RSP vs VOO: Which ETF is the Better Investment?LAST UPDATED: July 18, 2023 | By Conrad Golly
As an investor, I’m always on the lookout for ways to maximize my returns while minimizing my risks.
That’s why I’ve been comparing two popular exchange-traded funds (ETFs): RSP and VOO.
Both of these funds track the performance of the S&P 500 index, but they have some key differences that are worth considering.
RSP vs VOO: RSP is a passively managed fund by Invesco that tracks the S&P Equal Weight Index. This means that each company in the S&P 500 is given an equal weighting in the fund, regardless of its market capitalization. VOO, on the other hand, is an ETF managed by Vanguard that tracks the S&P 500 index, which is market-cap weighted. This means that the largest companies in the index, such as Apple and Microsoft, have a greater impact on the fund’s performance.
While both funds have their advantages and disadvantages, there are some key differences that investors should be aware of.
In this article, I’ll be diving deeper into the similarities and differences between RSP and VOO to help you make an informed decision about which fund is right for your investment goals.
So, let’s get started!
Table of Contents
What is RSP?
When it comes to investing, there are many options available. One option that investors may consider is the Invesco S&P 500 Equal Weight ETF (RSP).
RSP is an exchange-traded fund that tracks the performance of the S&P 500 Equal Weight Index. So, what does that mean? Well, unlike other ETFs that track the S&P 500 based on market capitalization, RSP gives each company in the index an equal weighting.
This means that smaller companies have the same impact on the fund’s performance as larger companies. One advantage of this approach is that RSP is more diversified than traditional market-cap weighted ETFs. By giving each company the same weight, RSP is not overly reliant on a few large companies to drive its performance.
This can help reduce the impact of a single stock’s poor performance on the overall fund. Another advantage of RSP is its focus on mid-cap companies.
While the S&P 500 is typically associated with large-cap companies, RSP includes mid-cap companies as well. This can provide exposure to companies that may have more growth potential than their larger counterparts.
RSP can be a good option for investors looking for a diversified ETF with exposure to mid-cap companies. However, it’s important to do your research and consider your investment goals before making any investment decisions.
What is VOO?
When it comes to investing in the stock market, there are a lot of options to choose from. One popular choice is the Vanguard S&P 500 ETF, also known as VOO.
As the name suggests, VOO is an exchange-traded fund that tracks the performance of the S&P 500 index.
So what exactly is the S&P 500 index? It’s a stock market index that measures the performance of 500 large companies listed on U.S. stock exchanges.
These companies represent a wide range of industries, including technology, healthcare, and finance. By investing in VOO, you’re essentially investing in a basket of these 500 companies. One of the main benefits of investing in VOO is that it provides diversification.
Instead of putting all your money into one individual stock, you’re spreading your investment across 500 different companies. This can help reduce your overall risk since the performance of one company won’t have as big of an impact on your investment.
Another benefit of VOO is its low expense ratio. The expense ratio is the annual fee that the fund charges investors to cover its operating costs.
VOO has an expense ratio of just 0.03%, which is significantly lower than the average expense ratio for mutual funds and ETFs.
This means that more of your money is going towards your investment instead of fees.
VOO is a great option for investors who want exposure to the stock market but don’t want to take on too much risk. It provides diversification, low fees, and tracks the performance of some of the largest companies in the U.S.
RSP vs VOO: Key Differences
Investment Objectives RSP vs VOO
When it comes to investment objectives, RSP and VOO differ in their approach.
RSP, or the Guggenheim S&P 500® Equal Weight ETF, aims to provide investors with equal exposure to all the companies in the S&P 500 Index.
This means that each company in the index is given an equal weight in the portfolio, regardless of its market capitalization.
On the other hand, VOO, or the Vanguard S&P 500 ETF, aims to track the performance of the S&P 500 Index by investing in the 500 largest companies in the index, weighted by market capitalization.
Expense Ratio RSP vs VOO
Expense ratio is an important factor to consider when choosing between two ETFs. RSP has a higher expense ratio of 0.20% compared to VOO’s lower expense ratio of 0.03%.
This means that investors in RSP will have to pay more in fees to own the ETF compared to investors in VOO.
