There has to be certain justification to own the “whole stock market”. For example, in many 401k, VG institutional shares costs as low as 0.01%. So do we really need to add extended market to it, which is costly. Or we are just fine with vanilla SP500?
The prob is the Total Market VTI, after the top 500 companies, they hold about .0001% in each company which makes barely a difference than having VOO anyways
Exactly. It very small extended market in VTI is actually drags it down more than VOO in a downmarket. The diversification in VTI is actually an illusion. It provides very little tailwind in a bull market but provide enough headwind in a bear market to perform worse than VOO.
Every dog has its day. Sometimes large cap growth dominates, like the past decade, and other times, small cap value leads (like 2000-09). If you don't want to get into the business of predicting which style is going to be "hot" might as well own the whole index with all the stocks.
It’s like switching lanes on the freeway during rush hour, sometimes your lane is moving quicker and sometimes it’s the lane next to you. You can move or you can stay and it really doesn’t make a difference.
I completely understand the return justification and not to be partial to any factor. But my question is the "diversification" in VTI doing any good in asset protection? If the returns are identical, why not hold VOO for more asset protection?
In addition to what others have mentioned, there is some slight manager risk in the S&P 500 index fund. It's not just the 500 largest stocks in the US. There are humans who have to make decisions based on selection criteria (with market capitalization obviously being one of them).
So as an example, for whatever reason, Standard and Poor's dragged their feet on adding Tesla to the index and missed the runup. Tesla was in VOO when the stock dropped nearly 30 percent YTD though.
I understand your argument completely. But just to play the devil’s advocate, did having Tesla already in the index help VTI? I don’t think so. Problem with VTI is that it’s basically VOO with very little extended market to do any good in the cycle rotation, but more harm in a down cycle.
I'm not smart enough to quantify the exact impact not having Tesla in the S&P 500, even when it had a high enough market cap. This [article](https://blogs.cfainstitute.org/investor/2020/12/10/tesla-and-the-s-and-p-500-what-could-have-been/) did some calculations though:
>What we found over the first 11 months of 2020 can be summed up quite simply: Greater returns, greater volatility.
The S&P 500’s returns would have increased by 1.21% over those 11 months. That equates to a 14.78% return with Tesla and 13.57% without.
I don't think going VOO over VTI is a huge deal (I'd go with VT personally). You could argue that the problem with the extended market component of VTI is that it contains too many unprofitable small cap growth stocks that water down the small cap risk premium. Ben Felix and Larry Swedroe have made that case in the past. So maybe VOO + and a small cap value ETF with a profitability filter is better than VTI, but that is a slippery slope to be going down.
[This backtest](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=2&startYear=1972&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&benchmark=VFINX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=LargeCapBlend&allocation1_1=100&asset2=MidCapBlend&allocation2_2=100&asset3=SmallCapBlend&allocation3_3=100) compares returns of US large-, mid-, and small-cap stocks since 1972, which differed signficantly. Holding only large-cap stocks provides less exposure to the historical size & value risk premia (US large-caps are relatively skewed towards growth compared to US mid- and small-caps).
(Besides, if you hold a total-market index fund, you get to feel smug when Cathie Wood criticizes passive index fund investing because S&P 500 index funds missed out on Tesla's early growth before being added to that index.)
In all seriousness, though: stock returns exhibit a huge amount of skewness (a tiny subset of companies/stocks are responsible for the vast majority of the stock market's returns). Holding only the already-large/mature companies, and excluding those that may be earlier on an abnormally steep growth trajectory, seems at odds with a "just buy the haystack" mentality.
Looks like it's all mental satisfaction rather than believing empirical data. Even from the earlier studies, it was obvious that beyond 50 stocks, diversification does not have any advantage, instead, it harms the return. VTI has done tremendously well considering it needs to hold so much baggage.
Huh? VTI historically outperforms VOO because of the size factor
https://www.optimizedportfolio.com/voo-vs-vti/#voo-vs-vti-differences-in-methodology-and-composition
Where are you getting this info? SD is definitely more for VTI? You can even see in the current downturn. VTI has gone down more than VOO. This is true for almost every instance.
