The market is a rollercoaster. However, who is controlling the monstrous ride? Is it mum and dad investors, fund managers, COVID-19 vaccine frontrunners, or the government? No single group is controlling the market. Instead, fear and greed have the remote control over the market. Greed controlled the rollercoaster for the past month as a false recovery (opinion not advice) erupted. However, fear infiltrated the minds of investors last week as the economic, social, and political chaos started to set in. Hence why investors transferred their funds over to shorting ETFs like TVIX, which posted a 2000% gain in a month.While the gloomy reality is now painfully obvious it seems greed is back in control. Especially as US futures are green (at the time of writing). Thus, investors are locking onto Vanguard ETF’s, like a satellite on a GPS, as Monday looks bullish. Today we will discuss the most popular Vanguard ETF’s, VOO and VTI, and which instrument could produce a greater gain?
Vanguard Total Stock Market Index Fund ETF
Vanguard Total Stock Market Index (ARCX: VTI) tracks the entire US equities market. VTI holds 3612 large, mid, and small-cap stocks. VTI diversifies the ETF further by selecting a mix of value and growth stocks. However, investing in VTI and gaining exposure to the entire US stock market comes at a cost. Vanguard ETF, VTI, charges a 0.03% fee per annum. To put that into perspective, if invested 10,000 for the year you would only pay $3 in fees. If you would like more information on VTI than click here.
Vanguard 500 ETF
On the other hand, Vanguard 500 ETF tracks the S&P 500. Unlike VTI, VOO only invests in large capitalisation companies. Thus, VOO offers less diversification than VTI. However, with less diversification comes potentially a higher yield. The higher yield explains why VOO trades at a significantly higher price than VTI. VOO also charges a 0.03% fee. If you would like more information on VOO than click here.
Which Vanguard ETF should investors go with?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Short answer: Because both ETFs are similar, it depends on your trading style.
Long-term trader with a higher risk tolerance
The main reason investors gravitate towards VOO is the higher yield. VOO is less diversified. Thus exposing the investor to more risk but also more return. If you have confidence in the S&P 500 in the long-term, than VOO is probably the ETF for you (opinion not advice).
Considering VOO is near its pre-COVID all-time high, I would suggest investors holds off (opinion not advice). Because the future direction of VOO is uncertain. Thus, I would wait until the short-term (12 months) direction becomes clear. Because the last thing you want is the markets to collapse, and you see a paper loss upwards of 30%. Also, a collapse would give you the chance to invest in VOO at a lower price.
Some investors have an optimistic view of the market. If that view is five years from now, I would say that outlook is quite accurate (opinion not advice). VTI offers more protection through its diversification across the entire US stock market. Thus, it is more stable and should consistently provide a healthy return once we enter the new bull market.
You could invest now. (opinion not advice) If you chose to invest now and the market plummeted. I would not panic. Instead, I would invest more on the down. Because the five-year projection that the market will recover will come to fruition in five years. Alternatively, investors could wait for the market to drop and cement their position in the Vanguard ETF at a lower price.
However, investors must understand the risks involved. Remember, fear and greed are constantly fighting as to who can control the remote control. Thus, the two ETF heavyweights are unpredictable for the first time in a while. Investors rode the ten year bull and received a pleasing paper gain. However, Vanguard ETF investors were disappointed when the market plummeted 32% in March. Thus, making predictions that the ETF’s will be green beyond Monday and Tuesday is pure speculation. Because beneath the surface the economy is decaying.
Also, please do not use the ETFs previous performance when making expected return projections. A greater correction could emerge, causing the ETF’s to fall off a cliff. Remember both ETFS are long-term products. Thus, it is best to have a long-term approach when investing in either VTI or VOO.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, Senior Manager of YIG.