Thu, 25 Jun 2015
Although both ETFs offer broad, low-cost exposure to U.S. stocks, Vanguard Total Stock Market is both more liquid and more representative of the market than Schwab U.S. Broad Market.
Ben Johnson: Pitting two of our favorite broad-based U.S. equity ETFs against one another paints what I think is a very pretty picture for investors.
The Vanguard Total Stock Market ETF (VTI) and the Schwab U.S. Broad Market ETF (SCHB) both offer investors extremely low-cost exposure to nearly the entire U.S. stock market.
In virtually all regards, these funds are more similar than they are different. Both funds' benchmark indexes capture more than 90% of the market capitalization of the U.S. stock market.
They both have extremely low fees: The Vanguard fund charges just 5 basis points, and the Schwab fund has the lowest fee of any U.S. ETF, at just 4 basis points. Also, the funds' trailing five-year performances have been virtually identical. And in both cases, they have lagged their indexes by an amount that is less than their fees on a since-inception basis.
There are really only two appreciable differences between these two funds. First, VTI's benchmark, the CRSP U.S. Total Market Index, includes micro-cap stocks, whereas SCHB's benchmark, the Dow Jones U.S. Broad Stock Market Index, does not. This won't necessarily move the needle on performance over long periods of time, but it makes VTI's bogy more truly representative of the U.S. stock market.
The second key difference relates to the funds' liquidity. VTI is far more heavily traded in the secondary market, and for investors who'd prefer not to trade, they can access the same portfolio at the same price through the Admiral shares of the Vanguard Total Stock Market Index Fund (VTSAX). The Admiral shares, however, have a minimum investment requirement of $10,000, whereas these ETFs can be purchased in an amount as little as a single share.
At the end of the day, VTI is the winner in our book--albeit by a nose. Ultimately, the decision between these two very broad, extremely low-cost funds boils down to a mix of hair-splitting and personal preferences and circumstances. This is a high-quality problem for investors to have.