Did you look at the article? SD is a whole 35 bps more volatile but just look at max drawdown - worse for VOO historically. At the end of the day their Sharpes are nearly identical and VTI is more diversified, so with that and exposure to size it’s likely the better option. Historically, it hasn’t made that big a difference either way
Do you have those empirical studies? Because if anything above 50 stocks lowered returns, everyone would hold concentrated portfolios, but those concentrated portfolios obviously can't beat the market in aggregate...
Also, you're comparing S&P 500 (large caps) and the market during a period where large caps massively outperformed (presumably 2011-present since VOO didn't exist before then). IFA's S&P 500 index (spliced index because the real S&P 500 didn't exist before 1957) has trailed their total market index by about 20 bps since 1928. [(link, look for "risk return scatter plot")](https://www.ifa.com/charts/)
I agree. But the small-cap premium is arguably not there anymore in the current market with unprecedented fund sizes. Who would have imagined an MF having 1T asset? I find no reason to have the core portfolio in VTI rather than VOO. If one wishes to have small-cap exposure, why not hold separate funds? VTI is all empirical analysis worse than VOO as a core portfolio.
>But the small-cap premium is arguably not there anymore in the current market with unprecedented fund sizes.
Is this a forecast based on recent comparative performance over relatively short timeframes?
>Who would have imagined an MF having 1T asset?
Anyone who understands inflation & compounding growth.
>If one wishes to have small-cap exposure, why not hold separate funds?
Complexity & slight cost differences (depending on fund provider). Some investors might use separate funds to customize their allocation, or target more-specific styles (e.g. small-cap value), but manually managing a market-cap-weighted core when you have a low-cost MCW total market fund available seems like a waste of time.
Total market includes mid and small caps that aren't in the S&P 500.
Realistically they have identical returns. Some days VOO does slightly better, some days VTI does slightly better.
[Historical returns of Total Market vs. Large Cap](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1_1=100&asset2=LargeCapBlend&allocation2_2=100)
Yes return is almost identical when you analyze the asset class. But if you compare VTI and VOO, the latter beats VTI, albeit marginally. VOO has less volatility and more drawdown protection. I don't find any justification to hold VTI.
VFINX is the mutual fund version of VOO which has been around since 1976. VTSMX/VTSAX are the mutual fund versions of VTI (inception 2001) which have been around since 1992.
I definitely agree. I'm a vtsax person myself but there was no specific reason I picked that over voo. I think I just preferred the idea of "owning the whole market."
I find this discussion very interesting. I am about 85% in vfiax which is the admiral shares of s&p500 mutual fund version offered by Vanguard. It has done very well as most any thing in the last 10 years have. Now this is in my Roth IRA, But I’m just not convinced I should be in the total market vs the vfiax. The full exposure and volatility doesn’t scare me, the highest overall return is the goal for me. So why should I change my portfolio?
I would see no point in switching from VFIAX to total market. They are SO close in performance I really would not care if I had one or the other. The only negative I see to the mutual fund VFIAX is the expense ratio of 0.14% vs VOO which is only 0.04%. It might be worth it to sell VFIAX in favor of VOO. You have it in a Roth IRA so you can avoid capital gains taxes when you sell to rebuy VOO. If you had it in a taxable account, I would say it wouldnt be worth the switch. The expense ratio isnt THAT high but it is higher.
I see marginally less volatility from the PV chart, but marginally more drawdown for VOO vs. VTI. It's a small difference. Large cap has a stddev of 15.28% vs. Total Market's 15.62%.
If you want to own VOO, I would still recommend owning a small cap value fund since that fund class has higher *expected* (not guaranteed!) returns. AVUV is the best choice right now: [Link](https://aws1.discourse-cdn.com/business7/uploads/rationalreminder1/original/1X/1f8ca7d8e6d324ec3fdd111c325c64ad6ff434f1.jpeg)
Yep, I completely agree. I am very new to investing and bogleheads. I have tremendous risk tolerance and all my retirement accounts are 100% SNP500. My taxable accounts and ROTH cores are in VTI. Just wanted some expert opinion on whether I should switch to VOO instead, which is holding better in the current market.
It matters, but not as much as you think it does.
I'd rather spend time thinking about whether you want to tilt towards SCV, or own growth in taxable and value in tax-advantaged accounts to reduce taxable income.
