VOO has $731.5 billion in total net assets.

 

Which Is Better VOO or VYM?

Both VYM and VOO are great Vanguard ETFs.  VOO represents the S&P 500, VYM is a dividend ETF.

The two outstanding Vanguard funds focus only on stocks in the United States.  However, VOO includes REITs, while VYM does not.

If you are seeking broad, diversified exposure to the U.S. stock market you should consider VOO as a core holding.

Using VYM as a core holding does not give you the best portfolio diversification which is a top investment strategy.

Vanguard High Dividend Yield Index ETF (VYM) solely looks at the largest cap stocks in the US based on high-dividend yield.  Therefore, the fund is probably more fitting for investors who target dividend yield, as a dividend tilt.

VOO has shown better performance compared to VYM.

VYM vs VOO Performance

A part of the reason for this may be VYM’s limitation to value.  Growth has outperformed value over the last 10 years.

This perhaps emphasizes the advantage of diversification of a portfolio across asset classes.

However, that is not to say that you won’t make a profit with VYM.  Vanguard’s VYM has also performed well over the last 10 years.

Similar Comparisons:

 

My Winner: VOO

Vanguard’s VOO is more popular and slightly cheaper than VYM with a rock bottom expense ratio of 0.03%.

VOO is preferable from a viewpoint of efficiency for a large-cap allocation.

VYM can give you better outcomes if you need dividends.

For a long-term investment, you may want to consider VOO since it looks at both growth and value.

The combination of the two strategic categories of the market is most likely to result in better returns on investment.

 

Is VYM a Good Long-Term Investment?

VYM is one of the best exchange-traded funds in the world, standing out for its high dividends.  As a result, VYM can make an excellent choice for both beginners and professional long-term investors.

Vanguard’s VYM offers investors a diversified portfolio as its holdings cut across sectors in the large-cap value sector of the market.

The fund also has a cheap valuation and a strong yield compared to other ETFs, making it commendable for long-term investment.

 

Is VYM Worth Buying?

As an investor, here are factors you can consider to take a stand about buying VYM:

  • VYM tracks the FTSE High Dividend Yield Index: The FTSE High Dividend Yield Index consists of common stocks of companies that pay dividends that generally are higher than average.
  • Vanguard manages VYM: Vanguard is one of the most reputable investment companies in the world.
  • VYM is one of the largest large-cap values ETFs: VYM’s total net assets are over $42.19 billion.
  • VYM is one of the cheapest Vanguard ETFs: With an expense ratio of 0.06%.  All things being equal, cheaper ETFs tend to have more potential for better returns than their expensive counterparts.

Is VYM worth buying?

VYM may meet the needs of investors who are looking for cheaper investment options with the potential for a good return on investment.

This market-cap-weighted ETF seeks to match the returns of the large-cap value with a minimal investment cost.

 


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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.
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