Better Buy: Vanguard Total Stock Market ETF or Vanguard Growth Index Fund ETF?

Since its founding in 1975, Vanguard has earned investors’ trust worldwide. Speaking to this fact, the fund family has grown to around $7.5 trillion in assets under management across its mutual fund and exchange-traded fund (ETF) offerings.

Still, Vanguard has a lot of opportunities in front of it. The firm has yet to truly expand internationally, an area that could add trillions to its balance sheet in the next decade.

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Among Vanguard’s 50 stock ETFs, the Vanguard Total Stock Market Index Fund ETF (VTI) and the Vanguard Growth Index Fund ETF (VUG) are two of the most popular, and for good reason.

VTI, which tracks the performance of the CRSP US Total Market Index, provides investors with an easy, low-cost way to gain exposure to a diversity of large-, mid-, and small-cap companies, representing both growth and value strategies.

VUG, on the other hand, tracks the performance of the CRSP US Large Cap Growth Index, an index composed of some of the fastest-growing large-cap companies on the planet.

Which of these popular Vanguard ETFs is the better buy for average investors? Let’s dig deeper to find out.

This Vanguard fund offers a compelling mix of safety and growth

VTI is designed to offer investors broad exposure to the entire U.S. stock market, including large-, mid-, and small-cap companies. It’s a comprehensive option for those looking to invest in a wide range of sectors and company sizes, providing a diversified portfolio in a single investment. This Vanguard fund is popular among the so-called “lazy investor” crowd, a rapidly growing group of investors that prize simplicity, cost-efficiency, and performance.

What are VTI’s most important metrics to understand? VTI sports an industry-low expense ratio for its fund type of 0.03%, compared to a category average of 0.79%. It also comes with a respectable 1.35% annualized yield, a figure on par with most broadly diversified ETFs.

Among its 3,717 stock holdings, Microsoft (MSFT), its largest position, accounts for 6.12% of the fund’s portfolio. VTI has averaged an annual return on investment of 12.3% over the past five years.

A supercharged growth ETF

VUG is a dynamic investment vehicle that zeroes in on large-cap entities with promising growth trajectories. This fund is streamlined, comprising a select group of 199 stocks, with a significant position in Microsoft, constituting nearly 13% of the fund’s composition. This concentration underscores VUG’s commitment to large-cap growth equities, setting it apart from the more diversified VTI.

Despite its focused approach, VUG maintains an extremely low expense ratio of 0.04%. The category average, in stark contrast, stands at 0.96%. This cost-effectiveness is paired with a history of strong performance, as evidenced by its average annual returns of 15.8% over the past five years.

However, VUG’s yield is a modest 0.47%, reflecting its primary emphasis on capital growth over immediate income generation. This strategic choice aligns with the fund’s growth-centric investment philosophy.

The verdict

When deciding between VTI and VUG, investors must consider their investment horizon and risk appetite. VTI is a solid choice for those looking for a stable, long-term investment that mirrors the performance of the overall market. Conversely, VUG is more suitable for investors aiming for higher growth in the short-to-medium-term, who are comfortable with the ups and downs of the market.

In other words, there is no one-size-fits-all answer to which of these core Vanguard stock ETFs is the better buy. VTI offers a safe and steady growth path, while VUG provides a more aggressive growth trajectory. It all boils down to your personal appetite for risk and long-term investing goals.