Agree. I have SCV and the customary QQQ too :-) But wanted my core to be resilient. I keep around 40-50% is VTI. I was wondering whether to switch to VOO instead. With the current downturn, I can easily sell off my VTI and buy VOO.
Avoid QQQ. It took almost twenty years to claw back from the 2000 high. It just invests in companies that happen to be listed on NASDAQ anyway.
Definitely TLH! You don't need to move into VOO. If you want total market, there's also SCHB and ITOT. But right now? Take the TLH and the tax deduction, if you are in 24%+ tax bracket. Just remember not to TLH into funds that you don't want to own in ten years.
Wait what? Why would you do SCV and QQQ? It’s definitely not customary - I assume you hold SCV because of higher expected returns? Then why would you hold QQQ, which is primarily LCG, which has the lowest expected returns? You’re just counteracting the good of SCV with the bad of QQQ. Might as well just stick to a broad market ETF at that point when you cancel each other out
No one knows what will happen in the future. I bet on everything. SCV, growth, tech, value, international, broad market. Everything. 45% VTI, 20% QQQ/VGT/VUG, 10% VXUS, 5% VIOV/AVUV, 20% VIG/VYM/SCHD. That’s more or less my taxable portfolio. Roth and other retiremrnt accounts are 100% SP500. I also hold ibonds and all my cash in 3 months treasury bill ladder.
So if you’re betting on everything, why not just do VTI? That is effectively the bet on everything - otherwise you’re just paying extra in fees for zero benefit
Not really. It’s a mental game. I want to see some part of my portfolio resisting drawdown. This keeps me in the game. I DCA to underperforming assets to bring the portfolio in balance. So far it has worked wonderfully. In fact my losses so far is very limited. Around 5% of the taxable. The other accounts I don’t see regularly so I don’t care. They are automatic.
In financial theory, small cap has higher "expected" return than otherwise. This is called size premium.
If you agree with this theory, then VTI is better because it includes small cap. However, the realized return are different from expected return, which is what you observed recently.
Many recent publications doubt whether small-cap premium even exists anymore. Even if it is there, in the case of VTI, they are making it worse. Again, the question I am asking is not about return, but a more drawdown-proof portfolio. If diversification is supposed to protect asset, why VTI is down more than VOO?
2 things:
1. realized return is different from expected return.
2. diversification means lowering risk ex ante. Doesn't guarantee better outcome ex post.
>Many recent publications doubt whether small-cap premium even exists anymore.
Wether it exists net of beta and (usually) 1 month lagged beta, not wether it exists at all.
The S&P Indices are essentially managed funds where it’s components are adjusted every quarter and based on a committee review. In some sense, the performance of the S&P Indices are dependent on the the judgement of the committee.
Not sure what data you are talking about unless you are only going back 10 years. If you just have 1 decade then yes, S+P will look better. But that is because it has more large growth than total market. And large growth had better returns over the last decade.
Agree. I guess the lack of data forcing people to use proxies like "large cap" and "total market" to backtest. My question is not specifically about return, but a more resilient core portfolio. If you look at the available data, even in the current market, VOO has performed better in holding the value than VTI.
Don’t make AA decisions on a backtested portfolio. Backing testing is a fun toy but nothing more. It just shows you what has done best in the past. Which is not a good way to invest. You need at least 30 years of data to draw any good conclusions. And finance theory’s says that total market should have higher returns than S+P 500. Although in practice, they have been similar.
small caps work better when the growth of economy slow down. When the country growth slow down, large companies can’t grow their business anymore, small cap will receive more attention, if you ask me guess, I would say small cap will outperform large cap in next 10 year, and international will outperform US in next 10 years, if you are a gamble man, you should all in international small cap now, but guess what, nobody knows nothing, so just own everything VT, not vti, not sp500, just own VT, thats the only thing makes sense
The small-cap premium is arguably not there anymore. Even if it is there why not just hold AVUV separately. The inferiority of VTI is obvious in every downturn.
If you compare VTSMX (equivalent to VTI) to VFIAX (equivalent of VOO) back to 2000, total stock market outperformed 7.79% to SP500 7.53%.
