Why Buying VOO Might Actually Be a Mistake Right Now
Key Points
The S&P 500's megacap tech concentration has served it well over the past several years.
In 2026, the market is rotating, and other sectors and themes have begun to take over.
That means investors need to look beyond the S&P 500 and pivot to where the market is heading next.
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Over the past few years, a lot of investors have relied heavily on the Vanguard S&P 500 ETF (NYSEMKT: VOO). It's clear why: Its megacap tech concentration has ensured that it's capturing the artificial intelligence (AI) rally and outperforming almost every other area of the market. Plus, its 0.03% expense ratio means you keep almost all of the returns.
2026, however, is looking different. Tech is no longer dominating. The market is broadening out. That raises the question of whether this ETF is still the best choice for investors.
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In my opinion, there's a better option: the Vanguard Total Stock Market ETF (NYSEMKT: VTI).
Image source: Getty Images.
The S&P 500's concentration is a problem
Because of market weighting, Tech stocks have accounted for at least 20% of the S&P 500's (SNPINDEX: ^GSPC) performance for more than a decade. It peaked at around 36% last year and, even after the recent correction, is still 32% of the index. That creates a lot of concentration risks.
- The top 10 holdings make up a significant share of the S&P 500, currently around 36%.
- Technology and growth stocks still dominate.
- Returns rely heavily on the "Magnificent Seven."
- Valuations in tech stocks remain elevated.
That concentration has helped investors over the past few years, but it's causing a performance drag today.
Investing in the total U.S. stock market is a better solution
The Vanguard Total Stock Market ETF invests in virtually every U.S. stock, including about 3,000 of them not in the S&P 500. That broader exposure matters for a few reasons:
- Small- and mid-caps have the opportunity to outperform as conditions change.
- They've benefited from the current rotation away from tech stocks.
- Earnings growth tends to improve relative to large caps in recovery cycles.
- Sector exposure is much more balanced compared to what we see in the S&P 500.
- Performance becomes less dependent on a handful of stocks.
The Vanguard Total Stock Market ETF currently has about 75% of its assets in large caps and the remaining 25% in mid- and small caps. It's still market cap-weighted, so the same stocks that top the Vanguard S&P 500 ETF also top this fund. The tech concentration doesn't necessarily disappear, but the addition of smaller companies helps diversify the fund's exposure to specific sectors and economic risk factors.
Among the factors favoring higher small-cap exposure right now:
- Interest rates have begun to stabilize.
- Growth expectations in the coming years are improving.
- Market leadership continues to expand.
VOO vs. VTI: A comparison
| Metric | VOO | VTI |
|---|---|---|
| Strategy | S&P 500 | Total U.S. stock market |
| Holdings | Approx. 500 | 3,500-plus |
| Market cap focus | Large-cap | All-caps |
| Sector tilt | Tech-heavy | Tech-heavy, but more balanced |
| Small/mid exposure | Minimal | One-quarter of the portfolio |
Data source: Vanguard.
Key takeaways
The Vanguard S&P 500 ETF remains a strong ETF, and there's no issue with continuing to use it as the core of your portfolio.
I believe, however, that the Vanguard Total Stock Market ETF is the better choice both for now and in the long term. Its broader diversification adds small-cap and mid-cap upside to a large-cap portfolio. It creates a more balanced risk profile that mitigates some of the megacap concentration risk in the S&P 500. And the small-cap segment of the fund benefits from a few catalysts taking place during this market rotation.
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David Dierking has positions in Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
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