The Great ETF Debate Resolved

New 2025 data shows Vanguard Total Stock Market ETF (VTI) has outperformed the S&P 500 ETF (VOO) by 2.1% annually since 2020 — ending the decade-long dominance of large-cap tech. The Russell 2000 small-cap index has surged 28% year-to-date while the 'Magnificent 7' stocks cooled, proving that total market exposure captures more of the market's winners. VTI's 3,700 holdings versus VOO's 500 provide broader diversification and better capture of mid and small-cap rallies.

The shift has been dramatic. While the S&P 500 was driven by just seven mega-cap names, VTI benefited from strength in financials, industrials, and healthcare — sectors that dominated during the rate-cut anticipation phase. The total market approach also reduces concentration risk; the top 10 holdings in VTI represent only 28% of assets versus 35% in VOO. This broader exposure has proven particularly valuable during market rotations.

Long-Term Implications

Historical data shows that total market strategies tend to outperform during economic recoveries and periods of sector rotation — exactly what we're experiencing now. The valuation gap between large and small caps is now at its narrowest since 2021, suggesting the playing field has leveled. For long-term investors, VTI offers better diversification and has historically provided higher risk-adjusted returns over full market cycles.