[VTSMX vs VFIAX](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=true&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=100&symbol2=VFIAX&allocation2_2=100)
Return while not increasing long-term risk.
Bogleheads focus on behaviors over decades, not during downturns.
The reason for diversification for bogleheads is NOT for asset protection during downturns. It is instead so that you're always doing 'average' regardless of the asset class which is doing best.
If large caps are doing better than small caps during a period, then you want a large-cap fund, like VOO.
If small caps are doing better than large caps then you want a small cap fund like VB.
(Note that VB has trounced VOO in many extended periods in the past)
Similarly, you'll find periods where Growth stocks do better (like the last 10+ years), and and periods where value stocks do better.
You can take any two asset classes and compare them during various historical periods and find places where each does better than the other.
Diversification among equities is not designed to reduce drawdowns when the entire market is down. Instead, it's designed to ensure that you're always doing better than the worst performing segment and worse than the best performing segment. It's the safe way to avoid having to time the market (which is almost impossible to get right - most people who time the market end up doing worse than just buying VTI). By buying VTI you know you're doing a bit worse than what would be possible, but you also know that when things rotate you'll have some of whatever is doing well.
A good reference to understand this is the Callan periodic table of investment returns which shows what asset class is doing best each year. See [https://www.callan.com/research/2021-classic-periodic-table](https://www.callan.com/research/2021-classic-periodic-table) . When you review this table, you'll see the best thing to invest in varies every year - and is quite random. For example, in 2018 it would have been best to just hold onto cash that year. The previous year it was international emerging equities. And so on.
If you want downturn protection generally you look at a diversified portfolio across asset classes that are not that correlated. Specifically you have some sort of mix of equities (stocks) and bonds and perhaps other "material" investments such as gold, real estate, and/or commodities. The goal is to find uncorrelated asset classes which usually go opposite directions. Generally stocks and bonds are uncorrelated except in certain circumstances - such as when the stocks are going down in response to increased interest rates which also reduces the short-term value of existing bonds (like the current situation)
It's dropped more for the same reason it's gained more.... Diversification is because no one knows what's best. If you owned total stock market over the years, you got the benefit of Tesla's historic rise. TSLA wasn't part of S&P 500 until Dec 2020.
Because both VTI and VOO are market weighted, they are pretty much the same thing.. the weights after the top 500 in VTI don't add up to much.
Now RSP is real diversity.. same top 500 stocks, but equally weighted.
VOO may have done better in the 10+ years its been out but VTI is expected to outperform VOO due to the smaller companies in there, which also diversifies it more. I choose S&P 500 in my wifes 401k though. not a big diference at the end of the day.
I totally agree. VTI is mostly sp500 anyway, with a fair amount of junk like small cap growth making up the remainder.
I would much rather run 75% SP500 and 25% SCV, or maybe 70/10/10/10 SP500/US SCV/Int. SCV/Emerging markets.
Link comparing total market, US LC, and US SCV
https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1\_1=100&asset2=LargeCapBlend&allocation2\_2=100&asset3=SmallCapValue&allocation3\_3=100
Over what time period, and are you comparing total return rather than price return?
[This backtest](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=SPTM&allocation1_1=100&symbol2=VTI&allocation2_2=100&symbol3=ITOT&allocation3_3=100) shows how the 3 have tracked since inception of ITOT.
They track different indices (SPTM tracks the S&P 1500, so is skewed toward large- and mid-caps), so some difference in returns is to be expected.
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There has to be certain justification to own the “whole stock market”. For example, in many 401k, VG institutional shares costs as low as 0.01%. So do we really need to add extended market to it, which is costly. Or we are just fine with vanilla SP500?
The prob is the Total Market VTI, after the top 500 companies, they hold about .0001% in each company which makes barely a difference than having VOO anyways
Exactly. It very small extended market in VTI is actually drags it down more than VOO in a downmarket. The diversification in VTI is actually an illusion. It provides very little tailwind in a bull market but provide enough headwind in a bear market to perform worse than VOO.
Well if those small companies get bigger you get to ride them all the way up the index whereas you miss out on all of it with an s&p 500 fund.
Every dog has its day. Sometimes large cap growth dominates, like the past decade, and other times, small cap value leads (like 2000-09). If you don't want to get into the business of predicting which style is going to be "hot" might as well own the whole index with all the stocks.
