Vanguard VTI or iShares ITOT – which is better?
For many years now, I’ve been writing about some of the best low-cost Exchange Traded Funds (ETFs) to invest in the U.S. market with.
A reader recently asked me the following, so I was inspired to write this post about using Vanguard’s VTI fund vs. iShares’ ITOT fund in a portfolio.
I was looking at your ETFs page recently about all those top low-cost ETFs to invest in. I have a question for you. Between VTI or ITOT specifically, do you have a preference? Does it really matter? Both seem great low-cost ETFs to invest in the U.S. market with. Thoughts before I pull the trigger in this market crash? I plan to own this fund for the coming decades in my RRSP to avoid withholding taxes.
Great question and thanks for your readership.
In short, I don’t really have a preference. Both are outstanding long-term choices for U.S. stock market exposure.
When it comes to the tale-of-the-tape both funds are very similar (information current at the time of this post):
|Fund Information||Vanguard VTI||iShares ITOT||General Comments|
|Inception date||May 2001||January 2004||VTI is an older fund.|
|Fund Net Assets||$840+ billion||$20+ billion||VTI is definitely a “granddaddy” of a fund in terms of assets under management.|
|# of holdings||3,551||3,648||Very similar holdings.|
|Top-5 holdings||Microsoft, Apple, Amazon, Alphabet, Facebook||Microsoft, Apple, Amazon, Facebook, Berkshire|
|Biggest sector holding||IT/Technology = 23%||IT = 24%+||Very similar.|
|1-year return to December 2019||30.8%||30.9%|
|Since inception||7.6%||8.9%||VTI is lower return since inception, but also an older fund.|
References Vanguard and iShares sites.
What do I own?
I actually own a bit of XUU at this time.
This way, I avoid any currency conversion headaches.
I believe owning some low-cost Canadian ETFs that invest across the U.S. market, or U.S.-listed ETFs that invest in the U.S. market, is very smart because you and I can ride U.S. equity returns for the coming decades.
Other than my personal hunches on healthcare and technology, I believe in the decades to come both VTI and ITOT will have similar returns.
A reminder about U.S. listed funds
A reminder that iShares Core S&P Total U.S. Stock Market ETF (ITOT) trades in U.S. dollars. When held in a tax-deferred account – such as an RRSP, LIRA, RRIF, or LIF – 15% withholding tax on U.S. dividends and distributions will not apply. So, I tend to have the following asset location rules:
- I keep my TFSA and non-registered account full of Canadian dividend paying stocks for income. I report that growing income monthly.
- I own Canadian dividend paying stocks in my RRSP, but more and more over time, I’m owning more U.S. stocks and U.S. ETFs inside my RRSP for additional diversification.
So, if you’re going to own ITOT or VTI, put that into your RRSP, RRIF or LIRA to avoid withholding taxes.
If you don’t want to own ETFs in U.S. $$ then consider owning iShares Core S&P U.S. Total Market Index ETF (XUU). That fund trades in Canadian dollars. Again, I own some XUU for that very reason at the time of this post.
For Canadian-listed funds like XUU that own U.S. ETFs or U.S. stocks directly, when those funds are held in a registered account the tax drag will be 15% withholding tax. This will add about 0.30% (or so) (15% x 2% ITOT yield = 0.30%) to your cost/tax drag.
If you still want to invest in U.S. listed funds, like ITOT, VTI or other, then you can consider reading up on how to exchange your Canadian dollars to U.S. dollars for less here.
Whether you invest in U.S.-listed VTI, ITOT, SPY, IVV or another low-cost U.S. fund that tracks the U.S. S&P 500 or the U.S. total market, I think you’re picking a winning long-term equity product for your portfolio.
You’re really splitting hairs among the best of the best.
Simply pick one, buy, add, buy more units over time and don’t stop.
I need to practice this myself!
Got a question for me including how I invest? Fire away. I will do my best to write you back, create a post about it, or answer it in any of my future “Weekend Reading” editions.