Diversification RSP vs VOO
Diversification is key to managing risk in any investment portfolio. RSP provides investors with a more diversified portfolio compared to VOO.
This is because RSP invests equally in all the companies in the S&P 500 Index, whereas VOO invests in the 500 largest companies in the index, weighted by market capitalization.
This means that RSP investors have exposure to smaller companies in the index, which can provide more diversification benefits.
Performance RSP vs VOO
When it comes to performance, VOO has outperformed RSP over the past ten years.
However, past performance is not a guarantee of future results. It’s important to note that RSP’s equal-weighted approach has the potential to outperform market-cap weighted indexes like VOO during certain market conditions.
In conclusion, RSP and VOO have different investment objectives, expense ratios, diversification, and performance. It’s important for investors to consider these factors when choosing between the two ETFs.
While VOO has outperformed RSP in the past, RSP’s equal-weighted approach provides investors with a more diversified portfolio and potential for outperformance in certain market conditions.
Which One Should You Choose?
After comparing RSP vs VOO, you might be wondering which one is the better option for you. The answer, as always, depends on your investment goals and risk tolerance. Here are some things to consider:
- Fees: VOO has a lower expense ratio than RSP, which can make a big difference in the long run. However, RSP has a lower turnover rate, which means it may be more tax-efficient.
- Performance: Over the past 10 years, VOO has provided higher returns than RSP. However, past performance is not a guarantee of future results.
- Holdings: RSP is an equal-weighted index fund, which means it gives equal importance to all the stocks in its portfolio. VOO, on the other hand, is market-cap weighted, which means it gives more importance to the largest companies in its portfolio. Depending on your investment philosophy, you may prefer one approach over the other.
- Diversification: Both funds are highly diversified, with holdings in hundreds of companies across various sectors. However, RSP has a higher number of holdings, which may provide more diversification.
The decision between RSP and VOO comes down to your personal preferences and investment goals.
If you’re looking for a low-cost, tax-efficient fund with a focus on smaller companies, RSP may be the better option.
If you’re looking for a fund with a proven track record of high returns and a focus on larger companies, VOO may be the way to go.
Remember, investing always carries some level of risk, and it’s important to do your own research and consult with a financial advisor before making any investment decisions. Happy investing!
FAQs: RSP vs VOO
Is RSP Better Than VOO?
As with any investment, it depends on your individual goals and risk tolerance.
RSP, the Invesco S&P 500 Equal Weight ETF, aims to provide equal exposure to all 500 stocks in the S&P 500 index, while VOO, the Vanguard S&P 500 ETF, tracks the performance of the S&P 500 index.
RSP’s equal weighting strategy means that smaller companies have a greater impact on the fund’s performance, while VOO’s market-cap weighting strategy means that larger companies have a greater impact.
Over the past 10 years, VOO has provided higher returns than RSP. However, RSP has outperformed VOO in the last 3 months.
Is RSP A Good ETF?
RSP has a lower expense ratio than many other ETFs, making it an attractive option for investors looking for a low-cost way to gain exposure to the S&P 500.
Additionally, RSP’s equal weighting strategy may appeal to investors who want to avoid the concentration risk associated with market-cap weighted indexes. However, RSP’s equal weighting strategy also means that it may experience higher volatility than market-cap weighted indexes.
Which Index Is Better Than VOO?
While VOO is a popular choice for investors looking to gain exposure to the S&P 500 index, there are other options available.
For example, the SPDR S&P 500 ETF Trust (SPY) and the iShares Core S&P 500 ETF (IVV) also track the performance of the S&P 500 index.
Each ETF has its own unique features, such as expense ratios and trading volume, which may make one more suitable for your individual needs than another.
What Is The Best S&P 500 ETF?
There is no one-size-fits-all answer to this question, as the “best” ETF for you will depend on your individual investment goals and risk tolerance.
Some factors to consider when evaluating S&P 500 ETFs include expense ratios, trading volume, and the ETF’s tracking error (the difference between the ETF’s performance and the performance of the underlying index).
It may be helpful to compare multiple S&P 500 ETFs side-by-side to determine which one is the best fit for you.
While past performance is not indicative of future results, it can be helpful to look at historical returns and compare ETFs side-by-side to determine which one is the best fit for you.