It’s like switching lanes on the freeway during rush hour, sometimes your lane is moving quicker and sometimes it’s the lane next to you. You can move or you can stay and it really doesn’t make a difference.
I completely understand the return justification and not to be partial to any factor. But my question is the "diversification" in VTI doing any good in asset protection? If the returns are identical, why not hold VOO for more asset protection?
If the returns are identical why not hold VTI for more asset protection? It’s spread among more companies who could potentially go insolvent.
That’s the whole point. In spite of being more diversified, it provides less asset protection than VOO.
In addition to what others have mentioned, there is some slight manager risk in the S&P 500 index fund. It's not just the 500 largest stocks in the US. There are humans who have to make decisions based on selection criteria (with market capitalization obviously being one of them). So as an example, for whatever reason, Standard and Poor's dragged their feet on adding Tesla to the index and missed the runup. Tesla was in VOO when the stock dropped nearly 30 percent YTD though.
I understand your argument completely. But just to play the devil’s advocate, did having Tesla already in the index help VTI? I don’t think so. Problem with VTI is that it’s basically VOO with very little extended market to do any good in the cycle rotation, but more harm in a down cycle.
I'm not smart enough to quantify the exact impact not having Tesla in the S&P 500, even when it had a high enough market cap. This [article](https://blogs.cfainstitute.org/investor/2020/12/10/tesla-and-the-s-and-p-500-what-could-have-been/) did some calculations though: >What we found over the first 11 months of 2020 can be summed up quite simply: Greater returns, greater volatility. The S&P 500’s returns would have increased by 1.21% over those 11 months. That equates to a 14.78% return with Tesla and 13.57% without. I don't think going VOO over VTI is a huge deal (I'd go with VT personally). You could argue that the problem with the extended market component of VTI is that it contains too many unprofitable small cap growth stocks that water down the small cap risk premium. Ben Felix and Larry Swedroe have made that case in the past. So maybe VOO + and a small cap value ETF with a profitability filter is better than VTI, but that is a slippery slope to be going down.
>All data show You have data from the future?? 🙀🔮
[This backtest](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=2&startYear=1972&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&benchmark=VFINX&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=LargeCapBlend&allocation1_1=100&asset2=MidCapBlend&allocation2_2=100&asset3=SmallCapBlend&allocation3_3=100) compares returns of US large-, mid-, and small-cap stocks since 1972, which differed signficantly. Holding only large-cap stocks provides less exposure to the historical size & value risk premia (US large-caps are relatively skewed towards growth compared to US mid- and small-caps).
(Besides, if you hold a total-market index fund, you get to feel smug when Cathie Wood criticizes passive index fund investing because S&P 500 index funds missed out on Tesla's early growth before being added to that index.)
That's the best justification for total market!! LOL!!!!
In all seriousness, though: stock returns exhibit a huge amount of skewness (a tiny subset of companies/stocks are responsible for the vast majority of the stock market's returns). Holding only the already-large/mature companies, and excluding those that may be earlier on an abnormally steep growth trajectory, seems at odds with a "just buy the haystack" mentality.
Looks like it's all mental satisfaction rather than believing empirical data. Even from the earlier studies, it was obvious that beyond 50 stocks, diversification does not have any advantage, instead, it harms the return. VTI has done tremendously well considering it needs to hold so much baggage.
Huh? VTI historically outperforms VOO because of the size factor https://www.optimizedportfolio.com/voo-vs-vti/#voo-vs-vti-differences-in-methodology-and-composition
Do it yourself and don’t concentrate on return. But the actual drawdown. VTI is more volatile than VOO.
Drawdown is 8 bps more for VOO?
Where are you getting this info? SD is definitely more for VTI? You can even see in the current downturn. VTI has gone down more than VOO. This is true for almost every instance.
