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VTSAX vs VTI: Which One Should You Choose?

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We Compare VTSAX vs VTI

Vanguard Total Stock Market Index Fund (VTSAX) vs Vanguard Total Stock Market ETF (VTI)

Investors may find it difficult when it comes to choosing between VTSAX vs VTI.  The two Vanguard’s Total Stock Market funds are the most popular investment funds in the world and have shown strong performance over the years.

According to reports, both VTSAX and VTI have over $1 trillion in total net assets.

In addition, the Vanguard funds, to a very large degree, reflect identical underlying investment holdings.  That’s why differentiating between the two may be tricky.

Having said that, VTSAX and VTI are largely identical but they are not the same.

VTSAX Is An Index Fund

VTI Is An Exchange-Traded Fund (ETF)

Let’s get into some more differences.

VTSAX vs VTI Graphic

VTSAX

VTSAX provides a way for new investors to invest in one of the world’s biggest mutual funds, the Vanguard Total Stock Market Index (VTSMX).  VTSMX restricted new investments to its Admiral Shares (VTSAX).

Created in 1992, the Vanguard Total Stock Market Index Fund (VTSAX) is a mutual fund that holds a wide range of stocks in the U.S.

VTSAX Profile

  • Fund Inception: 2000
  • 10-Year Performance 16.13%
  • Aims For Total Market Exposure
  • Expense Ratio: 0.04%
  • Number Of Stocks: 3535

VTSAX represents close to 100% of the U.S. equity market that is publicly traded.  It also tracks the CRSP U.S. Total Market Index.

This notably implies that the fund has limited exposure to several international stocks.

However, this does not in any way affect the companies represented in the fund.  These stocks have a significant international presence.

Among the major sectors in the index are healthcare, technology, consumer services financials, and industrials.

Vanguard’s VTSAX has an expense ratio of 0.04%.

 

VTSAX Performance

VTSAX is popular for so many reasons of which consistent returns are a major part.

Its risk level is similar to that of the S&P 500.

VTSAX Performance Chart

 

VTI

The Vanguard Total Stock Market ETF (VTI) can be described as the exchange-traded fund version of the VTSAX.

John Bogle created the fund in 2001 to let investors take advantage of the unique benefits of an ETF.

VTI has continued to grow since its inception and today is among the world’s top ETFs.

In addition to being a passive index fund, VTI has a low turnover rate.  VTI also has a very low expense ratio.

These features make it attractive to investors.

Just like VTSAX, VTI is a passive investment vehicle, well-diversified, and tracks the CRSP U.S. Total Market Index.  It is an index that measures the entire investable equity market in the United States.

The fund is a market capitalization-weighted, with small-cap, mid-cap, and large-cap companies.

VTI Profile

  • Fund Inception: 2001
  • Expense Ratio: 0.03%
  • Number Of Stocks: 3535
  • Top 10 Holdings: 26%
  • Equivalent Admiral Fund (VTSAX)

However, this is not to say that with VTI it’s all a win.  Just like every other investment, VTI has its inherent risk of loss.

The stock is known to be highly volatile as both internal and external factors can affect the market.  However, it remains one of the safest investments if you need a diversified portfolio at a low cost and minimal turnover.

Vanguard’s VTI has an expense ratio of 0.03%.

 

VTI Performance

VTI has been on an all-time high, outperforming the outstanding S&P 500 over the last 20 years.

VTI Performance

 

VTSAX vs VTI Similarities

John Bogle, the founder of the Vanguard group and major proponents of index investing thought of a cost-effective and independent solution to index investing.

The ideology behind passive management is to bypass the expenses that accrue to chasing high returns which eventually leaves the investors with little gains.

He sought a passive strategy that translates to a lower expense ratio, turnover, and management fees.

In 1975, John Bogle, popularly called Jack founded his mutual fund company, the first-ever index fund, Vanguard 500 to imitate the S&P 500. 

Then in 1992, he created VTSAX, and in 2001, VTI as an ETF of VTSAX.

These two funds would both cover almost the entire U.S stock market and track CRSP U.S. Total Market Index.

VTSAX and VTI both hold about 3,500 stocks.  They have a major emphasis on technology, financials, and healthcare.

VTSAX and VTI Allocation

  • Technology: 24.2%
  • Financials: 16.8%
  • Healthcare: 14.8%

VTSAX & VTI each have $822.4B in total assets.

As far as performance, VTSAX and VTI have had identical performance returns over the last 10 years.

VTSAX vs VTI Performance

VTSAX (Blue)      VTI (Yellow)

 

VTSAX vs VTI Top 10 Holdings

VTSAX and VTI Holdings

 

Why Do Investors Choose VTSAX and VTI?

Investing in VTSAX and VTI offer investors certain advantages over investments in individual stocks, these include:

  • Diverse Holdings

Diversification is a major advantage that both VTSAX and VTI offer.  Diversified holdings keep risk and volatility low.

Both VTSAX and VTI provide exposure to the whole U.S investable equities, including growth and value stocks across different levels of market capitalization.

This makes VTSAX and VTI perfect for long-term investors.

Although many other index funds in the U.S offer diversified portfolios, these two are notable. 

The S&P, for instance, has narrow inclusion criteria.  It holds a smaller number of stocks of which most are large-cap stocks. 

