VTI was one of the first ETFs that I have purchased since I started DIY investing. I had left VTI to grow happily over the years and did not add to it (I even trimmed my position). Recently I have been adding to VTI again, mainly because I have run out of room in my RRSP and don’t have any more room for US dividend paying companies outside of my RRSP and I have US dollars on hand. For more on how dividends are taxed in Canada, read here. Here’s my VTI ETF review.
Some people may prefer to index invest with an all-in-one ETF like VEQT or VGRO for simplicity sake, but some people prefer to break it down with their own mix of emerging markets ETFs, US total stock market ETF and Canadian ETF.
If you identify more with the latter than the former, you may have heard the importance of having an S&P500 index ETF in your investment portfolio.
Also back then before 2012, there weren’t many options to invest with Canadian listed US dollar ETFs.
What is VTI? VTSAX vs VTI
Have you heard of FIRE focused people in the United States say something like “VTSAX and chill”?
Well VTSAX is VTI but in ETF form.
VTI is an Exchange Traded Fund by Vanguard and it stands for Vanguard Total Stock Market Index Fund.
The mutual fund equivalent of VTI is VTSAX Admiral Shares which is popular amongst the Financial Independence Retire Early (FIRE) populace in the United States.
VTI is a basket of stocks that is comprised mainly of America’s top 500 publicly traded companies in the United States.
VTI is not technically a Vanguard S&P500 ETF. Instead, it tracks the performance of the CRSP US Total Stock Market, or the total aggregate performance of the United States.
With VTI, you will have have automatic diversification because with one ETF, you have a bit of America’s small, mid, large cap companies.
When you buy a share of VTI ETF you are investing in over 3900 companies in the United States (US equities).
The VTI/VTSAX fund total assets is $1.3 TRILLION.
No VTI ETF review is complete with looking at returns. What are VTI returns like?
Warren Buffett has clearly stated that the average investor would be better off to just invest in the S&P500 index fund. “My regular recommendation has been a low-cost S&P 500 index fund” in his 2016 annual shareholder letter to Berkshire Hathaway investors.
Warren Buffett has also famously said “don’t bet against America” and you can’t get any more ‘Merica than VTI.
If you invested $10,000 in VTI in 2011, you would have just under $50,000 today (2021). Yes that’s a multibagger five bagger in just a span of 10 years.
The average annual returns of VTI since inception (2001, or 20 years ago) is 8.70% annually from Vanguard.
The average annual returns for the past 10 years is 16.60% (it has been an incredible bull market).
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If you compare the 10 year returns to the S&P/TSX Composite index, the S&P/TSX had a 6.02% average annual return.
This is why having Canadian home bias and investing only within Canada is not ideal you would miss out on a very high total return on your portfolio.
Personally I would rather have 16% annual return rather than 6%, thank you very much!
Imagine the compounding on that 16% over 10 years.
VTI ETF MER (VTI Expense Ratio)
How much does investing with VTI cost?
The management expense ratio (MER) of VTI is unbeatable, at 0.03%, it really doesn’t get any cheaper to invest than that, especially if you can buy VTI for free with Questrade since it is an ETF and ETF purchases are commission free.
When the expense ratio is 0.03%, that means that if you invest $10,000 of your money with VTI, annually it will cost a whopping $3 to manage the fund. That’s less than a Starbucks latte in Canada.
So for less than $3 a year you could see your $10,000 increase by $1600 in one year (well past performance is not indicative of future performance but with a 16% increase over the past 10 years on average…).
However, this 0.03% does not include brokerage commissions though to buy and sell the VTI ETF.
Trading commissions vary, it can be anywhere from $4.95 to around $10.95 each time you buy (or $29.95 with BMO Investorline remember the good old days in 2005?).
If you have free trades or free ETF purchases (National Bank Direct Brokerage, Wealthsimple Trade, and Questrade to name a few), this low MER and zero commission trading will really work in your favour to build wealth if you favour the dollar cost average approach.
Also, the other cost is currency exchange. If you don’t have US dollars, you’ll have to pay for currency exchange fees which will eat away at benefits gained from the 0.03% MER rather than just using your Canadian dollars to invest.
More on that later.
The top 10 holdings of VTI as of writing are below.
These comprise of just under 25% of total net assets of VTI.
- Microsoft Corporation
- Alphabet Inc.
- NVIDIA Corp.