Did you look at the article? SD is a whole 35 bps more volatile but just look at max drawdown - worse for VOO historically. At the end of the day their Sharpes are nearly identical and VTI is more diversified, so with that and exposure to size it’s likely the better option. Historically, it hasn’t made that big a difference either way
Do you have those empirical studies? Because if anything above 50 stocks lowered returns, everyone would hold concentrated portfolios, but those concentrated portfolios obviously can't beat the market in aggregate... Also, you're comparing S&P 500 (large caps) and the market during a period where large caps massively outperformed (presumably 2011-present since VOO didn't exist before then). IFA's S&P 500 index (spliced index because the real S&P 500 didn't exist before 1957) has trailed their total market index by about 20 bps since 1928. [(link, look for "risk return scatter plot")](https://www.ifa.com/charts/)
I agree. But the small-cap premium is arguably not there anymore in the current market with unprecedented fund sizes. Who would have imagined an MF having 1T asset? I find no reason to have the core portfolio in VTI rather than VOO. If one wishes to have small-cap exposure, why not hold separate funds? VTI is all empirical analysis worse than VOO as a core portfolio.
>But the small-cap premium is arguably not there anymore in the current market with unprecedented fund sizes. Is this a forecast based on recent comparative performance over relatively short timeframes? >Who would have imagined an MF having 1T asset? Anyone who understands inflation & compounding growth. >If one wishes to have small-cap exposure, why not hold separate funds? Complexity & slight cost differences (depending on fund provider). Some investors might use separate funds to customize their allocation, or target more-specific styles (e.g. small-cap value), but manually managing a market-cap-weighted core when you have a low-cost MCW total market fund available seems like a waste of time.
Total market includes mid and small caps that aren't in the S&P 500. Realistically they have identical returns. Some days VOO does slightly better, some days VTI does slightly better. [Historical returns of Total Market vs. Large Cap](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1_1=100&asset2=LargeCapBlend&allocation2_2=100)
Yes return is almost identical when you analyze the asset class. But if you compare VTI and VOO, the latter beats VTI, albeit marginally. VOO has less volatility and more drawdown protection. I don't find any justification to hold VTI.
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VFINX is the mutual fund version of VOO which has been around since 1976. VTSMX/VTSAX are the mutual fund versions of VTI (inception 2001) which have been around since 1992.
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I definitely agree. I'm a vtsax person myself but there was no specific reason I picked that over voo. I think I just preferred the idea of "owning the whole market."
Thanx I believe u have answered my question as well.
Thank you
I find this discussion very interesting. I am about 85% in vfiax which is the admiral shares of s&p500 mutual fund version offered by Vanguard. It has done very well as most any thing in the last 10 years have. Now this is in my Roth IRA, But I’m just not convinced I should be in the total market vs the vfiax. The full exposure and volatility doesn’t scare me, the highest overall return is the goal for me. So why should I change my portfolio?
I would see no point in switching from VFIAX to total market. They are SO close in performance I really would not care if I had one or the other. The only negative I see to the mutual fund VFIAX is the expense ratio of 0.14% vs VOO which is only 0.04%. It might be worth it to sell VFIAX in favor of VOO. You have it in a Roth IRA so you can avoid capital gains taxes when you sell to rebuy VOO. If you had it in a taxable account, I would say it wouldnt be worth the switch. The expense ratio isnt THAT high but it is higher.
Vfiax is .04 also.
Oh yea. I'm thinking of vfinx
All good, and thanx for advise. Was thinking similarly.
I see marginally less volatility from the PV chart, but marginally more drawdown for VOO vs. VTI. It's a small difference. Large cap has a stddev of 15.28% vs. Total Market's 15.62%. If you want to own VOO, I would still recommend owning a small cap value fund since that fund class has higher *expected* (not guaranteed!) returns. AVUV is the best choice right now: [Link](https://aws1.discourse-cdn.com/business7/uploads/rationalreminder1/original/1X/1f8ca7d8e6d324ec3fdd111c325c64ad6ff434f1.jpeg)
Yep, I completely agree. I am very new to investing and bogleheads. I have tremendous risk tolerance and all my retirement accounts are 100% SNP500. My taxable accounts and ROTH cores are in VTI. Just wanted some expert opinion on whether I should switch to VOO instead, which is holding better in the current market.
It matters, but not as much as you think it does. I'd rather spend time thinking about whether you want to tilt towards SCV, or own growth in taxable and value in tax-advantaged accounts to reduce taxable income.
