Why would Two ETFs tracking Identical Indexes Produce different Returns?

Just because two ETFs sound alike, have exposure to the same asset class or even track the same index, it doesn’t mean they will yield the same results. Take funds holding a broad array of financial stocks.

Are two ETFs that track the same index the same?

However, two ETFs tracking the same index are not necessarily equal. In an ideal world, all ETFs would invest in all the constituents in the underlying index they track – this is called full physical replication.

Why different index funds have different returns?

Fees and expenses ratios or operating expenses can vary between index funds and erode an investor’s return. An index fund might not track the underlying index or sector exactly causing tracking errors or variances between the fund and the index.

Do ETFs perfectly track an index?

Nearly all exchange-traded funds track indexes. But there are many reasons why an ETF might not track its index perfectly. Mariana Bush, head of closed-end and exchange-traded fund research at Wells Fargo Advisors, highlights the reasons that an ETF’s net asset value might not track its corresponding index.

Does it make sense to have multiple ETFs?

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification. But the number of ETFs is not what you should be looking at. Rather, you should consider the number of different sources of risk you are getting with those ETFs.

Does all index funds give same returns?

As discussed above, each index fund tracks an index and invests in the same proportion of index to give the same return to its investors. Tracking error is the difference between the return of the fund with that of the benchmark.

Should you diversify index funds?

As long as your index funds reflect that variety of investments, you should be properly diversified. In the end, learning how to invest is all about how much time you want to spend researching. If choosing one index fund is all you have time for, that’s still better than not saving for retirement at all.

How many of the same ETFs should I own?

Owning five to six ETFs is a “great mix because having more makes it difficult to keep track of it,” Brott said. “Three core holdings reflecting various concentrations of small medium and large cap U.S. stocks should make up 50% to 70% of the portfolio,” he said.

What is a good mix of ETFs?

7 of the best ETFs to buy for long-term investors:

• SPDR Portfolio S&P 500 ETF (SPLG)
• Invesco S&P 500 Equal Weight ETF (RSP)
• Vanguard Mega Cap ETF (MGC)
• Schwab U.S. Small-Cap ETF (SCHA)
• iShares Core S&P Mid-Cap ETF (IJH)
• Schwab U.S. Dividend Equity ETF (SCHD)
• iShares Core U.S. Aggregate Bond ETF (AGG)

Which is better VOO or VTI?

Over very long periods of time, VTI can be expected to perform very similarly to VOO, but with higher volatility. Because 82% of VTI is VOO, its performance is still highly correlated to the S&P 500. The remaining 12% of mid- and small-cap stocks adds some volatility, which can boost returns but also increases risk.

Is it OK to have both VTI and VOO?

Re: Can you just hold VOO VTI and call it a day? Sure, you CAN do this if you want. But, it doesn’t make much sense to hold both VOO (S&P 500) and VTI (Total Stock Market). VTI holds a lot of the same stocks as VOO, so you’re being a bit redundant with using both.

Should I buy both QQQ and VOO?

If you want a single diversified investment that may not earn as much but carries less risk, VOO may be your best. On the other hand, if you’re willing to take on more risk for the chance at earning higher returns, QQQ could be a solid addition to your investments.