Analyst Favors VTI Over VOO for Bear Market as Top 10 Weigh 35% vs 40%

Q: During a crash, do VTI's thousands of small stocks create more risk than its diversification actually solves?

No. In a crash, VTI’s thousands of smaller stocks add some volatility, but not enough to outweigh the diversification benefit. The key reason is structure. VTI is market-cap weighted, so although it owns more than 3,500 stocks, the smallest companies make up only a modest share of the fund. Its performance is still driven mainly by large-cap stocks, especially the same mega-cap names that dominate VOO. That means the extra small- and micro-cap exposure does not suddenly become the main source of risk in a broad sell-off. What VTI’s breadth does solve is single-company and concentration risk. If one smaller company fails, the effect on the fund is negligible. It also slightly reduces dependence on the top 10 stocks: those names are about 35% of VTI versus roughly 40% of VOO. That matters in a market where the S&P 500 has become heavily concentrated in tech and AI leaders. The trade-off is that small caps usually hold up worse in recessions and risk-off periods. That is why VTI has shown slightly higher historical volatility than VOO, and in some downturns a large-cap fund can be marginally more defensive. But the gap has generally been small. In major market breaks, historical drawdowns between total-market and S&P 500 funds have often differed by only a few basis points. So VTI does not avoid crash risk; it is still an all-U.S.-stocks fund. But its small-stock exposure is more a modest drag in some downturns than a major new danger.

3 articles · Updated · The Motley Fool · Jul 17

Vanguard Total Stock Market ETF is the analyst’s preferred buy for the next downturn, with its broader diversification seen as a modest buffer against a bear market.
The key difference is concentration: the two ETFs share the same top 10 holdings, but those stocks make up about 35% of VTI versus nearly 40% of VOO.
That gap matters because the biggest positions are tech and AI names including Apple, Microsoft, Nvidia and Alphabet, leaving VOO slightly more exposed to volatility in that sector.
VOO has still outperformed during the recent tech-led rally, delivering roughly 311% total returns versus about 294% for VTI as major U.S. indexes climbed 61% to 89% over three years.
The choice ultimately comes down to risk tolerance, with VTI offering a bit more diversification as the S&P 500 grows more dominated by large technology stocks.