VTI vs SCHB - Which Broad-Market ETF is Better?
In this article, we will be talking about the differences between two broad-market (US) ETFs, namely VTI and SCHB — First, we will give you some background information to the similarities and differences between each fund as well as some of their unique advantages and disadvantages.
To give a brief overview to start: Both VTI and SCHB are designed to provide investors with an easy way to mirror the returns of the market as a whole, in an easy way, and with very little fees — they both are fantastic in this regard and achieve this mission better than other broad-market ETFs in our view.
Overall though we’d say there’s little difference between VTI and SCHB and we’d personally rather buy both than just one as their historic performence is similar, and investing in two different funds opens up tax-advantageous strategies as well as protects from ETF issuer Bankruptcy which is an often overlooked (albeit unlikely) risk that’s real when investing in ETFs.
What Similarities do VTI and SCHB have?
- Both ETFs attempt track the entire US Market — VTI tracks the CRSP US Total Market Index and has exposure to approximately 3,369 stocks, while SCHB tracks an index of 2,565 stocks called the Dow Jones U.S. Broad Stock Market Index — keep in mind this is NOT the Dow Jones you hear about in the news all the town (DJI), that’s the industrial average Dow Jones provides, not their lesser known broad-market index.
- Both ETFs have the exact same Expense Ratios (ER) of 0.03% and are both extremely low compared to other broad-market funds. The only way to get a lower broad-market ETF fee is to build your own ETF using M1 Finance Pies, but for most people it wouldn’t be worth the effort to save 0.03% a year.
- Both ETFs have very little industry-specific stock exposure, with no more than 5% of the index in any specific stock
- Both funds have similar top-10 holdings with around 21% to 22% of the funds being invested in their top-10 holdings, again being more or less identical to one another.
- Both have a low volatility of around 4% monthly, with the top-10 holdings being represented by the most stable large companies the US has to offer – namely Amazon, Apple, Google, and Chase Bank.
What Differences does VTI and SCHB have?
- VTI has a SIGNIFICANTLY larger fund size and trading-volume, making it technically the more liquid investment, coming in at 223 billion dollars under management with around 600 million dollars of VTI traded every trading day.
- SCHB has 20.34 billion dollars under management and only around 55 million dollars worth of the shares traded each trading day – but ultimately while lower than VTI it’s still liquid enough and big enough to not cause any actual real-world affects
- VTI holds more stocks in their index than SCHB, with about 800 more stocks in VTI compared to SCHB – but as those extra 800 stocks are generally weighted at <0.1% of the portfolio in total they don’t actually have a material impact on the fund (as discussed below).
SCHB vs VTI - Which Should You Invest in?
Let’s face it – investing in VTI or SCHB is largely a matter of choosing whicher you like the ticker of better as theres little to no difference between the two broad-market ETFs. Both ETFs provide similar returns historically (Yearly returns within 0.1% of each other) there is really no advantage to mention that’d help someone choose which one to invest in other than reducing tax-risks and ETF-bankruptcy risks.
To elaborate on that if an ETF goes bankrupt, or their issuer does, you can be forced into selling the fund creating a taxable event — while extremely unlikely in our view, it’s still a risk, so it might be worth investing in both VTI and SCHB to mitigate this risk. You can also engage in tax-adventageous strategies easier by owning both, however if you want to do that you should discuss it with a tax advisor that is knowledgable in the field.
What Other Broad-Market ETFs Are Worth Considering?
If you are looking for another alternative broad-market ETF ITOT is iShares broad-market ETF and it has similar returns and everything to SCHB and VTI, with the same low-cost 0.03% expense ratio.
I’d also recommend checking out either iShares or SDPR’s offerings depending on your what you’re looking for, although I generally prefer Schwab and Vanguard when it comes to broad ETF’s – although being honest there’s little difference between Vanguard and Ishares ETFs; generally the like-kind ETFs hold like-kind stocks/assets.
I’d say consider looking at total-market or broad ETFs that include international holdings if you want maximum diversification, or combine one of the US-centric Broad-market ETF’s like we’ve covered here (SCHB or VTI) with an international broad-market ETF like VXUS or SCHF, that is if you want maximum diversification. If you just want to mirror the US market then that might not be what you want to do.
How Much of Your Portfolio Should be in Broad-Market ETFs?
The answer to this question entires depends on your goals, financial education level and passion, as well as risk tolerance – so it’s something that I cannot answer. If you aren’t sure you should probably talk to a financial advisor or take some time to figure it out on your own.
Personally though I would say that one can easily allocate up to 30% to broad-market ETF’s within a total portfolio, or even a bit higher if someone wanted a more passive ‘set and forget’ type of portfolio, however personally I have <10% of my portfolio in broad-market ETFs.