Whether you’re new to investing or a long-time trader, having S&P 500 funds is almost a given in a well-rounded portfolio. But which S&P 500 ETF is best: VOO or VOOG?
We take a look at two popular S&P 500 ETFs – VOOG and VOO to see what the differences between them are when it comes to fees, track record, AUM and much more.
First, let’s dig into why your portfolio should include an S&P 500 ETF.
Why Invest in S&P 500 ETFs?
Investing in S&P 500 ETFs is one of the easiest ways for investors to get diversified without paying high fees.
The S&P 500 isn’t just one fund – it’s actually the weighted market cap index of the United States’ 500 largest companies offering publicly traded stocks.
The S&P 500 spans a wide variety of sectors and industries, such as industrials, healthcare, technology, utilities, and finance.
That naturally leads to insulation from sector boom and bust cycles. For example, if technology stocks are on the decline, consumer staples may be on the rise so you have an inherent portfolio buffer.
Beyond sector diversification, investors also get to spread their risk across growth and value companies.
Rather than speculate on growth or value firms, you can get both by allocating capital to a diversified index fund, such as an S&P 500 ETF.
Growth companies are known for:
- Faster revenue/earnings growth than average
- Earnings are typically reinvested into the business
- Higher stock prices compared to profits (high p/e ratios)
- Higher volatility of stock price compared to companies known for value (high beta)
Value companies are known for:
- Trading at lower multiples versus because they grow at slower rates
- Frequently pay dividends to shareholders
- Generate significant cash flows
- Lower volatility of stock price versus growth firms
Many investors enjoy owning a piece of the S&P 500 because it has both of these types of stocks. But there are investors who would rather own growth stocks as opposed to value stocks, and vice versa.
How Are VOO and VOOG Different?
The VOOG ETF tracks performance of the benchmark index measuring investment returns of the United States’ large-cap growth stocks by using the indexing approach used for tracking the Growth Index performance.
The index is comprised solely of US companies and therefore only tracks companies in the United States – and only those companies termed growth companies.
On the other hand, VOO only tracks those companies in the United States deemed value companies.
VOO was the first fund to do so when it launched in the mid-70s. the VOO ETF owns stocks in the same companies as the S&P 500 index overall, but as a proportion of total stocks held.
In other words, the VOO ETF represents 75% of the overall value of the stock market as a whole and VOO tracks the US stock market value overall.
VOOG and VOO are both ETFs as opposed to mutual funds. The key difference between mutual funds and ETFs are that ETFs are continuously monitored and can be sold or bought throughout the trading day – mutual funds, on the other hand, can only be bought or sold at the end of each trading day.
In addition, mutual funds are actively managed, meaning the fund’s manager decides how assets are allocated throughout the fund.
Depending on your fund manager, funds in the S&P 500 can be purchased as either a mutual fund or an ETF. Normally, a mutual fund must be purchased directly through your fund manager, while ETFs are available via any major exchange.
To buy the Vanguard S&P 500, you don’t necessarily need to purchase directly through Vanguard, but it could save you brokerage fees.
Since both VOO and VOOG are ETFs, you can purchase your buy-in through any reputable brokerage firm.
If you use your own brokerage firm, you may be charged fees – commissions – to pay when buying or selling your shares. If you open your brokerage account directly with Vanguard, you can buy and sell VOO free of charge.
VOOG Fees and Track Record
When purchasing VOOG shares, there are no load fees imposed. You’ll also have no purchase or redemption fees taken from your investment.
However, VOOG charges an expense ratio of 0.10%, meaning if you purchase $1,000 worth of VOOG, it will cost you $1 for each year you hold the position. The average expense ratio of similar funds is 0.96%.
VOOG is a growth fund, as explained above. It tracks the growth of 234 different companies with an equal benchmark. The average annual rate of growth in earnings over the past five years for stocks in the portfolio is 23.2%.
The median market capitalization for this ETF is $372 billion.
VOO Fees and Returns
Just like VOOG, VOO charges an expense ratio, which is 0.03% annually.
VOO is an ETF that tracks 506 companies with a benchmark of 505. Its median market capitalization is $192.5 billion.
The portfolio has an earnings growth rate of 18.2% while the weighted average price/book ratio of the stocks it holds is 4.1x.
VOOG vs VOO – Which is the Better ETF?
When comparing these two ETFs, we come up with the following:
- VOO is a value-based index
- VOOG is a growth-based index
Actual year-to-date return for:
- VOO: 18.74%
- VOOG: 24.1%
3 year return:
- VOO – 10.47%
- VOOG – 6.74%
5-year return:
- VOO – 11.08%
- VOOG – 11.60%
VOO vs VOOG: Which Is Best?
Both of these S&P 500 ETFs are an excellent way for investors seeking both short- and long-term investments with growth potential.
They offer broad diversification as well as an abundance of liquidity, so they are both great options whether you are a first-time investor or highly experienced.
VOO charges a lower expense ratio than VOOG. Both have similar 5 year return performances, though VOOG is slightly higher at 11.60% versus 11.08% for VOO.
The minimum investment for each is just $1 so there’s nothing separating them on that front. However, VOO is significantly more popular with $924 billion in assets under management while VOOG has just $8.2 billion under management.
One reason for the popularity of VOO over VOOG is likely the selection criteria of holdings in VOOG. Stocks in VOOG are specifically chosen on three factors:
- Sales growth
- Ratio of earnings changes to stock price
- Momentum of growth
VOOG is a direct competitor of such ETFs as IVW and SPYG and has a very similar portfolio. It’s not quite as concentrated as the benchmark in this case, but it leans toward mid-cap firms.
Also with VOOG, the scales are tipped a bit more in favor of technology firms. VOOG enjoys robust trading volume each day and has a modest spread but limit orders remain the best way to buy.
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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
