VOO and VTI Overlap

[Foreverhopeful]

I have investments in VOO (S&P 500) and VTI ( Total stock market). Because they overlap, should I chose one, and maybe do VXUS (International Stock) in one.

[Tamalak]

I definitely wouldn't hold both VOO and VTI. Their performance is almost identical. I also think VTI is just better - more diversified.

Think about what, if any, taxable events would happen before you sell anything, though.

[BorqaZ]

Their performance is almost identical. I also think VTI is just better - more diversified.

These two statements cannot be true at the same time.

My recollection is that they are highly correlated assets with rho=0.98 or 0.99. They have a huge overlap in their holdings. So OP choose one. Almost randomly.

[terran]

About 80% of VTI is exactly the same companies as VOO. Do with that what you will.

[catlady]

Use them for TLH partners.

[retired@50]

I have investments in VOO (S&P 500) and VTI ( Total stock market). Because they overlap, should I chose one, and maybe do VXUS (International Stock) in one.

If you're seeking additional diversification, then VXUS is where new money should go.

Regards,

[nisiprius]

...My recollection is that they are highly correlated assets with rho=0.98 or 0.99.

Using mutual fund share classes to get the longest possible history, 0.987 for 1992-04-28 - 2024-09-27 (source)

They have a huge overlap in their holdings.

87% by weight. Source

So OP choose one. Almost randomly.

I wouldn't quite go along with that. If all other things are truly equal, I would prefer VTI or other total stock market fund. But if there's even the slightest reason to prefer VOO or other S&P 500 fund, I wouldn't hesitate to use it.

There's no reason I can think of to deliberately mix them.

But "overlap" isn't a problem, I wouldn't spend any effort avoiding mixing them.

I originally invested in the Vanguard 500 Index fund, because my goal was not own the whole market and not pick stocks at all. At the time, the S&P 500 was customarily thought of as "the market," which is what it was intended to represent when created in 1957. It still is a very good, workmanlike approximation to the total market.

I was vaguely aware of the Wilshire 5000 index, and Vanguard sent me some literature about it when they launched the Vanguard Total Stock Market Index Fund, but it had a higher expense ratio than 500 Index and I hadn't been propagandized by the cult of small-caps, so I shrugged. Eventually, I switched to Total Stock, not because I was convinced it would make more money, but simply because it had higher fidelity to my goal of owning the whole market.

"Overlap" is something of a shibboleth. It is mostly an issue for investors who are investing in actively managed mutual funds, and who are simultaneously trying to keep their whole portfolio somewhat diversified, yet are willing to pay money for funds that are concentrated in some star manager's stock picks. The issue is that if you buy three "different" funds with high overlap, you may think you are more diversified than you are. Another issue is that if fund X has a 1.4% expense ratio and fund Y has 0.8% expense ratio and they have a lot of overlap, you are wasting money buying fund X. Of course if you buy twelve different high-expense active funds that do not overlap much, you've just built yourself a sloppy index fund, and paying active management prices to get index fund results.

But in the case of VTI and VOO, you are not kidding yourself, because both are almost perfectly diversified--VTI by itself, VOO by itself, or any mixture of the two.

[ApeAttack]

I have investments in VOO (S&P 500) and VTI ( Total stock market). Because they overlap, should I chose one, and maybe do VXUS (International Stock) in one.

VTI and VXUS are a fine pairing with no overlap. VOO and VXUS also are a fine pairing with no overlap.

There's no point in mixing VTI and VOO due to their enormous overlap and resulting similar behavior over time.

[chrisdds98]

I have investments in VOO (S&P 500) and VTI ( Total stock market). Because they overlap, should I chose one, and maybe do VXUS (International Stock) in one.

If you're seeking additional diversification, then VXUS is where new money should go.

Regards,

is the purpose of adding international to increase your volatility or reduce your returns? either way, i'm not a fan

[Xrayman69]

Use them for TLH partners.

+1. I have both and occasionally have used for TLH.

[muffins14]

I have investments in VOO (S&P 500) and VTI ( Total stock market). Because they overlap, should I chose one, and maybe do VXUS (International Stock) in one.

If you're seeking additional diversification, then VXUS is where new money should go.

Regards,

is the purpose of adding international to increase your volatility or reduce your returns? either way, i'm not a fan

There is no theoretical reason for why international would be expected to increase volatility and reduce returns going forward

[nisiprius]

I have investments in VOO (S&P 500) and VTI ( Total stock market). Because they overlap, should I chose one, and maybe do VXUS (International Stock) in one.

