Investing in the stock market can be a rewarding way to build wealth over the long term. One of the key components of a well-diversified portfolio is exposure to the total stock market, capturing the growth potential of thousands of companies. In this blog, we’ll be diving into a comparison between two popular investment options: Vanguard’s VTI vs VTSAX.
Understanding VTI vs VTSAX
VTI (Vanguard Total Stock Market Index ETF): VTI is an exchange-traded fund (ETF) offered by Vanguard. This ETF aims to replicate the performance of the entire U.S. stock market. By investing in VTI, you effectively own a slice of thousands of companies, spanning various sectors and market capitalizations. What makes VTI unique is that it trades like a stock on the exchange, allowing investors to buy and sell throughout the trading day.
VTSAX (Vanguard Total Stock Market Index Fund): On the other hand, VTSAX is an index mutual fund that also seeks to track the U.S. total stock market. However, unlike an ETF, VTSAX is traded once a day, after the market closes. This can offer a different investing experience compared to the real-time trading of VTI.
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Shared Objectives and Management Styles
Both VTI and VTSAX share some fundamental characteristics:
- Objective: The primary goal of both funds is to mirror the performance of the U.S. total stock market index. Consequently, their holdings are substantially similar, as they aim for the same investment outcomes.
- Passive Management: Both VTI and VTSAX are passively managed, meaning they are not actively selecting individual stocks. Instead, they aim to replicate the index’s performance, leading to lower management fees compared to actively managed funds.
- Diversification: These funds offer extensive diversification, given that they encompass the entire U.S. equity market. Holding either VTI or VTSAX grants you exposure to a broad range of industries and companies.
- Top holdings : As you can see top holdings stocks allocation is almost identical for VTI and VTSAX
Key Differences VTI vs VTASX
While VTI and VTSAX align on various fronts, they do have differences that might influence your choice:
- Investment Structure: VTSAX is an index mutual fund, while VTI is an ETF. This distinction affects how they are traded and when you can buy or sell shares.
- Minimum Investment: VTSAX often requires a minimum initial investment, typically around $3,000. In contrast, VTI allows you to buy shares with as little as the cost of a single share.
- Trading: VTI is traded throughout the day like a stock, allowing for greater flexibility. VTSAX, being a mutual fund, is bought or sold at the end of the trading day, regardless of when you place the order.
- Fractional Shares: VTSAX tends to offer easier access to fractional shares, making it convenient for investors who want to start with smaller amounts. However, fractional shares are becoming more accessible for ETFs like VTI as well.
Comparing Key Metrics: VTI vs VTSAX
| Metric | VTI | VTSAX |
|---|---|---|
| AUM | $283.1B | $283.1B |
| Expense Ratio | 0.03% | 0.04% |
| 1-yr return | 1.33% | 1.31% |
| 3-yr return | 13.94% | 13.93% |
| 5-yr return | 10.51% | 10.50% |
| 10-yr return | 11.61% | 11.61% |
- Assets Under Management: Both funds have substantial assets under management, with around $283.1 billion each. This demonstrates their popularity among investors.
- Expense Ratio: The expense ratio for VTI is 0.03%, while VTSAX comes in slightly higher at 0.04%. Both ratios are remarkably low, ensuring that more of your returns stay in your pocket.
- Historical Returns: Looking at returns over various time frames, both VTI and VTSAX show very similar performance. This is expected, given that they track the same index. Past performance, however, is not a guarantee of future results.
Side by Side Differences between VTI vs VTSAX :
| Fund Overview | Vanguard Total Stock Market ETF (VTI) | Vanguard Total Stock Mkt Idx Adm (VTSAX) |
|---|---|---|
| Symbol | VTI | VTSAX |
| Asset Class | Stock | Stock |
| Category | Large Blend | Large Blend |
| Risk Potential | ⭐⭐⭐⭐ | ⭐⭐⭐⭐ |
| Expense Ratio | 0.03% | 0.04% |
| NAV | $220.06 | $107.12 |
| Change in NAV | $2.43 1.12% | $1.18 1.11% |
Which One to Choose?
Ultimately, your choice between VTI and VTSAX depends on your preferences and investing style. If you prefer real-time trading and flexibility, VTI might be more suitable. On the other hand, if you’re comfortable with end-of-day trading and are looking for an option with potentially lower minimum investment, VTSAX could be the better fit.
VTI vs VTSAX Returns
Consider your brokerage account and any additional fees that might apply, especially if you’re not using Vanguard as your platform. Regardless of your choice, both funds offer an excellent way to gain exposure to the U.S. total stock market, contributing to a diversified investment strategy.
Frequently asked questions VTI vs VTSAX :
Should I switch from VTSAX to VTI?
Deciding to switch from VTSAX to VTI depends on your trading style and preferences. VTI offers intraday trading like a stock, while VTSAX allows end-of-day trading.
Why is VTI more tax-efficient than VTSAX?
VTI’s ETF structure leads to better tax efficiency due to its unique creation and redemption process that minimizes capital gains distributions.
Is VTI cheaper than VTSAX?
Yes, VTI generally has a lower expense ratio than VTSAX, making it a cost-effective option.
Why VTI is the best?
VTI’s advantages include lower expenses, intraday trading, and tax efficiency due to its ETF structure. Choose based on your goals and preferences.
Incorporating VTI or VTSAX in Your Portfolio
There are various ways to integrate VTI or VTSAX into your investment portfolio:
- Warren Buffett Approach: Adapt the classic Warren Buffett portfolio by substituting a portion (e.g., 90%) of your stock allocation with VTI or VTSAX, coupled with a percentage in bond funds.
- Three-Fund Portfolio: Utilize a three-fund portfolio strategy, where VTI or VTSAX becomes your domestic stock component. Pair it with an international fund and a bond fund, allocating based on your risk tolerance.
- Simple Path to Wealth: Following the philosophy outlined in “The Simple Path to Wealth” by JL Collins, you can invest solely in VTI or VTSAX. This approach simplifies your investment strategy while providing exposure to the entire U.S. stock market.
Conclusion
VTI and VTSAX are both strong contenders for investors seeking exposure to the U.S. total stock market. Your choice depends on factors such as trading preferences, minimum investment requirements, and the overall structure of your investment portfolio. Both funds offer the potential for growth and diversification, contributing to your long-term financial goals. As with any investment decision, conducting thorough research and consulting with financial professionals can help you make an informed choice tailored to your unique circumstances.