- Berkshire Hathaway
- JP Morgan Chase
- Johnson and Johnson
VTI Sector Weighting
VTI is mainly comprised of technology stocks. Here is the sector weighting for VTI.
|Sector Weighting for VTI||Percentage|
|Utilities and Telecommunications||5.60%|
Does VTI pay a dividend? You bet it does.
Although it’s not considered a very high dividend/ distribution, it is around 1.26% as of writing.
That being said, over the years, my unrealized capital gains grew (to what you could consider a multibagger) and my VTI ‘dividend’ and distribution yield on cost also grew to around 1.85%.
Distributions from ETFs are often paid quarterly or monthly.
Does VTI pay dividends monthly?
No, VTI does not pay monthly but VTI pays quarterly.
The payout months for VTI are: March, June, September, and December.
The distributions are paid out in US dollars.
VTI VS VOO
This VTI ETF review will also compare VTI vs VOO. If you have heard of VTI you have also probably heard of VOO.
A lot of people wonder what the difference is between VTI (Vanguard Total Stock Market) and VOO (Vanguard S&P500). VTI is mostly the S&P500 but about 1/5 of VTI includes smaller US companies.
As mentioned, VTI tracks the CRSP US Total Stock Market and VOO tracks the S&P500.
VTI has over 3900 holdings.
VOO has 507 holdings (hence the S&P500, haha).
The top 10 holdings for both VTI and VOO are the same.
|VTI Top 10 Holdings||VOO Top 10 Holdings|
|Alphabet Inc.||Alphabet Inc.|
|Amazon.com Inc.||Amazon.com Inc.|
|Facebook Inc.||Facebook Inc.|
|Tesla Inc.||Tesla Inc.|
|NIVIDIA Inc.||NIVIDIA Inc.|
|Berkshire Hathaway Inc.||Berkshire Hathaway Inc.|
|JP Morgan Chase||JP Morgan Chase|
|Johnson & Johnson||Johnson & Johnson|
Which one is a safer holding? Well, VTI is pretty much 80% VOO and the remaining 20% are smaller US companies not in the S&P500.
Increased holdings increases diversification and reduces risk. There are lots of companies that have exponential and rapid growth that aren’t in the S&P500…yet and an S&P500 index fund wouldn’t capture that.
That being said, just like with VXC vs XAW, it doesn’t truly matter too much, both VTI vs VOO are pretty comparable.
For example, the past 12 month returns for VTI is 27.58% and for VOO it is 26.17%.
This is a chart of 12 month past returns for VTI vs VOO from Wealthica, an investment portfolio tracker that I use (it’s free).
How To Buy VTI in Canada
VTI is obviously a very popular ETF in the United States, but how do you buy VTI in Canada?
Buying a US listed ETF in Canada is straight forward, but you would need a USD account and well, US dollars.
Make sure you are cognizant of the T1135 form for USD reporting.
You can fund your USD account with US dollars through a pre-authorized deposit from a US dollar account in Canada.
I use Questrade as my discount online brokerage and have been using it since 2009. In recent years, Questrade reduced the commissions to buy ETFs and made them essentially free to buy (minus some ECN fees).
If you have US dollars lying around, to fund your account with US dollars in Questrade you first click on:
- Then click on Pre-authorized Deposit
- Then click on Add New Bank Account, and click “Connect My Bank Account” or you can set it up manually
- To set it up manually you will need your US dollar bank account number, transit number, and upload a banking document like a void cheque or direct deposit form
Once you do this, you can just add the amount you want to transfer with the drop down boxes “from account” and “to account”
It takes about 2 business days for the US dollars to show up in your Questrade account.
If you don’t have US dollars handy, you can convert your Canadian dollars to US dollars using Norbert’s Gambit.
Now that you have US dollars ready to go in your account, here’s how to buy VTI in Canada.
When you log in to Questrade:
- Click “Trade”
- Under “Order Entry” put in your Ticker Symbol (e.g. VTI)
- Under quantity put in how many you want to buy
- This is dependent on how much you have to invest or how much you want to buy at that time
- How much each share of ETF costs
- For example, let’s say VTI is $225, and you have $500 you want to buy
- $500/225= 2.2 shares
- Under “Quantity” put in 2
- You can choose to do a limit order if you want to make sure you don’t spend more than $225.00 per share of ETF. Put this (or whatever amount you want) in the limit order box
- GTD (Good To Date) and put in the date (or stick it to Day if you have time to put in an order when the market is open)
- Then press “Buy” (and review the fees charged on your order)
- Et Voila, you are done!
Yes it is really that easy to invest these days, just with a few clicks, no excuse to stick with your mutual fund advisor (mutual fund sales representative) charging 2.24% MER on your investments that eat away at your return!
