From Proj Omni: The Vanguard Total Stock Market ETF (ETF:VTI) offers investors diversified exposure to the US stock market. In this review, we’ll take a look at the fund performance (share–not stock–historical price, return, dividends, yield, holdings / composition, cost / expense ratio, tax efficiency and beta), and the alternatives (VTI vs. VTSAX, VTI vs. VTSMX, VTI vs. VOO, VTI vs. SPY, VTI vs. VXUS, VTI vs. SCHB) available to individual investors.
1. What is Vanguard VTI ETF?
Vanguard VTI is an ETF that seeks to track the performance of the CRSP US Total Market Index.
The ETF invests in large, mid-size and smaller companies trading on US stock exchanges.
It a passively managed (index-sampling) ETF. The fund is fully invested.
A low fee and a well-constructed benchmark make VTI well-positioned to continue to produce solid risk-adjusted returns over the long haul.
2. Whom is VTI appropriate for?
Index funds such as VTI are ideal for individual investors wanting to get a broad exposure to the US market, beyond S&P 500.
VTI is a good fit for long-term investors, for whom money’s growth over a longer period of time is essential. Conversely, it may not be the right fit for short-term investors (e.g., those looking to hold a position less than a year).
3. How do you rate / rank VTI?
We don’t assign star ratings, such as Morningstar, but rather guide individual investors to make a decision based on their investment goals, experience and knowledge of the market.
If you’re a novice in investing, and you’re looking for a broad exposure to the US market, you should give this fund a shot. We give it a triple green.
Reasons for a triple-green?
VTI: 1. Offers diversified exposure to US large-, medium- and small-cap stocks; 2. Has a very low expense ratio, 0.04%; 3. Has historically done well. A low fee and a reasonably representative portfolio make the fund well-positioned to do well in the future.
A word of caution–a triple green doesn’t mean you should invest in the fund now. It has to be right for you, given your investment goals. Also, we have no idea what the future will look like for VTI–and whether US stocks are overvalued at this point.
4. What is CRSP US Total Market Index? What should I know about it?
The CRSP US Total Market Index accounts for an estimated 99.5% of all the common domestic stocks traded on the New York Stock Exchange and NASDAQ.
It has similar historical returns / yield to S&P 500 (it’s perhaps slightly ahead of S&P 500).
Unlike the S&P 500 that is regulated by a committee, CRSP relies on a unique mechanical index construction model. Total Market Index funds are a larger blend, comprising different small- and medium-cap, in addition to large-cap stocks.
5. Does VTI give investors international exposure?
Many of the fund’s largest holdings are multinational firms, so VTI has substantial indirect international exposure.
6. What are the VTI holdings?
The following list shows the top holdings in VTI and weights of their assets:
|Facebook Inc A
|Exxon Mobil Corp
|Johnson & Johnson
|JPMorgan Chase & Co
|Berkshire Hathaway Inc B
|Alphabet Inc A
|Alphabet Inc C
Those top 10 assets account for 15% of the fund’s performance, which is somewhat concentrated because of the market cap weights. These 10 assets would account for 0.3% of an equal weight Total Market Index fund.
7. How did VTI perform / how much did VTI return over the last 3-5 years?
VTI shares (not stock) returned 9.66% per annum over the last 3 years, and 15.23% over the last 5 years. Below is the VTI price chart.
8. What is VTI’s expense ratio?
The expense ratio for VTI is 0.04%, which is pretty low.
9. What is VTI’s tax efficiency? What is VTI’s tax-cost ratio?
The one-year tax-cost ratio (return reduction because of taxes investors pay on distributions) for VTI is 0.49%. That means that because of dividend taxes, returns are effectively reduced by almost have a percent.
10. What is VTI’s beta? What is VTI’s risk profile?
The ten-year beta (volatility) for VTI is 1.03, measured against S&P 500. This means VTI is slightly more volatile than S&P 500.
You should expect higher performance of more volatile funds, because they are riskier.
The R-Squared for VTI is 99.43%, which means that VTI is highly correlated to S&P 500.
11. How much does VTI pay in dividends? What is the VTI yield?
VTI pays a quarterly dividend. Here is the payout for the last 4 quarters:
|Ex-Dividend Date||Dividend Amount ($)|
|Jun 21, 2017||.575|
|Mar 24, 2017||.542|
|Dec 20, 2016||.727|
|Sep 13, 2016||.539|
Based on this, the trailing 12-month dividend amount is $2.38, so the trailing 12-month dividend yield is 1.92%, assuming VTI’s price of $123.94.
The SEC-reported yield is 1.86%.
12. What are some of the good Total Market Index ETFs?
Among the Total Market Index ETFs there are a few that we’d like highlight:
- ITOT iShares Core S&P Total US Stock Market ETF; expense ratio is 0.03%; contains over 3,600 holdings and is very tax-efficient.
- SCHB Schwab US Broad Market ETF; expense ratio 0.03%. It has over 2,000 holdings.
- VTI Total Stock Market ETF; expense ratio is 0.04%; has around 3,600 holdings.
You can trade ITOT commission free on Fidelity, assuming you have a Fidelity account. A short-term trading fee of $4.95 is charged for any sales that occur within 30 days of the original purchase of the ETF.
You can trade SCHB on Schwab commission free.
13. VTI vs. VOO? Should I choose VTI or VOO?
VTI tracks performance of the CRSP US Total Market Index, while VOO invests only in stocks in the S&P 500 Index, representing 500 of the largest US companies. S&P 500 represents about 80% of the Total Market Index.
