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SPY vs VTI - Which Index Is Better Overall?

Both indices track the performance of the US stock market. The SPDR S&P 500 Trust ETF (SPY) is an exchange-traded fund that was designed to track the S&P 500 index. Vanguard’s Total Stock Market ETF (VTI) attempts to tracks the CRSP U.S. Total Market Index.

Below we’ll briefly go over the details of each fund then dive into some charts/data related to each of the funds to demonstrate which one is better than the other and which better suits certain portfolios.

Personally we prefer VTI due to higher diversification and slightly more volatility + outperformance in bull markets, however ultimately the difference between these two ETFs is very little and we don’t believe it’d be worthwhile selling out of one to get into the other if you’re already invested in one of them — this is because the tax-disadvantages would outweight the benefits of switching for most people in our opinion, as they’d have to realize potential gains on their current holdings.

Table Of Contents

Highlights

  • SPY and VTI are both exchange-traded funds but cover different stocks
  • SPY tracks 500 US stocks, 98% of which are large-cap
  • VTI tracks over 4,000 holdings of large-cap, mid-cap, small-cap, and even micro-cap stocks
  • SPY has a fee of 0.0945%, VTI has a smaller fee of 0.03%
  • Historically they have performed nearly identically
  • VTI generally is slightly more volatile but generally outperforms slightly in bull markets

SPY vs VTI - The Basics & Overview:

What Is SPY?

SPY is a popular benchmark for measuring the performance of the US economy and is one of the most widely used benchmarks in the world. It was first introduced in 1993 and had just $6.53 million in assets at the time. It is listed on the NYSE Arca exchange and, as of March 2022, has $416.9 billion in assets.

The SPY is made up of the largest companies listed on the NYSE and Nasdaq exchanges, and is often referred to as “the Wall Street Journal of investing.” It uses the average return of the 500 largest publicly-traded companies in the United States. These companies are chosen by a committee on factors such as market size, liquidity, and industry. The S&P measures the performance of the overall US economy, as investors can use the SPY to gain exposure to the overall health of the economy.

The SPY is a passive index fund that seeks to replicate the performance of the S&P 500 without actively managing its portfolio. This means that the SPY does not try to predict which stocks are going to perform well or poorly. Instead, it invests in all 500 large public companies in the United States and then averages out the returns of those companies.

A large number of holdings in SPY come from the technology sector, whereas it is reasonably lightweight in other important sectors such as financial holdings. It has an expense ratio of  0.0945% currently and over 350 billion AUM.

What Is VTI?

VTI is another popular benchmark for measuring the economic health of the US. It was founded on May 24, 2001, and like the SPY, VTI is a passive index fund. However, unlike the SPY, the VTI is a total market index fund. This means that the VTI includes both large and small companies — Investors who want to invest in a broad spectrum of stocks have found the VTI to be a good choice because it provides them with exposure to both large and small companies at once.

The VTI covers over 4,000 holdings, many of which are large technology companies such as Apple and Microsoft. However, it also includes many companies with much smaller market value, with several companies having a market capitalization of just a few million dollars.

It has assets of over 250 billion and an expense ratio of 0.03%, making it one of the cheapest ETFs available for purchase today.

How Are They Different?

There are several key differences between the SPY and the VTI. The SPY only contains 500 large companies, while the VTI has thousands of companies of varying sizes, making it more diverse. The SPY is focused on the US economy and is therefore tied to the performance of the US.Meanwhile, the VTI focuses on the global economy. 

If you prefer to focus on the US economy, the SPY may be a better option for you — although keep in mind while VTI offers exposure to other countries, it does still primarily focus on the US economy still so both are good for gaining exposure to US markets. Personally we prefer VTI.

 

SPY Vs. VTI - Historical Performance

Now that we know what each ETF is, what they are based on, and their key differences, let’s look at how that translates to their performance. Here’s the history from 2004 to mid 2022 and how each performed — well comment on the specifics below but the main takeaway is that VTI has historically performed very similarly, with slightly higher volatility, and slightly better diversification, so overall we prefer it to SPY.

SPY vs VTI Comparison Chart for 2004 to Now

The above chart shows the SPY performance (in black) next to VTI’s performance since 2004. As you can see from the chart, the two ETFs perform nearly identically with VTI performing slightly better during bull markets and slighty worse during crash events — this is due to the higher exposure to small-cap companies in VTI.

The peaks and troughs for both funds mirror each other, with VTF always being a little ahead. Now let’s take a closer look at the performance of the last ten years. 

SPY vs VTI 2010 Comparison Chart Example

Again SPY is in black and VTI is in blue, only this time the start date is 2010, two years after the 2008 crash. The two lines on the graph are much closer together and the result after so many years is essentially identical.

For long-term investors that are willing to buy and hold without trading or frequently cashing in, VTI is arguably the better option as they have slightly lower fees (as mentioned above) and perform juuust barely better, but none the less better, than SPY performs in the long-term. 

SPY Vs. VTI - Conclusion

Ultimately which you invest in doesn’t materially matter and won’t materially change your portfolios outcome — but having said that we prefer VTI due to it’s higher diversication and lower fees, however some may prefer SPY due to the higher liquidity it provides (generally), particularly if they trade on a intraday basis or participate in options trading frequently.