VIGAX vs VFIAX: A Full Comparison With Investment Tips

VIGAX vs VFIAX: A Full Comparison With Investment Tips

I get a lot of questions about which Vanguard Admiral Fund is the best investment.  I’ve covered a comparison of many of the Vanguard’s most popular funds.  Today we will compare VIGAX vs VFIAX and help you determine which one is best for you.

I also share how you can take advantage of these two funds to get a higher return and pay fewer taxes!  

 

VIGAX vs VFIAX

The primary difference between Vanguard Growth Index Fund Admiral Shares (VIGAX) and Vanguard 500 Index Fund Admiral Shares (VFIAX) is the target index fund they desire to track.  VIGAX tracks the CRSP US Large Cap Growth Index which focuses on large-capitalization growth stocks.  VFIAX aims to track the S&P 500 Index which makes it a great core equity holding in a portfolio.

VFIAX vs VIGAX Graphic

VIGAX Overview

  • Fund Inception: 2000
  • 10-Year Performance 12.37%
  • Aims For Growth
  • Expense Ratio: 0.05%
  • Number Of Stocks: 277
  • Top 10 Holdings: 44.40%
  • Yield 0.93%

Vanguard Growth Index Fund Admiral Shares (VIGAX) is the admiral version of the Vanguard Growth ETF (VUG).

The fund, as of April 30th, 2020, has $104.1 billion in total net assets.

VIGAX Holding NEWVIGAX is largely made up of Microsoft, Apple, Amazon, Alphabet, and Facebook, but also provides exposure to over 200 stocks.

 

VFIAX Overview

  • Fund Inception: 2000
  • 10-Year Performance 11.66%
  • Aims For Diversification
  • Expense Ratio: 0.04%
  • Number Of Stocks: 509
  • Top 10 Holdings: 27.00%
  • Yield 2.21%

Vanguard 500 Index Fund Admiral Shares (VFIAX) is the admiral version of the Vanguard S&P 500 ETF (VOO).

The fund, as of April 30th, 2020, has $496.3 billion in total net assets.

VFIAX Holdings

VFIAX is largely made up of Microsoft, Apple, Amazon, Alphabet, and Facebook, but also provides exposure to over 500 stocks.

 

Investing Tips

Now that we have seen the differences and similarities, we can go into how to use this information to our advantage.  

We will do this by analyzing two factors:

  1. How Volatility Affects Performance
  2. How Taxes Affect Long-Term Returns

 

Volatility and Performance

VIGAX focuses on large growth companies like Google, Tesla, and Amazon.  This focus has resulted in higher performance results over the last 10 years.  The downside to a growth strategy is higher volatility.  For those willing to stomach more of a “rollercoaster ride” in the market, growth stocks can offer significantly higher performance.  This is based on past performance, which is not an indicator of future results but can give us an idea of how the fund might perform.  

Here is a comparison of the performance of VIGAX vs VFIAX:

VIGAX vs VFIAX Performance

So usually, growth stocks offer higher performance returns but at a trade-off of higher volatility.  In general, the relationship is as follows:

  • Smoother Ride = Lower Returns
  • Bumpier Ride = Higher Returns

As an investor, you can use this information to meet your investment goals.

 

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Tax Drag Effect On A Portfolio

There is also a significant difference between the dividend yield of VIGAX and VFIAX.  Growth stocks don’t usually pay out dividends because they are focusing on reinvesting that money into the business.  You can use this to your advantage if you are investing in a taxable account.

This is how their dividend yield compares:

  • VIGAX Dividend Yield = 0.93%
  • VFIAX Dividend Yield = 2.21%

 

In a taxable account, dividends are taxed at varying rates.  This results in a “tax drag” of your portfolio which is a reduction of potential income because of taxation.

If you are investing in a taxable account you can lower the “tax drag” of your portfolio by investing in funds that pay fewer dividends.  This makes VIGAX is a great option for those looking to pay fewer taxes.  

Example:

  • A $10,000 investment in VIGAX results in $93/year in dividends.  Taxed at 20% equals a tax bill of $18.60 for the year
  • A $10,000 investment in VFIAX results in $221/year in dividends.  Taxed at 20% equals a tax bill of $44.20 for the year

Investing in VIGAX in this scenario will save you $25.60 each year in taxes for every $10,000 that is invested.  This difference in tax drag each year can have a big impact on long-term performance, especially with larger portfolios.  

Here is how that $25.60 can compound over 40 years:

Compound Calculator VIGAX vs VFIAX

The calculator shows that a small amount of $25.60 can compound to $5,468!

Now imagine if you have a portfolio of $100,000 or even $500,000.  The tax drag on a portfolio that large can add up over the years.

So if you are planning to invest in a taxable account I would strongly recommend thinking about the tax drag of your investment choice. 

That is why I mainly invest in VUG (VIGAX’s ETF equivalent) within my taxable account.

 

Which is Better VIGAX or VFIAX?

VIGAX and VFIAX are can both very good investments depending on your investment goals.  They are both Admiral Shares Funds with very low expense ratios.

However, for the reasons I stated above I prefer VIGAX.

I can handle the higher volatility that comes with growth stocks.  I’m also investing in a taxable account so I look for funds with low yields to minimize taxes.  You can consider VFIAX if you prefer to invest in a fund with more diversification.  

Luckily, both VIGAX and VFIAX can get you to Financial Independence Retire Early (FIRE).  They both have rock bottom expense ratios (0.05% & 0.04%).  So, either option is a great investment for financial independence.

After keeping fees to a minimum, you can work on increasing your savings rate and prioritizing your investments.  Then, you will be well on your way to Financial Independence and Early Retirement!

 

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Disclaimer
This post may have affiliate links, which means I may receive commissions if you choose to purchase through links I provide (at no extra cost to you). Thank you for supporting the work I put into this site!

This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

This Post Has 4 Comments

  1. Jeff

    Great article. Hadn’t really considered the compounding effect of tax drag before. It sounds like dividend income might actually be counter productive to FI.

    1. Thank you! And yes making sure to shelter your dividends in a tax advantaged account (401k, roth, etc..) goes a long way!

  2. SP

    Hi, when you say taxable account, you mean like a Roth IRA for instance? I’m interested in investing in both funds, one in my Traditional IRA and for my Roth IRA. Just want to make sure I’m clear about which fund is best for which IRA. Also, any thoughts as to whether it’s better to invest in the Mutual Fund or ETF version for each of these? I meet the minimum investment requirements and don’t really care for the benefits of one over another.

    1. Hi SP,

      By taxable account, I mean any regular brokerage account. A traditional IRA or Roth IRA would not be considered a taxable account because they are both tax-advantaged accounts. Therefore, there would be no tax drag on money in a Traditional or Roth IRA.

      As for the second part of the question. I would consider investing in the admiral fund or ETF about the same it just depends on your preference. ETF’s price fluctuate during trading hours while admiral funds transactions occur after the market has closed.

      Hope this helps! and thanks for stopping by!

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