Performance wise, they are similar. In the last 5 years, VTI returned 15.23% vs. VOO 15.38%.
VOO and VTI expense ratios are exactly the same, 0.04%.
The choice is really up to you–do you want exposure to S&P 500, or a broader basket of stocks, representing the total US market?
14. VTI vs. VTSMX? Should I choose VTI or VTSMX?
VTSMX is a mutual fund tracking the Total Market Index. VTI is an ETF.
VTSMX has a minimum investment requirement of $3,000.
VTSMX is more expensive; its expense ratio is 0.15% vs. 0.04% for VTI.
VTI is considered more tax-effective than VTSMX. VTSMX tax-cost ratio is 0.66%. VTI cost ratio is 0.49%. That means the post-tax return will be 0.17 percentage points higher on average for VTI vs. VTSMX.
VTI does not have a minimum balance requirement. Since VTI is an ETF, you may have to pay a trading commission if you invest outside of Vanguard or zero-dollar brokerages (e.g., Robinhood).
VTSMX offers you an opportunity to engage in automatic investments, so you can acquire shares in desirable proportions.
In fact, you can even choose an option to automatically deduct from your bank account every month.
VTI, on the other hand, trades similar to stocks. Investors have the option of manual additions to their existing investments. But, the particular amount of shares is usually based on the current share price.
With mutual funds (VTSMX), investors are able to automatically re-invest dividends and capital gains, while ETFs may not have such a plan.
If you trade VTI on Vanguard, you will be able to automatically reinvest dividends and capital gains.
Our recommendation–invest in VTI (vs. VTSMX) using a low-cost/no-cost brokerage (such as Robinhood or Vanguard for Vanguard funds).
15. VTI vs. VTSAX? Should I choose VTI or VTSAX?
VTSAX is an Admiral Shares version of the mutual fund tracking the Total Market Index. The minimum investment requirement of $10,000.
VTI and VTSAX have the same expense ratio: 0.04%.
VTI are generally considered more tax-effective than VTSAX. VTSAX tax-cost ratio is 0.70%. VTI tax-cost ratio is 0.49%. That means the post-tax return will be 0.21 percentage points higher on average for VTI vs. VTSAX.
VTSAX is might be more convenient for automatic investments and dividend / capital gain re-investments, because it’s a mutual fund.
Our recommendation–if you’re deliberating between the two, try VTI leveraging a low-cost or no-cost brokerage (such as Robinhood or Vanguard).
16. VTI vs. SPY? Should I choose VTI or SPY?
SPY tracks S&P 500, which represents 80% of the Total Market Index.
The historical returns of two ETFs are comparable–see chart below.
SPY has one big advantage for investors employing complex strategies that include options. SPY replicates the S&P 500 benchmark with near perfection, which investors utilize for option trading.
SPY offers an incredibly-liquid options market and is a great tool for investors looking to execute intra-day trades or those with short holding periods.
But for most retail (individual) investors, it really comes down to what types of stocks you’d like to invest in–large-cap (S&P 500) or all-cap (VTI). If the former, choose SPY, IVV or VOO. If the latter, choose VTI.
17. VTI vs. SCHB? Should I choose VTI or SCHB?
SCHB tracks the total return of the Dow Jones US Broad Stock Market Index. I presents a low-cost way to capture the performance of U.S. large- and small-cap stocks (over 2,000 stocks). VTI captures over 3,500 stocks.
In terms of coverage, the two ETFs are comparable.
Both SCHB and VTI don’t have a minimum investment requirement.
Historical returns for VTI and SCHB are very comparable.
SCHB expense ratio is lower than VTI’s: 0.03% (vs. 0.04% for VTI).
VTI is a much larger fund, with over $500 Billion in assets. SCHB has around $9 Billion. VTI may have better liquidity than SCHB.
Both funds are good choices. If tax efficiency is important to you, you may want to choose VTI. Cost and performance differences are negligible.
18. VTI vs. VXUS? Should I choose VTI or VXUS?
VXUS tracks the performance of the FTSE Global All Cap ex US Index (stocks issued by companies located outside the US. It offers broad exposure across developed and emerging non-U.S. equity markets.
VXUS expense ratio is 0.11% vs. VTI’s 0.04%.
Over the last 5 years, VXUS returned way less than VTI: 8.78% vs. 15%+.
But that should not be the reason not to invest in VXUS. In fact, most financial advisors will recommend that you have a share of your portfolio in international stocks.
VXUS and VTI are really different. Perhaps you can invest in both (or invest in their equivalents).
19. What is VTI turnover? And does the turnover really matter?
VTI annual turnover is 4%, as opposed to the average of 58% for large-cap ETFs.
Lower turnover equates to lower costs and smaller taxable capital gains distributions, so it is important.
20. How can I find out the funds that have done better than VTI?
You can get some suggestions on what ETFs have outperformed VOO through Finstead’s Idea tool. The tool pops out a couple of ETF suggestions (from both the same fund category and overall) that have historically had a higher expense adjusted return and lower volatility (i.e., risk).
For VTI, the Finstead idea tool suggests iShares Global Tech ETF (IXN) and iShares Morningstar Large-Cap ETF (JKD) as an overall fund and the same category fund (respectively) that have had a higher return and lower volatility over the last 5 years.
But be careful–do your diligence before investing in those funds. Is now a good time to buy a tech fund?
The Vanguard Total Stock Market ETF (NYSE:VTI) closed at $127.27 on Friday, up $0.29 (+0.23%). Year-to-date, VTI has gained 11.37%, versus a 11.90% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Finstead.