VOO vs VT: Which ETF is the Better Investment?

Uncover the truth about why Vanguard's VOO is superior to VT. In this video, I provide 5 reasons why I personally prefer VOO as the dominant ETF in my portfolio, and why I stay away from VT.

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VOO and VT are exchange-traded funds (ETFs) that are popular among long-term investors. VOO is an ETF that tracks the S&P 500 index, which is a market capitalization-weighted index that represents the performance of the 500 largest publicly traded companies in the United States.

VT is the Vanguard Total World Stock ETF. VT is designed to provide exposure to the global stock market. Only 60% of the holdings are based in the United States.

Like with any investment, investors must consider their goals and risk tolerance. The reasons I prefer the VOO are listed below:

1. VOO has a lower expense ratio (0.03%) compared to VT (.07%).
2. VOO has less portfolio turnover (2%) compared to VT (6%). Optimizing for less turnover is a way I can improve my long-term returns.
3. VOO is less risky than VT because of, among other things, the risks that come with investing in emerging markets.
4. Both VOO and VT could end up failing, but if I failed investing in the VOO, I wouldn't hate myself. However, if the same thing happened with VT, I would be upset with myself for thinking it was wise to put my money into companies that are based in places that have more inherent risk.
5. VOO aligns with my long-term strategy to do no better (or no worse) than the S&P 500 over the next 30 years.

Also, Warren Buffett loves the S&P 500. That is not a reason to invest, but it's nice to know the greatest investor of all-time has directed his wife to invest her inheritance into a low-cost index fund that tracks the S&P 500. By the way, I am almost 100% sure it will be the VOO since Buffett publicly celebrates the legacy of Vanguard founder Jack Bogle.

This is not financial advice. I am an individual investor like you. I am not encouraging you to follow my lead. Please do your own research.

Bonus: Principal Risks of VT

1. Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. The Fund’s investments in foreign stocks can be riskier than U.S. stock investments. Foreign stocks may be more volatile and less liquid than U.S. stocks. The prices of foreign stocks and the prices of U.S. stocks may move in opposite directions. In addition, the Fund’s target index may, at times, become focused in stocks of a particular market sector, which would subject the Fund to proportionately higher exposure to the risks of that sector.

2. Country/regional risk, which is the chance that world events—such as political upheaval, financial troubles, or natural disasters—will adversely affect the value of securities issued by companies in foreign countries or regions. Because the Fund may invest a large portion of its assets in securities of companies located in any one country or region, the Fund’s performance may be hurt disproportionately by the poor performance of its investments in that area. Country/regional risk is especially high in emerging markets.

3. Emerging markets risk, which is the chance that the stocks of companies located in emerging markets will be substantially more volatile, and substantially less liquid, than the stocks of companies located in more developed foreign markets because, among other factors, emerging markets can have greater custodial and operational risks; less developed legal, tax, regulatory, financial reporting, accounting, and recordkeeping systems; and greater political, social, and economic instability than developed markets.

4. Currency risk, which is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates. Currency risk is especially high in emerging markets.

5.Index sampling risk, which is the chance that the securities selected for the Fund, in the aggregate, will not provide investment performance matching that of the Fund’s target index. Index sampling risk for the Fund is expected to be low.

Read about both products at Vanguard.com