VTSAX vs. VFIAX: Comparison, Pros & Cons

Summary:

VFIAX and VTSAX are two of the most popular index funds on the market. One tracks the S&P 500, while the other tracks the performance of the entire U.S. stock market. The two have a lot in common, including their holdings and long-term performance, but they also have a few differences that are important to keep in mind.

When you’re ready to start investing for the future, you’re likely to read a lot about how index funds are a great option for your stock portfolio. They come with broad diversification, low fees, and plenty of other benefits.

And there are few companies that do index funds better than Vanguard. In fact, Vanguard first introduced the idea of index funds. Once other companies realized how popular these investment vehicles were, they followed suit.

Two of the most popular Vanguard index funds — and for good reasons — are VFIAX and VTSAX. The two funds are similar, and both offer all of the benefits of a low-cost index fund. However, there are some key differences you should understand before choosing which to invest in.

What are VFIAX and VTSAX?

Both VTSAX and VFIAX are low-cost index funds that Vanguard offers. But before we explain the differences between the two, let’s back up a bit and explain what an index fund actually is.

An index fund is a type of mutual fund, meaning it’s a basket of securities. When you invest in the fund, you’re essentially investing in all of the assets within the basket.

“Indexes aren’t investable,” said Rubin Miller, the Chief Investment Advisor and a senior financial advisor with Perspective Wealth Planners.

They’re just lists, designed by committee at companies like S&P or Dow Jones. It isn’t until a company like Vanguard decides to track that list, that an investable vehicle is created.”

Index funds specifically track the performance of an underlying index or part of the stock market. Unlike actively-managed mutual funds that are regularly changing their makeup, index funds remain relatively stable over time.

Index funds have several key benefits, including:

  • Broad diversification
  • Low annual fees
  • Better performance than actively-managed funds
  • Tax efficiency, since they aren’t regularly buying and selling assets to create capital gains

What is VFIAX?

VFIAX (Vanguard 500 Index Fund Admiral Shares) is a low-cost index fund that tracks the performance of the S&P 500 (which is a stock index of 500 of the largest companies in the U.S. equity market). This index fund always holds 500 companies, but those companies have changed over time. As some companies grow while others shrink or go out of business, the makeup of the top 500 may change.

VFIAX uses the same capitalization weighting as the index. In other words, the value (aka market capitalization) of each company determines its weighting. The higher a company’s market cap, the heavier its weighting in the fund.

VFIAX includes companies in all of the market sectors, with the most prevalent being information technology, healthcare, financials, and consumer discretionary. The top companies in VFIAX are:

  • Apple (AAPL)
  • Microsoft Corp. (MSFT)
  • Amazon.com Inc. (AMZN)
  • Alphabet Inc. Class A (GOOGL)
  • Berkshire Hathaway Inc. Class B (BRK.B)
  • Alphabet Inc. Class C (GOOG)
  • Tesla Inc. (TSLA)
  • UnitedHealth Group Inc. (UNH)
  • Johnson & Johnson (JNJ)
  • Exxon Mobil Corp. (XOM)

Because the S&P 500 — and, therefore, VFIAX — only includes the top 500 companies in the stock market, it holds only large-cap stocks and no mid-cap or small-cap stocks.

What is VTSAX?

VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares) is a low-cost index fund that tracks the performance of the entire U.S. stock market. The makeup of the fund changes as new companies go public or as already-public companies go private or go out of business. As of January 2023, the fund holds 4,026 stocks.

VTSAX uses the same weighting system as VFIAX. It’s market-cap weighted, which means larger companies have a larger weighting. Each company’s weighting corresponds to its share of the market.

Because VTSAX holds every stock in the U.S. equity market, it holds many companies in each sector. The largest sectors are information technology, healthcare, industrials, and consumer discretionary. Additionally, the index includes large-cap, mid-cap, and small-cap stocks.

IMPORTANT! It’s worth noting that while VTSAX holds companies of all sizes, its weighting means that the majority of the fund is made up of large-cap stocks. In fact, the makeup of VTSAX is quite similar to VFIAX because the top 500 companies make up such a large part of the stock market.

Which is better: VTSAX vs. VFIAX?

If you’re considering investing in either VTSAX or VFIAX, we’ve got both good news and bad news. The bad news is that these two index mutual funds are so similar that you may have a difficult time choosing between them. The good news is that these funds are so similar that no matter which you choose, your results will be quite similar.

First, let’s break down the characteristics of these two funds. The table below shows each fund’s number of stocks, total net assets, expense ratio (meaning the annual cost), and minimum investment.

VFIAXVTSAX
Number of stocks5034026
Total net assets$789.6 billion$1.2 trillion
Expense ratio0.04%0.04%
Minimum investment$3,000$3,000

Risk vs. reward

Aside from the characteristics above, there are two real factors people will consider when choosing a fund to invest in: risk and reward.

VTSAX and VFIAX present very similar levels of risk. Vanguard rates them both at a 4/5 on its risk/reward scale.

