SCHX vs. VOO: Why the Broader Large-Cap ETF Wins the Long Game

The U.S. large-cap equity market is a crowded field, but two ETFs dominate: the Schwab U.S. Large-Cap ETF (SCHX) and the Vanguard S&P 500 ETF (VOO). While both are ultra-low-cost and highly correlated, SCHX's broader market exposure and marginally superior performance make it the more compelling choice for long-term investors. Let's break down why.

Cost Efficiency: No Winner, But No Loser Either

Both ETFs charge an identical expense ratio of 0.03%—a fraction of the 0.3%-2.12% average for actively managed funds. This means investors pay just $3 annually for every $10,000 invested, making both highly efficient vehicles. However, cost parity alone doesn't settle the debate—diversification and returns must also be considered.

Diversification: SCHX's 749 Stocks vs. VOO's 500

SCHX tracks the Dow Jones U.S. Large-Cap Total Stock Market Index, which holds 749 stocks, while VOO mirrors the S&P 500 Index (505 stocks). The extra 244 holdings in SCHX reduce concentration risk. For instance:- SCHX's top 10 holdings (Apple, Microsoft, NVIDIA, etc.) account for 34% of its portfolio, versus 32% in VOO.- Apple, the largest holding, has a 6.35% weighting in SCHX vs. 7.02% in VOO—a small but meaningful difference in risk exposure.

This broader net matters. SCHX includes mid-cap giants like Meta (2.39%) and Amazon (3.46%) at lower weightings than VOO, while VOO's narrower focus leaves it more exposed to S&P 500 biases. The 0.99 correlation between the two ETFs confirms they move in lockstep, but SCHX's wider reach offers a safer margin of error in volatile markets.

Risk-Adjusted Returns: SCHX's Edge Is Clear

Over the past decade (as of March 2025), SCHX delivered a 15.17% annualized return, outperforming VOO's 12.88% by 2.29 percentage points. This gap isn't trivial—it compounds into significant wealth differences. A $10,000 investment in SCHX would have grown to $44,000, versus $30,000 in VOO.

Critically, this outperformance didn't come at the cost of higher risk. SCHX's volatility (6.22% annualized) is nearly identical to VOO's (5.97%), and its Sharpe Ratio (a measure of risk-adjusted return) edges higher. SCHX also offers a slightly better dividend yield (1.55% vs. 0.97%), though both are modest.

Why Choose SCHX?

• Reduced concentration risk: Less reliance on S&P 500 heavyweights.
• Superior long-term returns: Outperformed VOO by ~2.3% annually over 10 years.
• Same cost, same risk profile: No trade-off in fees or volatility.

When to Consider VOO

VOO's $608 billion asset size and strict S&P 500 tracking may appeal to investors who prioritize benchmark alignment. However, its narrower holdings and slightly weaker performance make it a second-choice option in a tie.

Final Verdict: SCHX for Long-Term Value

For most investors, SCHX is the better large-cap ETF. Its broader market exposure, comparable risk profile, and outperformance over VOO make it a smarter pick for building wealth. Even a 2.3% annual edge compounds into a 40% larger portfolio over 20 years—a compelling advantage for passive investors.

Actionable Advice: - Hold SCHX as your core large-cap exposure. - Avoid VOO unless strict S&P 500 alignment is a priority. - Rebalance only if your portfolio's large-cap allocation exceeds 50% of total assets.

In a world of near-zero cost ETFs, SCHX's slight edge in returns and diversification isn't just an advantage—it's a no-brainer.