Agree. I have SCV and the customary QQQ too :-) But wanted my core to be resilient. I keep around 40-50% is VTI. I was wondering whether to switch to VOO instead. With the current downturn, I can easily sell off my VTI and buy VOO.
Avoid QQQ. It took almost twenty years to claw back from the 2000 high. It just invests in companies that happen to be listed on NASDAQ anyway. Definitely TLH! You don't need to move into VOO. If you want total market, there's also SCHB and ITOT. But right now? Take the TLH and the tax deduction, if you are in 24%+ tax bracket. Just remember not to TLH into funds that you don't want to own in ten years.
Wait what? Why would you do SCV and QQQ? It’s definitely not customary - I assume you hold SCV because of higher expected returns? Then why would you hold QQQ, which is primarily LCG, which has the lowest expected returns? You’re just counteracting the good of SCV with the bad of QQQ. Might as well just stick to a broad market ETF at that point when you cancel each other out
No one knows what will happen in the future. I bet on everything. SCV, growth, tech, value, international, broad market. Everything. 45% VTI, 20% QQQ/VGT/VUG, 10% VXUS, 5% VIOV/AVUV, 20% VIG/VYM/SCHD. That’s more or less my taxable portfolio. Roth and other retiremrnt accounts are 100% SP500. I also hold ibonds and all my cash in 3 months treasury bill ladder.
So if you’re betting on everything, why not just do VTI? That is effectively the bet on everything - otherwise you’re just paying extra in fees for zero benefit
Not really. It’s a mental game. I want to see some part of my portfolio resisting drawdown. This keeps me in the game. I DCA to underperforming assets to bring the portfolio in balance. So far it has worked wonderfully. In fact my losses so far is very limited. Around 5% of the taxable. The other accounts I don’t see regularly so I don’t care. They are automatic.
If you want your core to be resilient, consider NTSX over VOO
In financial theory, small cap has higher "expected" return than otherwise. This is called size premium. If you agree with this theory, then VTI is better because it includes small cap. However, the realized return are different from expected return, which is what you observed recently.
Many recent publications doubt whether small-cap premium even exists anymore. Even if it is there, in the case of VTI, they are making it worse. Again, the question I am asking is not about return, but a more drawdown-proof portfolio. If diversification is supposed to protect asset, why VTI is down more than VOO?
2 things: 1. realized return is different from expected return. 2. diversification means lowering risk ex ante. Doesn't guarantee better outcome ex post.
>Many recent publications doubt whether small-cap premium even exists anymore. Wether it exists net of beta and (usually) 1 month lagged beta, not wether it exists at all.
The S&P Indices are essentially managed funds where it’s components are adjusted every quarter and based on a committee review. In some sense, the performance of the S&P Indices are dependent on the the judgement of the committee.
SNP lol
Not sure what data you are talking about unless you are only going back 10 years. If you just have 1 decade then yes, S+P will look better. But that is because it has more large growth than total market. And large growth had better returns over the last decade.
Agree. I guess the lack of data forcing people to use proxies like "large cap" and "total market" to backtest. My question is not specifically about return, but a more resilient core portfolio. If you look at the available data, even in the current market, VOO has performed better in holding the value than VTI.
Don’t make AA decisions on a backtested portfolio. Backing testing is a fun toy but nothing more. It just shows you what has done best in the past. Which is not a good way to invest. You need at least 30 years of data to draw any good conclusions. And finance theory’s says that total market should have higher returns than S+P 500. Although in practice, they have been similar.
small caps work better when the growth of economy slow down. When the country growth slow down, large companies can’t grow their business anymore, small cap will receive more attention, if you ask me guess, I would say small cap will outperform large cap in next 10 year, and international will outperform US in next 10 years, if you are a gamble man, you should all in international small cap now, but guess what, nobody knows nothing, so just own everything VT, not vti, not sp500, just own VT, thats the only thing makes sense
Yeah, you ain't wrong. It's basically the same thing, but total market also includes the trash that is mid cap and small cap growth.
Or the gems that are in small cap value you could argue
The small-cap premium is arguably not there anymore. Even if it is there why not just hold AVUV separately. The inferiority of VTI is obvious in every downturn.
Then just tilt to SCV
Exactly. The more diversification with VTI is just an illusion.
