Summary: Should I buy VFV or VOO?
What’s the difference between VFV and VOO? The answer is simple. VFV is the Canadian version of the Vanguard S&P 500 ETF offered by Vanguard U.S. Although they both track the S&P 500, one of the major differences between investing in VFV versus VOO is that dividends paid out by VFV are subject to a 15% foreign withholding tax.
What are Index Funds?
An index fund is a type of mutual fund or exchange traded fund (ETF) that aims to mirror a particular market. Index funds contain a tiny piece of all the companies included in a particular market index (e.g., S&P 500 or the Dow Jones Industrial Average).
Index funds offer a great vehicle to diversify your holdings, as your money is spread out across many companies in an index. Instead of having your eggs in one basket (one security), your eggs are spread out across multiple baskets.
What is Vanguard?
Vanguard was founded by John Bogle in 1975 and that same year Vanguard launched the first index fund, which tracked the S&P 500. Today, Vanguard is the largest issuer of mutual funds in the world and the second-largest issuer of ETFs as well.
Comparing VFV & VOO – The Stats
| VFV | VOO | |
| Management Expense Ratio (MER) | 0.09% | 0.03% |
| Dividend Yield | 1.31% | 1.69% |
| Withholding Tax (for Canadians) | 15% | 0% (in your RRSP) |
| 10 Year Performance | 328.96% | 225.22% |
Currency Hedging – VFV vs. VOO
When you buy an ETF like VFV that holds a U.S. ETF like VOO, the difference between the CAD-USD pair can also impact the value of the Canadian ETF beyond the price movement of the underlying stocks.
Why? Because not all ETFs are hedged for this. This means that if the U.S. dollar goes up in value, the ETF will gain additional value as well. Conversely, if the Canadian dollar goes up in value, the ETF will lose additional value which can change returns over time.
Should I Buy VFV or VOO?
Well, it depends!
If you’re interested in a lower MER and higher dividend yield, VOO may be the better option, but you will have to absorb the currency conversion cost. Or, if you’re familiar with Norbert’s Gambit, you can convert funds without the currency conversion fees (click here to learn about Norbert’s Gambit). As a reminder, you will need to hold VOO in your RRSP to avoid the 15% withholding tax.
On the other hand, if you’re like the vast majority of investors that simply want a invest their funds in a simple and consistent manner, VFV is likely the easier choice.
To review the full details of VFV and VOO from Vanguard, click on either one.
