VTSAX vs VTSMX: Which Should You Buy And Why?

VTSAX vs VTSMX: Which Should You Buy And Why?

In this article, we are going to explore the difference between Vanguard Total Stock Market Index Fund (VTSAX) vs Vanguard Total Stock Market Index Fund Investor Shares (VTSMX).

There is no shortage of options when it comes to index fund investing.  Choosing the right fund can be difficult but I will be making it easy for you to decide between these two index funds.

 

VTSAX vs VTSMX

The primary difference between VTSAX and VTSMX is the minimum initial investment and the expense ratio.

VTSAX:

  • Tracks the performance of the CRSP US Total Market Index
  • Has an expense ratio of 0.04%
  • $3,000 minimum initial investment
  • Holds 3535 stocks

VTSMX:

(Closed To New Investors)

  • Tracks the performance of the CRSP US Total Market Index
  • Has an expense ratio of 0.14%
  • No minimum initial investment
  • Holds 3505 stocks

 

Are VTSMX and VTSAX the Same?

VTSMX and VTSAX are not the same funds. They technically have a different fund number.  However, they are very similar in their company holdings and Vanguard suggests them as a similar alternative.

Similarities between VTSMX and VTSAX:

  • Tracks the CRSP US Total Market Index
  • Similar Performance
  • Broad Diversification (Over 3500 Holdings)
  • Low Expense Ratios

Here is how their performance compares over the last 10 years:

VTSAX vs VTSMX Performance

As you can see from the chart, VTSAX and VTSMX perform identically.

 

VTSMX and VTSAX Differences

VTSMX vs VTSAX primarily differ in that VTSMX is a closed fund.  New investors cannot purchase VTSMX anymore.  Vanguard is directing new investors to Vanguard Total Stock Market ETF (VTI) or Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX).  VTSAX is an admiral index fund that has a $3,000 minimum initial investment and a lower expense ratio.

Differences between VTSMX and VTSAX:

  • Minimum Initial Investment
  • Classified as an Admiral fund (VTSAX)
  • Not available to new investors (VTSMX)
  • Different Expense Ratios

 

VTSMX Profile

  • Fund Inception: 1992
  • Expense Ratio: 0.14%
  • Number Of Stocks: 3505
  • Top 10 Holdings: 20.7%

 

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) is the non-admiral version of the world’s largest mutual fund, VTSAX.

The fund, as of February 29, 2020, has $840.9 billion total net assets.

VTSMX Holdings

VTSMX is largely made up of Microsoft, Apple, Amazon, Alphabet, and Facebook, but also provides exposure to over 3500 stocks.

 

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No Minimum Investment

VTSMX is an investor shares fund which means there is NO minimum investment.  The issue is the fund is closed to new investors.  New investors can use the alternative Exchange-Traded Fund (ETF), which is Vanguard’s Total Stock Market ETF (VTI).  There is NO minimum requirement to purchase VTI and can be bought commission-free with Vanguard.

 

VTSMX Historical Returns

Take a look at the historical chart below. You will see VTSMX and the S&P 500 closely overlap:

VTSMX Performance vs S&P 500

 

VTSAX Profile

  • Fund Inception: 1992
  • Expense Ratio: 0.04%
  • Number Of Stocks: 3535
  • Top 10 Holdings: 18.9%

 

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) provides investors with exposure to the entire U.S. equity market.  The U.S equity market includes small, mid, and large-cap growth and value stocks.

VTSAX was created in 1992 and currently has an expense ratio of only 0.04%.

VTSAX Holdings

VTSAX is largely made up of Microsoft, Apple, Amazon, and Google but also offers exposure to over 3500 stocks.

Over the last 10 years, VTSAX has returned an average of 10.1% per year as of March 31, 2020.

 

VTSAX has become one of the most popular index funds because of it’s strong diversification and ultra-low expense ratio.

 

$3,000 Minimum Investment

VTSAX used to have a minimum initial investment of $10,000, but this changed to $3,000 in 2018.  Once you save up the $3,000 minimum, each investment after that does not have a minimum.

You can avoid this minimum investment threshold through retirement account contributions or by investing in VTI.

 

Investor Shares vs Admiral Shares

Investor shares are usually a more accessible option for new investors since they don’t have a minimum investment.  In comparison, if you can afford to invest in admiral shares, it’s usually the better option because they have a lower expense ratio.    

Even small differences in expense ratios can make a big difference in the total long-term returns of a portfolio.

 

According to Vanguard; 

“Lower expense ratios mean more of your returns stay in your account, so it can grow faster”

 

Today, many investor share funds have been closed due to the admiral share minimum being lowered from $10,000 to $3,000.

Since VTSAX is an admiral share fund, I prefer it over VTSMX.  For new investors, VTSAX is the only option left out of the two funds.

Find Out Which Admiral Fund Is Better VIGAX vs VTSAX

Which is Better VTSAX or VTSMX?

VTSAX and VTSMX are very similar investments.  Since VTSAX is an admiral share fund, it offers significantly more advantages.

I would choose to transfer my VTSMX investments to VTSAX because of the lower expense ratio.  There is also no minimum investment requirement once you surpass an account balance of $3,000.

VTSAX vs VTSMX Graphic

 

Is VTSAX or VTSMX Better for Financial Independence?

Both VTSAX or VTSMX can get you to Financial Independence Retire Early (FIRE).  They both have a similar return on investment since they track the same index.

However, in the long term fees add up!  

If you already have investments in VTSMX I would consider switching it to VTSAX.  This is as long as it doesn’t create a taxable event.  By switching to VTSAX you get a lower expense ratio with the same portfolio performance.

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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