The introduction of federally seeded child investment accounts, colloquially referred to as “Trump Accounts,” has sparked considerable interest among parents seeking to make strategic long-term investments for their children. With the objective of holding a single low-cost equity exchange-traded fund (ETF) for an extended period—typically 18 years—parents are confronted with a pivotal choice between two leading options: the State Street SPDR Portfolio S&P 500 ETF (SPYM) and the Vanguard Total Stock Market ETF (VTI).
On paper, both ETFs appear nearly identical, yet their performance over time has diverged significantly. Over the past decade, SPYM has outperformed VTI by a staggering 77 percentage points, reporting returns of 321% compared to VTI’s 243%. This performance suggests that for long-term investment horizons like those associated with Trump Accounts, SPYM may represent a stronger bet.
The practical implications of this investment choice hinge on the fundamental characteristics of each fund. SPYM tracks the S&P 500 index, which comprises approximately 500 of the largest and most profitable U.S. companies, particularly in the tech sector. Holding SPYM indicates a belief that these megacap stock prices will continue to outpace their smaller counterparts.
Conversely, VTI follows the CRSP U.S. Total Market Index, incorporating around 3,600 stocks across various market caps, including large, mid, and small caps. Investing in VTI entails an expectation that the broader U.S. economy will yield returns comparable to those of the large-cap stocks tracked in SPYM.
The notable performance disparity between the two ETFs extends beyond just returns. Over the past five years, SPYM achieved an 84.37% gain while VTI lagged at 63.7%. In the past year alone, SPYM gained 21.5% compared to VTI’s 20.7%. This trend suggests that as interest rates rise and capital flows into large, established companies, SPYM maintains a competitive advantage.
However, some analysts caution that an extended period of economic normalization may lead to a resurgence in small and mid-cap stock performance. Historically, small caps have thrived following deep economic recessions, a scenario that an 18-year investment horizon may encounter multiple times.
In terms of fees, SPYM edges out VTI by a minimal margin, though the impact of this difference is negligible on a substantial one-time investment. For parents regularly contributing to these accounts, SPYM’s lower share price offers a practical advantage for more efficient dollar-cost averaging.
Ultimately, the decision between SPYM and VTI will depend on the beliefs and strategies of the investors. For those inclined toward large-cap stocks and a historically successful model, SPYM may prove to be the more efficient choice. Alternatively, for parents who anticipate a revival in smaller stocks and prefer broad market exposure, VTI presents a prudent option. If a child’s Trump Account represents their sole equity investment for many years, VTI’s comprehensive market breadth could make it a more balanced single-fund solution.
In this complex landscape, parents are encouraged to leverage available resources to make informed decisions. Tools designed to connect investors with vetted financial advisors can provide guidance tailored to individual financial goals, ensuring that each family’s approach to long-term investing is both strategically sound and aligned with their aspirations.
