The Vanguard S&P 500 ETF (VOO +0.61%) is the largest exchange-traded fund (ETF) in the world -- having surpassed $1 trillion in net assets earlier this year. With just a 0.03% expense ratio, or $3 for every $10,000 invested, it provides a low-cost way to invest in the S&P 500 (^GSPC +0.59%).

An S&P 500 index fund is a simple, hands-off way to own a basket of companies that can perform well over the long term. The strategy has been effective historically -- producing annualized total returns of 9% to 10%. And even Warren Buffett has put some of Berkshire Hathaway's capital to work in the Vanguard S&P 500 ETF in the past.

However, like any index, the S&P 500 has qualities that may not appeal to some investors, such as its focus on U.S. large-cap stocks and its slow pace in adding recently public companies, regardless of their value.

Here's why the Vanguard Total World Stock ETF (VT +0.69%) may be a better buy for some investors than the Vanguard S&P 500 ETF.

SpaceX likely won't join the S&P 500 until June 2027

On June 4, S&P Dow Jones Indices rejected a proposal to fast-track the inclusion of megacap companies in the S&P 500 -- which applies to companies like Space Exploration Technologies (SPCX +1.25%), and likely Anthropic and OpenAI when they go public. So even if a company accumulates significant value in private markets, it must still be traded on an eligible exchange, such as Nasdaq or the New York Stock Exchange, for at least 12 months before being considered for inclusion in the S&P 500.

The ruling means that the earliest SpaceX can be added to the S&P 500 (and funds that track the index like the Vanguard S&P 500 ETF) is June 2027. Anthropic is expected to go public in November. And OpenAI's initial public offering isn't expected until early next year, meaning it won't be included in the S&P 500 until early 2028.

The Vanguard Total World Stock ETF isn't benchmarked to the S&P 500. So it began buying SpaceX in June -- albeit gradually. As of Aug. 31, the ETF holds 453,258 shares of SpaceX, making it the 261st largest holding. However, the ETF will likely add to its SpaceX holdings as more shares become available for trading on Nasdaq, according to SpaceX's unlocking schedule.

NYSEMKT: VT

Key Data Points

The Vanguard Total World Stock ETF has 10,088 holdings

The Vanguard Total World Stock ETF has over 10,000 holdings, with 65.1% of the fund in North American companies simply because of how large the U.S. stock market is.

However, demand for artificial intelligence (AI) chips has led to a surge in valuations for many technology stocks that aren't U.S. companies. Taiwan Semiconductor Manufacturing (TSM -1.02%) is now the fund's sixth-largest holding with a market cap of $2.35 trillion at the time of this writing. Samsung Electronics (SSNLF +0.00%) is 13th, and SK Hynix (SKHY -0.86%) is 16th -- both with market caps over $1.2 trillion. And ASML (ASML +0.60%) is 18th with a $686 billion market cap. All four semiconductor companies play critical roles in the AI value chain -- especially in chip manufacturing and memory chip design.

Taiwan Semiconductor is a pure-play semiconductor foundry that manufactures chips for customers like Nvidia, Advanced Micro Devices, Broadcom, Apple, and Qualcomm.

Samsung Electronics and SK Hynix design and manufacture their own chips and hold a dominant share of the memory chip market alongside Micron Technology, a U.S. company.

ASML is a Dutch company that makes lithography systems that are used to print intricate designs onto microchips. Taiwan Semiconductor, Samsung Electronics, SK Hynix, and Intel rely on these specialized machines to produce next-generation AI logic and memory chips.

Ultimate diversification for a mere 0.06% expense ratio

Investors looking for exposure to the world's leading companies rather than just U.S. large-cap stocks may want to put their hard-earned savings to work in the Vanguard Total World Stock ETF over the Vanguard S&P 500 ETF. The World ETF includes a blend of industry-leading non-U.S. stocks. And because of the added diversification, it is less concentrated than the S&P 500 ETF.

The Vanguard S&P 500 ETF has 30% of its weighting in just five stocks -- Nvidia, Apple, Alphabet, Microsoft, and Amazon. Whereas the Vanguard Total World Stock ETF has the identical five largest holdings, but has a lower weighting in each of those holdings. In fact, it has just 28.4% invested in its 20 largest holdings, which include Taiwan Semiconductor, Samsung Electronics, SK Hynix, and ASML.

And to top it all off, the Vanguard Total World Stock ETF has a 0.06% expense ratio, or just $6 for every $10,000 invested -- ensuring investors' long-term gains aren't stymied by a steep fee structure.