VOO vs. IWM: 2 Iconic Indexes, 2 Very Different Slices of the U.S. Market

The Vanguard S&P 500 ETF (NYSEMKT:VOO) and the iShares Russell 2000 ETF (NYSEMKT:IWM) stand apart on cost, risk, and portfolio composition -- VOO tracks large-cap U.S. leaders with ultra-low fees, while IWM offers small-cap exposure at higher cost, with greater volatility and a different sector mix.

VOO and IWM both offer broad U.S. equity coverage, but they play in different arenas: VOO tracks the S&P 500’s blue-chip giants, while IWM zeroes in on small-cap stocks via the Russell 2000 Index. This comparison highlights how their costs, returns, risk profiles, and sector exposures stack up for investors seeking growth or diversification.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months.

IWM is less affordable than VOO, with an expense ratio over six times higher; VOO also edges out IWM in dividend yield, offering a slightly higher payout to investors.

Performance & risk comparison

IWM’s small-cap tilt means sharper price swings: Its maximum drawdown over the past five years was notably deeper than VOO’s, and $1,000 invested in IWM five years ago would have grown less than the same amount in VOO.

What's inside

IWM targets the small-cap segment of the U.S. equity market, holding 1,935 stocks with the largest weights in healthcare, industrials, and financial services. As of its 25.9-year track record, its top holdings—such as Bloom Energy (NYSE:BE), Credo Technology Group(NASDAQ:CRDO), and Fabrinet (NYSE:FN)—each make up less than 1.5% of the fund, resulting in a highly diversified mix.

VOO, in contrast, is concentrated in large-cap names and heavily tilted toward technology, with its three largest holdings—Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT)—together commanding nearly 20% of the portfolio. This means VOO’s returns are more sensitive to megacap tech performance, while IWM offers broader exposure to smaller, less dominant companies.

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What this means for investors

VOO and IWM are both foundational ETFs, each serving as the go-to benchmark for its respective corner of the U.S. market. VOO tracks the S&P 500 — America's 500 largest companies — and now holds roughly $1.4 trillion in assets, making it the largest ETF in the world. IWM tracks the Russell 2000, the most widely followed small-cap index, with around $72 billion in assets and a 25-year track record.

They are less competitors than complements. VOO is heavily concentrated in technology and megacap names, with Nvidia, Apple, and Microsoft carrying significant weight. IWM spreads its 2,000 holdings across a far more balanced mix of healthcare, industrials, financials, and technology with no single sector above 18%.

The trade-off is straightforward. IWM offers exposure to smaller, faster-growing companies with more room to run, but with meaningfully more volatility and a higher fee. VOO charges a fraction of what IWM costs and delivers steadier, more predictable returns anchored by the largest, most established businesses in America.

Sara Appino has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Apple, Bloom Energy, Microsoft, Nvidia, and Vanguard S&P 500 ETF and is short shares of Apple. The Motley Fool has a disclosure policy.