Investors evaluating their options for U.S. stock market exposure are considering two leading exchange-traded funds (ETFs) from Vanguard: the Vanguard S&P 500 ETF (VOO) and the Vanguard Total Stock Market ETF (VTI). The decision between these two funds predominantly hinges on an investor’s preference for small-cap stocks.
The Vanguard S&P 500 ETF aims to replicate the performance of the S&P 500 index, providing direct exposure to approximately 500 of the largest publicly traded companies in the United States. This fund is heavily weighted towards technology giants such as Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla, representing a significant portion of its portfolio.
Conversely, the Vanguard Total Stock Market ETF adopts a broader investment strategy. In addition to the large-cap stocks within the S&P 500, the VTI includes over 3,500 other stocks, spanning large-cap, mid-cap, and small-cap companies. As a result, VTI offers investors greater diversification within the U.S. equity landscape, particularly by incorporating smaller companies.
In recent years, the performance of these ETFs has diverged significantly. Large-cap stocks, propelled by trends in technology and artificial intelligence, have consistently outperformed their smaller counterparts. For context, over the last five years, the S&P 500 ETF achieved an annualized return of 14.45%, while the Total Stock Market ETF delivered a slightly lower average annual return of 13.05%. As small caps have lagged, the performance gap has grown, but recent shifts in market dynamics may be signaling a turnaround.
As of early 2026, this trend appears to be reversing, with the S&P 500 ETF’s performance slightly trailing the Total Stock Market ETF by 2.11% to 1.74% year to date. This change may suggest that the market is beginning to recognize the potential value in smaller companies, which have been out of favor for some time.
Both ETFs come with low expense ratios of just 0.03%, allowing investors to minimize costs—paying only $3 annually for every $10,000 invested, which is a significant advantage for cost-conscious investors.
For those seeking straightforward investment in large-cap U.S. stocks, the Vanguard S&P 500 ETF stands out as a compelling choice, characterized by a strong track record in delivering robust risk-adjusted returns. However, some analysts advocate for the Vanguard Total Stock Market ETF as the superior pick due to its comprehensive diversification and potential for enhanced returns by including smaller companies.
This preference for broader coverage reflects a belief that the small-cap sector, despite recent underperformance, may hold considerable upside potential in the long term. The addition of small caps could help mitigate risks inherent in a large-cap-heavy portfolio, offering a balanced approach to U.S. equity investment.
As market sentiments evolve, investors will need to carefully weigh these factors when choosing the best fit for their portfolios. Both ETFs present distinct advantages, aligning with different investment strategies and risk tolerances.