If you're seeking additional diversification, then VXUS is where new money should go.

Regards,

is the purpose of adding international to increase your volatility or reduce your returns? either way, i'm not a fan

There is no theoretical reason for why international would be expected to increase volatility and reduce returns going forward

Actually, there is a theoretical reason for why it would be expected to increase volatility: the effect of currency exchange fluctuation. That adds some volatility to any purchase made in a foreign currency, without adding any expected return. So there should always be a rational preference for investments denominated in your home currency. The debate, of course, is whether the size of that effect is big enough to take into account in setting asset allocation.

[Alex GR]

I would go with VOO + VXUS + VBR. For example, for a 70/30 portfolio, I'd make it 45% VOO 10% VBR and 15% VXUS, with the remaining 30% in fixed income.
But I am guilty of overcooking things Helps me tremendously to stay the course.

[retired@50]

I have investments in VOO (S&P 500) and VTI ( Total stock market). Because they overlap, should I chose one, and maybe do VXUS (International Stock) in one.

If you're seeking additional diversification, then VXUS is where new money should go.

Regards,

is the purpose of adding international to increase your volatility or reduce your returns? either way, i'm not a fan

There is no theoretical reason for why international would be expected to increase volatility and reduce returns going forward

Actually, there is a theoretical reason for why it would be expected to increase volatility: the effect of currency exchange fluctuation. That adds some volatility to any purchase made in a foreign currency, without adding any expected return. So there should always be a rational preference for investments denominated in your home currency. The debate, of course, is whether the size of that effect is big enough to take into account in setting asset allocation.

I wonder if holding a 70% US 30% International stock actually has increased volatility historically, as compared to a 100% US allocation.

Nisi, you like charts, care to indulge us?

Regards,

[chrisdds98]

If you're seeking additional diversification, then VXUS is where new money should go.

Regards,

is the purpose of adding international to increase your volatility or reduce your returns? either way, i'm not a fan

There is no theoretical reason for why international would be expected to increase volatility and reduce returns going forward

Actually, there is a theoretical reason for why it would be expected to increase volatility: the effect of currency exchange fluctuation. That adds some volatility to any purchase made in a foreign currency, without adding any expected return. So there should always be a rational preference for investments denominated in your home currency. The debate, of course, is whether the size of that effect is big enough to take into account in setting asset allocation.

I wonder if holding a 70% US 30% International stock actually has increased volatility historically, as compared to a 100% US allocation.

Nisi, you like charts, care to indulge us?

Regards,

historically it does indeed lead to higher volatility. and as a side benefit of that extra vol it also comes with lower returns. granted this is based on a small sample size of only four DECADES

[arcticpineapplecorp.]

I wonder if holding a 70% US 30% International stock actually has increased volatility historically, as compared to a 100% US allocation.

Nisi, you like charts, care to indulge us?

Regards,

not nisi here but here are some that showed in the past there was a reduction in volatility (the amount, i.e., was it significant or not really? is debatable):



sorry, can't find the original article (was called something like the case for globalization or something, whitepaper at vanguard).

over these time periods below, 70/30 US/International did reduce volatility as measured by standard deviation:



source: https://www.bogleheads.org/wiki/Domestic/international

[nitwitter]

I’m currently at 70% VTI, 15% IVV and 15% VXUS. I guess I was trying to go overweight in large cap than what VTI alone has, and the 15% International has almost become a “why bother.”

[investor4life]

I definitely wouldn't hold both VOO and VTI. Their performance is almost identical. I also think VTI is just better - more diversified.

Think about what, if any, taxable events would happen before you sell anything, though.

Not so sure about the statement above about nearly identical performance. According to Portfolio Visualizer, VOO has outperformed VTI by a not so insignificant margin between Jan 2015 and Aug 2024 (the period for which data on both is available).

Annualized return for VTI over the past 3, 5, and ~10 years is 7.70%, 15.10%, 12.41%.

For VOO they are 9.33%, 15.87%, 13.02%

[retired@50]

I wonder if holding a 70% US 30% International stock actually has increased volatility historically, as compared to a 100% US allocation.

Nisi, you like charts, care to indulge us?

Regards,

not nisi here but here are some that showed in the past there was a reduction in volatility (the amount, i.e., was it significant or not really? is debatable):

Thanks for digging into this. I appreciate the effort.

Regards,