SCHG vs. VOO: The Growth vs. Value Debate

The eternal debate between growth and value investing takes center stage when comparing two popular ETFs: Schwab’s SCHG and Vanguard’s VOO. While both offer exposure to large-cap U.S. stocks, their different approaches create distinct risk-return profiles that can significantly impact your investment outcomes. Understanding these differences is crucial for making informed portfolio decisions.

Understanding the Fundamental Differences

SCHG (Schwab U.S. Large-Cap Growth ETF) tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, focusing exclusively on large-cap companies with strong growth characteristics. This targeted approach concentrates investments in companies expected to experience above-average earnings and revenue growth.

VOO (Vanguard S&P 500 ETF) replicates the S&P 500 Index, providing broad exposure to 500 of the largest U.S. companies across both growth and value segments. This balanced approach captures the entire spectrum of large-cap investing without bias toward any particular investment style.

The fundamental distinction lies in their investment philosophy: SCHG bets on growth, while VOO embraces market-wide diversification. This difference shapes everything from their holdings concentration to their performance during various market cycles.

Performance Analysis: Risk vs. Reward

Historical performance data reveals SCHG’s higher return potential coupled with increased volatility. The numbers tell a compelling story of risk and reward:

Metric	SCHG	VOO
Returns 1Y	14.86%	11.53%
Returns 3Y (Annualized)	22.39%	15.43%
Returns 5Y (Annualized)	18.47%	16.33%
Returns 10Y (Annualized)	15.63%	12.60%
Daily Standard Deviation	25.26%	19.45%
Maximum Drawdown	-34.59%	-33.99%

Key Insights:

• SCHG consistently outperforms VOO over longer periods, with the performance gap widening over time
• Higher volatility in SCHG translates to both greater upside potential and larger downside risk
• The maximum drawdown figures show both ETFs experienced similar worst-case scenarios, but SCHG’s journey was more turbulent

Holdings and Concentration Risk

The concentration differences between these ETFs significantly impact their risk profiles:

SCHG Holdings Concentration:

• Top 10 Holdings: 54.31% of total assets (Yahoo Finance)
• Key Holdings: Apple (11.00%), Microsoft (9.46%), NVIDIA (9.03%)
• Total Stocks: Fewer holdings due to growth-focused screening

VOO Holdings Distribution:

• Top 10 Holdings: 34.08% of total assets (Yahoo Finance)
• Key Holdings: Apple (6.76%), Microsoft (6.22%), NVIDIA (5.65%)
• Total Stocks: 500 companies providing broader diversification

This concentration difference creates a double-edged sword for SCHG investors. While concentrated positions in successful growth companies can drive exceptional returns, they also increase vulnerability to company-specific risks and sector downturns.

Sector Allocation and Diversification

The sector allocation reveals SCHG’s heavy technology bias compared to VOO’s balanced approach:

Sector	SCHG Allocation (%)	VOO Allocation (%)
Technology Services	33.25	20.07
Electronic Technology	27.03	20.32
Finance	7.08	15.43
Healthcare	16.87	10.41
Retail Trade	8.78	7.95

Critical Observations:

• SCHG allocates approximately 60% to technology sectors combined, creating significant sector concentration risk (VettaFi)
• VOO maintains more balanced exposure across sectors, reducing dependency on any single industry (VettaFi)
• The technology bias in SCHG amplifies both opportunities and risks associated with the tech sector’s performance

Dividend Yield and Income Generation

For income-focused investors, the dividend yield comparison reveals an important distinction:

• VOO Dividend Yield: 1.30%
• SCHG Dividend Yield: 0.42%

This significant difference stems from their fundamental approaches. VOO includes value stocks that typically pay higher dividends, while SCHG focuses on growth companies that prioritize reinvesting earnings for expansion over dividend payments.

Income Investment Implications:

• VOO provides nearly three times the dividend income of SCHG
• Growth investors in SCHG trade current income for potential capital appreciation
• The dividend difference compounds over time, making VOO more attractive for retirement income strategies

Risk Metrics and Volatility

The volatility analysis confirms SCHG’s higher risk profile:

Standard Deviation Comparison:

• SCHG: 25.26% (higher volatility)
• VOO: 19.45% (moderate volatility)

This 30% higher volatility in SCHG means investors should expect more dramatic price swings in both directions. While this volatility creates opportunities for higher returns, it also demands stronger emotional discipline and longer investment horizons to weather the storms.

Market Cycle Performance

Real-world performance during different market conditions illustrates the growth vs. balanced debate:

2020 Bull Market Performance:

• SCHG: +39.14% (exceptional growth stock performance)
• VOO: +18.40% (solid broad market returns)

2022 Bear Market Performance:

• SCHG: -31.80% (growth stocks hit hardest by rising rates)
• VOO: -18.11% (value stocks provided some cushion)

These contrasting performances highlight a crucial pattern: SCHG tends to amplify both bull and bear market movements, while VOO provides more stability through diversification across growth and value styles.