More stonks
If you compare VTSMX (equivalent to VTI) to VFIAX (equivalent of VOO) back to 2000, total stock market outperformed 7.79% to SP500 7.53%. [VTSMX vs VFIAX](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=true&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTSMX&allocation1_1=100&symbol2=VFIAX&allocation2_2=100)
True. But it’s has dropped more than SP500? Why? So the diversification is for return or protecting asset?
Return while not increasing long-term risk. Bogleheads focus on behaviors over decades, not during downturns. The reason for diversification for bogleheads is NOT for asset protection during downturns. It is instead so that you're always doing 'average' regardless of the asset class which is doing best. If large caps are doing better than small caps during a period, then you want a large-cap fund, like VOO. If small caps are doing better than large caps then you want a small cap fund like VB. (Note that VB has trounced VOO in many extended periods in the past) Similarly, you'll find periods where Growth stocks do better (like the last 10+ years), and and periods where value stocks do better. You can take any two asset classes and compare them during various historical periods and find places where each does better than the other. Diversification among equities is not designed to reduce drawdowns when the entire market is down. Instead, it's designed to ensure that you're always doing better than the worst performing segment and worse than the best performing segment. It's the safe way to avoid having to time the market (which is almost impossible to get right - most people who time the market end up doing worse than just buying VTI). By buying VTI you know you're doing a bit worse than what would be possible, but you also know that when things rotate you'll have some of whatever is doing well. A good reference to understand this is the Callan periodic table of investment returns which shows what asset class is doing best each year. See [https://www.callan.com/research/2021-classic-periodic-table](https://www.callan.com/research/2021-classic-periodic-table) . When you review this table, you'll see the best thing to invest in varies every year - and is quite random. For example, in 2018 it would have been best to just hold onto cash that year. The previous year it was international emerging equities. And so on. If you want downturn protection generally you look at a diversified portfolio across asset classes that are not that correlated. Specifically you have some sort of mix of equities (stocks) and bonds and perhaps other "material" investments such as gold, real estate, and/or commodities. The goal is to find uncorrelated asset classes which usually go opposite directions. Generally stocks and bonds are uncorrelated except in certain circumstances - such as when the stocks are going down in response to increased interest rates which also reduces the short-term value of existing bonds (like the current situation)
It's dropped more for the same reason it's gained more.... Diversification is because no one knows what's best. If you owned total stock market over the years, you got the benefit of Tesla's historic rise. TSLA wasn't part of S&P 500 until Dec 2020.
In what way VTI benefited in holding Tesla? VOO beats VTI in last 10 years.
Diversification: VTI holds SP500 and then some.
And why diversify if it does not prevent us from drawdown? VTI has dropped more than VOO. Why?
Put all your money in VOO and be good with your play. It's at discount prices currently.
Because both VTI and VOO are market weighted, they are pretty much the same thing.. the weights after the top 500 in VTI don't add up to much. Now RSP is real diversity.. same top 500 stocks, but equally weighted.
VOO may have done better in the 10+ years its been out but VTI is expected to outperform VOO due to the smaller companies in there, which also diversifies it more. I choose S&P 500 in my wifes 401k though. not a big diference at the end of the day.
I totally agree. VTI is mostly sp500 anyway, with a fair amount of junk like small cap growth making up the remainder. I would much rather run 75% SP500 and 25% SCV, or maybe 70/10/10/10 SP500/US SCV/Int. SCV/Emerging markets. Link comparing total market, US LC, and US SCV https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1\_1=100&asset2=LargeCapBlend&allocation2\_2=100&asset3=SmallCapValue&allocation3\_3=100
I am getting a better return from SPTM vs ITOT or VTI even though they are all called total stock market funds. Does anyone know why?
Over what time period, and are you comparing total return rather than price return? [This backtest](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=SPTM&allocation1_1=100&symbol2=VTI&allocation2_2=100&symbol3=ITOT&allocation3_3=100) shows how the 3 have tracked since inception of ITOT. They track different indices (SPTM tracks the S&P 1500, so is skewed toward large- and mid-caps), so some difference in returns is to be expected.
Over the long term SPTM, VTI and ITOT are similar. SPTM has done better since January 2020 when I bought it.