The Motley Fool editorial team recommended the Vanguard Total Stock Market ETF over the S&P 500 ETF for investors fearing a bear market.
This guidance comes as market participants seek defensive strategies to protect portfolios from potential volatility. Choosing between these two popular funds depends on whether an investor prefers the concentrated power of large-cap stocks or the stability of broader diversification.
Both the Vanguard S&P 500 ETF (VOO) and the Vanguard Total Stock Market ETF (VTI) maintain an expense ratio of 0.03% [2]. Recent performance for both funds has been closely aligned, with a one-year total return of approximately 25% [3].
Despite the similar costs and returns, the funds differ in their underlying holdings. VOO tracks the S&P 500, focusing on the largest companies in the U.S. VTI provides exposure to the entire U.S. equity market, including small- and mid-cap companies. VTI currently holds net assets of $2.09 trillion [1].
The editorial team said that VTI's broader market exposure gives it a slight edge for those seeking a defensive position. While VOO is heavily weighted toward the biggest players in the economy, VTI spreads risk across thousands of additional companies.
Investors often view the S&P 500 as a proxy for the overall health of the U.S. economy. However, a bear market can impact large-cap and small-cap stocks differently. The Motley Fool said that the diversification found in VTI may offer a more resilient structure during a downturn, reducing the impact of a crash in any single sector or company size.
“VTI’s broader market exposure gives it a slight edge over VOO for investors seeking defensive positioning.”
The preference for VTI over VOO reflects a shift toward diversification as a hedge against systemic risk. While both ETFs have historically tracked closely, the inclusion of mid- and small-cap stocks in VTI provides a broader safety net that prevents a portfolio from being overly dependent on the performance of a few dozen mega-cap tech stocks.