This VTI ETF review will also look at the foreign withholding tax.
VTI Foreign Withholding Tax
Where should you put VTI to ensure it is most tax efficient?
In the RRSP, distributions and dividends from US listed ETFs are exempt from the 15% withholding tax. Therefore it would be most tax advantageous to put VTI in your RRSP.
For example, if you had $10,000 invested in VTI within your RRSP, and it paid a 1.26% distribution, you would have $126.
However, if this $10,000 in VTI was outside of the RRSP, you would have 15% taken off the top ($18.90), and the $126 distribution would be $107.10.
In a non-registered account it may be recoverable with the foreign tax credit when you file your taxes.
I have run out of room in my RRSP so my VTI is in my non-registered account. When I have RRSP contribution room, I will continue to transfer in kind to my RRSP.
Lastly, for VTI (a US listed ETF) held in a TFSA, foreign withholding tax applies and it is not recoverable.
Heres how to invest your TFSA with Questrade.
Canadian Listed ETFs vs US Listed ETFs
An alternative to this to avoid the 15% withholding tax is to buy the Canadian listed ETF version of VTI, which is VUN.
The VTI Canadian equivalent is VUN. VUN has been available since 2013.
VUN stands for Vanguard US Total Market Index ETF and it is traded on the Canadian stock exchange, or TSX.
It is the Canadian dollar equivalent of VTI and you don’t have to worry about currency conversion.
The MER for VUN is higher than VTI (0.03%). The MER of VUN is 0.16%.
So if you had $10,000 to invest with VUN, it would cost $16 annually.
VUN vs VTI
Finally, this VTI ETF review will look at VUN vs VTI.
VUN and VTI are very similar except they are in different currency and there is a different tax treatment.
Here’s how VUN.TO vs VTI compares for 12 month past returns.
Here’s the top 10 holdings of VUN vs VTI
|Top 10 Holdings VUN||Top 10 Holdings VTI|
|Microsoft Corp.||Microsoft Corp.|
|Facebook Inc.||Facebook Inc.|
|Alphabet Class A||Alphabet|
|Alphabet Class C||Tesla Inc.|
|Tesla Inc.||NVIDIA Inc.|
|NVIDIA Inc.||Berkshire Hathaway Inc.|
|Berkshire Hathaway Inc.||JP Morgan & Chase|
|JP Morgan & Chase||Johnson & Johnson|
As you can see the top 10 holdings of VUN vs VTI are essentially the same.
In terms of withholding taxes with VUN distributions, with VUN outside of a RRSP or TFSA account and in a non-registered account), you would still get the 15% withholding tax taken off the top but it is recoverable.
However, you would be eligible to claim the foreign tax credit (after receiving the T3) at tax time and recover this 15% withholding tax.
The 15% foreign withholding tax applies to Canadian listed US ETFs in the TFSA and the RRSP and it is not recoverable.
The other benefit with VUN is that you don’t have to exchange your CAD for USD at inopportune times (e.g. when the exchange is not favourable), and Vanguard exchanges your currency for you automatically when you invest in VUN.
This would be beneficial for an account like the TFSA.
In summary, long story short, you can hold VTI in your RRSP (US dollar currency) and VUN outside your RRSP (Canadian dollar currency) and TFSA if you want to be most tax efficient.
That being said, it would be better to max out your RRSP and TFSA first. For example, 15% off of $200 in distributions in absolute terms is not very much (it’s only $30) and not filling up your RRSP and TFSA first would have bigger tax consequences than saving $30.
VTI ETF Review Summary
Vanguard is an ETF provider who has some of the lowest cost index funds out there.
Adding S&P500 exposure in your portfolio helps you avoid Canadian home bias in a relatively safe manner (by buying over 3900 companies at the same time, so if one company goes kaput there are 3899 other companies to diversify).
Yes, when the market goes down it goes down and it is unpredictable when that might happen. Daily fluctuations and noise can make those who invest nervous (depending on their investing temperament).
However, averaged over the long term (10 to 20+ years), the market increases predictably as you can see.
Canada’s share of the global Gross Domestic Product is under 2% (or 1.41% in 2020 per Statista) so it really doesn’t make too much sense to have 100% of your investment portfolio in Canada.
I hope you found this VTI ETF review helpful.
Just make sure that if you have it in your non-registered account, you keep track of your VTI purchases for T1135 form purposes.
Do you have VTI in your portfolio?
What is your VTI ETF review?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.