VTSAX and VTI are also cap-weighted.  They offer more diversification than most funds in the U.S including the S&P 500.

  • Solid Returns

Solid market-beating returns are another major benefit investors reap from investing in VTI and VTSAX.  The strong returns take their root from the funds’ concentration on U.S. equities.

Equities are distinguished investments as they tend to offer strong returns.

Shareholders can benefit from underlying corporate profits.

With well-performing and growing stocks such as Apple, Microsoft, and Amazon to name a few, shareholders stand a high chance for impressive Returns On Investment (ROI).

VTSAX and VTI have slightly outperformed the S&P 500 over the years.

VTI vs S&P 500 Performance

VTSAX / VTI (Blue)      S&P 500 (Yellow)

One solid factor is that these funds are all-cap funds.  Research has shown that for decades, smaller companies have produced higher returns.  They tend to outperform as they are usually undervalued.

Also, smaller companies have room for growth.  If investors decide to look beyond the risk and invest heavily, the stocks’ value will skyrocket.

  • Low Expenses

Low expenses can significantly increase your returns on investment.  Therefore, it benefits both the shareholders and the fund.  It is one surefire way to boost returns.

VTI and VTSAX are both passive investments, meaning that there are little or no trading costs unlike in active investing.

The expense ratio for VTI is 0.03%, while VTSAX has an expense ratio of 0.04%.

Functionally, these ratios are equal to zero.  In essence, it is just $3 for each $10,000 investment in VTI, this is way below industry standards.

  • Low Turnover

The turnover ratio represents the proportion of stocks that have been replaced within the space of one year.  It is the percentage of the fund’s holdings that were “turned over” or replaced with another investment in the 12-month period that represents the fund’s financial year.

Vanguard’s VTSAX has a turnover ratio of 8%.

 

VTSAX vs VTI What are the Differences?

The main difference between VTSAX and VTI is that VTSAX is an index fund while VTI is an ETF.

VTSAX also has a minimum investment of $3,000 while VTI has no minimum investment.

VTSAX vs VTI Comparison

Let’s see the other factors that differentiate them to enable you to make a choice.

 

#1 The Minimum Investment

One major difference between VTSAX and VTI lies in the minimum investment.  This implies the smallest dollar an investor is required to deposit with the fund when purchasing shares.

The initial minimum investment for VTSAX is $3000.

After the first investment, subsequent investments will depend on how much you want to invest.

For VTI, the minimum investment is equivalent to the share price.

If VTI has a share price of $100, you will need $100 to purchase one share.  If the share price changes, the minimum investment changes at the same time.

VTSAX minimum investment is $3000

VTI has no minimum investment

However, note that that’s the minimum investment, which means that you can invest more but not less.

 

#2. Expense Ratios

The expense ratio can be translated as trading costs, how much (in percentage) of the funds’ assets went into management, administrative, and other operating expenses.  If a fund’s expense ratio is 0.04%, it means the fund uses $4 out of each $10,000 to cover all its expenses.

VTSAX has an expense ratio of 0.04%

VTI has an expense ratio of 0.03%

Both VTSAX and VTI have very low expense ratios, the difference is not significant, but you might want to save 0.01% on VTI.

Save more when you invest with M1 Finance. (Use this link for $50 when you open a new account)

 

#3. Real-Time Pricing

The biggest difference between a mutual fund and an ETF is how they are traded.

Investors can only buy and sell mutual funds, whether an index fund or actively managed funds, once a day.  This is usually at the end of the day, during market close.

ETFs trade just like normal stocks.  You can buy or sell ETFs anytime you want.  ETFs trades throughout the day.

Since VTSAX is a mutual fund, you can price each share only at the end of the day.

VTI is an ETF, you can trade the fund anytime in the day you choose, the price fluctuations happen throughout the day.

VTSAX trades once a day

VTI trades throughout the day

With VTI you can monitor the price changes throughout the day.  This isn’t exactly an advantage as it can cause you to fall into trading instead of long-term investing.

 

#4. Automatic Investments & Withdrawals

Automatic investments have become a fast-growing and important feature of many funds today.  It fills in for the insufficiencies of the manual approach

VTSAX supports automatic investment

VTI does not (Except with M1 Finance)

VTSAX trades only at the end of the day and this makes it easy to set automatic investments.  This, however, is not the case with VTI, since you’ll need to monitor the market throughout the day to know when to buy, it does not support automatic investment.

In VTI the human element is very much involved.  You have to go into the market and create “buy” orders when you want to purchase.  This negates what automation seeks to achieve: minimal human involvement which may affect your investment.

Here is where M1 Finance can be a big advantage!

M1 Finance allows you to purchase VTI automatically and for no cost.

 

My Winner: VTSAX and VTI

The differences between VTSAX and VTI are very slight, their similarities tend to be more than the differences that exist between them.  However, these differences may not be entirely negligible.

First off, if you cannot afford $3000 to start investing, you could opt for VTI.

Secondly, if you have other engagements aside from stocks trading, you may want a flexible option.  With VTSAX you only need to trade at the end of the day.

Also, automation is important in investing, and VTSAX has it.

However, when it comes to the expense ratio, the difference between the two funds may be negligible.

In all, the decision of VTSAX vs VTI is yours to make.

Listen to my interview with JL Collins to learn more about why VTSAX and VTI are so popular in the FIRE community.

 


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.
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