VOOG Vs VOO: 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 funds are actually superior?
We’ll get those answers in just a moment. 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.
What is the S&P 500?
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 healthcare, tech, communications, and finance. So if technology is booming, you have upside exposure. But in a recession if consumer staples are outperforming you can benefit from them too.
There are also two different types of companies: growth and value.
Growth companies are known for:
- Faster revenue/earnings growth than average
- Growth is the highest priority
- Earnings usually get reinvested into acquisitions, new employees, and upgraded equipment
- 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 bargain prices in relation to the company’s actual value
- Growth is not a main priority
- Usually provide investors with dividend returns
- Lower stock prices in relation to company profits
- Significant profits aren’t expected over the long term
- Lower volatility of stock price in comparison with companies known for growth
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.
What is VOOG?
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 S&P 500 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.
Investing in VOO
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 take part in 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.
VOOG is a growth fund, as explained above. It tracks the growth of 276 different companies with an equal benchmark.
The average market capitalization for this ETF is $502 billion – with a median market capitalization of $184.6 billion.
The current return on equity is 22.5% and the fund holds no foreign companies.
VOO Fees and Returns
Just like VOOG, VOO has no fees imposed – however, you will be subject to an expense ratio of .03% on an annual basis.
VOO is an ETF that tracks 510 companies with a benchmark of 505. Its average market capitalization is $344.7 billion with an equal benchmark and a positive weight of $0.03 billion.
The portfolio has an earnings growth rate of 13.9% with no short-term reserves. Return on equity hovers around 19.6% and the portfolio holds a majority of US companies with .01% foreign holdings.
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: (10.68%)*
- VOOG: (1.58%)*
Projected one-year return for:
- VOO – 2.42%
- VOOG – 10.82%
Projected three-year return for:
- VOO – 8.13%
- VOOG – 13.41%
VOO vs VOOG – The Bottom Line
ETFs are the perfect option for investors seeking both short- and long-term investments with growth potential. ETFs offer you a way to instantly diversify your portfolio with fast liquidity. They’re a great option whether you’re a first-time investor or you’re a pro trader.
ETFs, because they track overall index performance, require savvy consideration. One of the things that point to great returns in the long run is how much is charged in fees.
While VOO does have an expense ratio to consider, there are no fees. This ETF is appealing to investors that look for expansive exposure to large stocks – plus, it’s much more diverse than normal ETFs.
VOOG also has no fees or other expenses. It’s one of the best and most cost-conscious ways of getting broad exposure to the biggest growth companies in the United States. Funds 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 tips toward midcaps that the benchmark doesn’t include.
Also with VOOG, the scales are tipped a bit more in favor of tech funds than the market norm. VOOG enjoys a good trade volume each day and its modest spread advises using limit orders.
When it comes to fees for large-growth segments, VOOG is as inexpensive as they come – free. Tracking VOOG is nearly airtight and according to Vanguard’s disclosure policy has very minor efficiency imperfections.
If you’re new to investing, it truly pays to understand risk. Don’t buy into what you don’t understand.
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.