VTI vs S&P 500: Should You Invest in the Entire US Stock Market?
πΊπΈ Choosing the Right ETF for US Market Investing
Thinking about starting to invest in US stocks? With so many options available, it can feel overwhelming.
Individual stocks seem risky, and there are countless index ETFs to choose from.
Today, I'll introduce you to an ETF worth considering.
π Types of Index ETFs
The most common index ETFs are:
- S&P 500: Top 500 US companies
- Nasdaq: Tech-heavy focus
- Dow Jones: 30 blue-chip stocks
The S&P 500 is the most representative, tracking 500 leading US companies.
But if 500 companies still feels concentrated, there's an ETF that lets you invest in the entire US stock market at once.
π VTI: The ETF That Owns All of America
That's VTI (Vanguard Total Stock Market ETF).
Featured in the book "The Simple Path to Wealth," this ETF invests in 3,533 companies listed in the US.
Think of it as owning the entire American economy.
When today's tech giants eventually get replaced by new leaders, this ETF will automatically adjustβsurviving through every transition.
π VTI vs S&P 500: Detailed Comparison
| Feature | VTI | S&P 500 (VOO) |
|---|---|---|
| Number of holdings | 3,533 | 507 |
| Expense ratio | 0.03% | 0.03% |
| Focus | Total market | Large-cap |
Looking closely at VTI, it moves almost identically to the S&P 500. That's because 80% of VTI is made up of S&P 500 companies.
The remaining 20% covers 3,000 additional companies, but due to market-cap weighting, their impact is relatively small.
If you believe America won't fail even if individual companies do, VTI is an excellent choice.
π 10-Year Performance Comparison
Looking at the 10-year chart, both ETFs move nearly in lockstep.
However, since 2023, the S&P 500 has pulled slightly ahead because it has higher big tech concentration.
Still, the 10-year return difference is only 12.2%.
If big tech stocks face a significant correction later, VTI will provide better downside protection.
Dividend Reinvestment Effect
Reinvesting dividends produces 57.2% higher returns.
Unless you need the income now, reinvesting dividends for compound growth is always the better choice.
π° Long-Term Investment Simulation
The average annual return over the past 10 years has been 14.66%βquite impressive.
That means if you'd invested for 10 years, your assets would have more than tripled.
Monthly $300 Investment Results (Assuming 14.66% Annual Return)
| Investment Period | Expected Assets |
|---|---|
| 10 years | ~$70,000 |
| 20 years | ~$340,000 |
| 30 years | ~$1,500,000 |
If you're in your 20s or 30s, investing $300 monthly for 30 years could set you up for retirement.
If you're 40+, you might need to increase your monthly contribution.
π― Conclusion: Which ETF Should You Choose?
| Investment Style | Recommended ETF |
|---|---|
| US large-cap focus | S&P 500 (VOO, SPY) |
| Total US market diversification | VTI |
| Tech-heavy allocation | Nasdaq (QQQ) |
Ultimately, a well-managed portfolio of index ETFs, bonds, and cash can lead you to financial independence.
It's never too late to start. Let's invest together! π