Community Perspectives and Investor Sentiment

Investment community discussions reveal divided opinions on SCHG vs. VOO (Reddit):

Pro-SCHG Arguments:

• Younger investors favor SCHG for its long-term growth potential
• Some view it as a “hidden gem” for those comfortable with volatility
• Strong historical performance attracts growth-oriented investors

Pro-VOO Arguments:

• Bogleheads philosophy supporters prefer broad market diversification (Reddit)
• Conservative investors appreciate the balance of growth and value
• Lower volatility appeals to risk-averse investors across all age groups

Common Concerns:

• Warning against “performance chasing” with SCHG based on recent outperformance
• Questions about whether SCHG’s concentration risk justifies the additional returns
• Debates about mean reversion potentially favoring broader diversification

Correlation and Portfolio Considerations

With a correlation coefficient of 0.95, SCHG and VOO move very closely together. This high correlation has important implications:

Portfolio Diversification:

• Holding both ETFs provides limited diversification benefits
• The high correlation means they often rise and fall together
• Investors seeking true diversification should look beyond just combining these two ETFs

Strategic Allocation Considerations:

• Rather than holding both, investors might choose one based on their risk tolerance
• SCHG could serve as a “satellite” holding in a core-satellite strategy
• VOO works well as a core holding with other asset classes for diversification

Valuation Concerns and Market Timing

Growth stocks in SCHG typically trade at higher valuations, with recent P/E ratios around 33.53 compared to VOO’s lower market average. This valuation premium raises important considerations:

Valuation Risk Factors:

• Higher P/E ratios make SCHG more sensitive to interest rate changes
• Growth premiums can compress during economic uncertainty
• Overvaluation concerns may limit future returns if valuations normalize

Market Environment Sensitivity:

• Rising interest rates particularly impact high-valuation growth stocks
• Economic slowdowns can disproportionately affect growth-oriented companies
• Market rotation from growth to value can temporarily disadvantage SCHG

Suitability for Different Investor Profiles

SCHG is Most Suitable For:

• Young investors with 20+ year investment horizons
• Growth-oriented investors comfortable with higher volatility
• Technology sector believers willing to accept concentration risk
• Risk-tolerant investors seeking higher potential returns

VOO is Most Suitable For:

• Conservative investors prioritizing stability over maximum growth
• Income-focused investors seeking higher dividend yields
• Diversification-minded investors following broad market strategies
• Risk-averse investors of any age preferring balanced exposure

Hybrid Approach Considerations:

Some investors combine both ETFs, allocating perhaps 25% to SCHG and 75% to VOO, seeking to capture some growth premium while maintaining broad market stability. However, the high correlation suggests this approach may not provide significant diversification benefits.

Key Takeaways and Investment Decision Framework

Choose SCHG if you:

• Have a long investment horizon (10+ years)
• Can emotionally handle 30%+ portfolio swings
• Believe in technology sector outperformance
• Prioritize growth over income
• Want to potentially outperform the broad market

Choose VOO if you:

• Prefer steady, diversified market exposure
• Value dividend income alongside capital appreciation
• Want lower volatility in your equity holdings
• Follow a balanced investment philosophy
• Seek broad market returns without concentration risk

Bottom Line: SCHG offers the potential for higher returns with significantly higher risk, while VOO provides steady, diversified market exposure with lower volatility. Your choice should align with your risk tolerance, investment timeline, and overall portfolio strategy.

The decision ultimately comes down to whether you believe the potential for higher returns justifies the increased risk and concentration that comes with growth-focused investing. Both ETFs serve legitimate investment purposes, but they serve different types of investors with different goals and risk tolerances.

Remember that past performance doesn’t guarantee future results, and market conditions can change the relative attractiveness of growth versus balanced strategies. Consider consulting with a financial advisor to determine which approach best fits your individual circumstances and long-term financial goals.

FAQ

Which is better, SCHG or VOO? +

SCHG offers higher growth potential with increased risk, while VOO provides more stability and diversification. Choose SCHG if you're comfortable with volatility and seeking higher returns, or VOO for a balanced, lower-risk approach with broader market exposure.

What's the main difference between SCHG and VOO? +

SCHG focuses specifically on large-cap growth stocks and tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, while VOO tracks the broader S&P 500 Index including both growth and value stocks across 500 companies.

Is SCHG riskier than VOO? +

Yes, SCHG has historically been more volatile with higher standard deviation (25.26% vs 19.45% for VOO) and larger drawdowns, making it riskier but with potential for higher returns during bull markets.

How concentrated is SCHG compared to VOO? +

SCHG is heavily concentrated in technology (approximately 60% combined tech allocation) with top 10 holdings representing 54.31% of assets, while VOO is more diversified across sectors with top 10 holdings at 34.08%.

Which ETF has better dividend yield? +

VOO offers a higher dividend yield of 1.30% compared to SCHG's 0.42%, making VOO more appealing for income-focused investors seeking regular dividend payments.

How did SCHG and VOO perform during recent market cycles? +

SCHG performed exceptionally well in 2020 with 39.14% returns vs VOO's 18.40%, but suffered larger losses in 2022 (-31.80% vs -18.11%), demonstrating its higher volatility in different market conditions.

Should I hold both SCHG and VOO? +

Both ETFs have a high correlation of 0.95, meaning they move closely together. Holding both provides limited diversification benefits since their performance is heavily influenced by similar large-cap stocks.

Which ETF is better for young investors? +

SCHG may be more suitable for younger investors with longer time horizons who can tolerate higher volatility for potential higher returns, while VOO appeals to conservative investors of any age seeking stability.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing involves risks, including the possible loss of principal. Always conduct your own research before making investment decisions.