These funds could be considered higher-risk because they are made up of 100% stocks without any low-risk or fixed-income assets. On the other hand, they could be considered lower risk than many other funds and investments because of how diversified they are. The risk is considerably lower than if you were investing in individual stocks, for example.

As for performance, the results aren’t terribly different. VFIAX has better performance when you look at the one-year, three-year, five-year, or ten-year results. However, when you look at the entire lifespan of the funds — which is just over 22 years for both — VTSAX outperforms VFIAX. The table below shows each fund’s performance at different milestones.

1-year3-year5-year10-yearSince inception (11/13/2000)
VFIAX-18.15%24.65%56.61%225.41%333.25%
VTSAX-19.53%22.40%51.83%212.71%360.62%

It’s important to note that past results are no guarantee of future results. Just because these funds have seen cumulative profits exceeding 300% over the past 22 years is no guarantee they’ll do the same over the next 22 years. Similarly, there’s no guarantee that VFIAX will outperform VTSAX in every one-year, three-year, five-year, or ten-year period in the future.

Pro Tip

Some investors may choose to invest in both VFIAX and VTSAX. However, if it’s a diversified portfolio you’re after, you may be better off combining one of these funds with other types of funds in your portfolio.

According to Miller, the most important thing to consider when choosing between VFIAX and VTSAX is your overall investment objectives.

“Investors should start with considering their opportunity set: what do you want to own?” Miller said. “Otherwise, you risk just collecting assorted investments over time instead of having a philosophy and implementing a well-designed plan.”

Alternatives to VFIAX and VTSAX

VFIAX and VTSAX are two of the most popular investment funds on the market, largely thanks to their low fees, broad diversification, and long history of success. If you’re considering these funds, there are some other options that will yield roughly the same results.

ETFs

An ETF — short for exchange-traded fund — is a diversified fund similar to an index fund. The key difference is that unlike index funds and other mutual funds, exchange-traded funds trade on the stock market like other equities.

Like mutual funds, ETFs can be either actively or passively managed. And passively managed funds (aka index ETFs), are nearly identical to their index mutual fund counterparts in terms of makeup.

Vanguard offers ETF versions of both its S&P 500 and total market index fund. The Vanguard S&P 500 ETF has a ticker of VOO, while the Vanguard total market ETF has a ticker of VTI. You can expect the performance of these funds to be nearly identical to their index mutual fund counterparts.

But before you invest in anything, you’ll need a brokerage account. To make sure you find the best brokerage for your investment style, start by comparing the brokerages’ features below.

Other companies

Vanguard may have been the first company to offer index funds, but it’s far from the only company that offers them today. In fact, just about any company that offers its own funds will offer both an S&P 500 fund and a total market index fund.

Why does this matter? It means that if you have your brokerage account at a broker other than Vanguard, you can still access low-cost funds. For example, if you invest with Fidelity or Schwab, you can purchase their versions of these funds.

Pro Tip

These index funds have the same holdings no matter which company you purchase them through. As a result, you don’t have to compare each fund’s performance and can instead focus on which broker you prefer overall.

FAQs

Is VTSAX better than VFIAX?

VTSAX isn’t necessarily better than VFIAX, it’s just different. One holds the entire stock market, while the other only holds the companies included in the S&P 500. As far as performance, the funds differ very little.

What Vanguard mutual funds does Warren Buffet recommend?

Warren Vanguard has recommended investing in S&P 500 index funds for the best long-term growth. In fact, he famously revealed that his instructions for his wife when he dies are to put 10% of her assets into bonds and the other 90% in a low-cost S&P 500 index fund.

Is VFIAX a good long-term investment?

Yes, VFIAX is considered a good long-term investment. In fact, long-term investing is where you’re likely to see the most benefit from these diversified index funds. That’s what makes them a great option for retirement accounts.

How much should I invest in VFIAX or VTSAX?

Both VFIAX and VTSAX have a minimum initial investment of $3,000. But once you’ve reached that threshold, you can invest in smaller increments. The best amount to invest is the amount that will help you reach your investment goals on time.

Does VFIAX pay capital gains?

A key feature of index funds and other mutual funds is that they distribute capital gains to their investors each year. Because VFIAX and VTSAX rarely change their makeup, there aren’t likely to be as many taxable capital gains as you might have with an actively-managed mutual fund.

Key Takeaways

  • VFIAX and VTSAX are both low-cost index funds that allow investors to gain exposure to a large portion of the equities market through a single fund.
  • VFIAX tracks the performance of the S&P 500, which is an index of 500 of the largest publicly traded companies in the U.S. market.
  • VTSAX tracks the performance of the total U.S. stock market and has more than 4,000 stock holdings.
  • Both VFIAX and VTSAX have low fees, broad diversification, and proven long-term growth.
  • Alternatives to VFIAX and VTSAX include Vanguard’s exchange-traded fund versions of those funds and similar index funds offered by other companies.

Invest wisely with the right help

You don’t necessarily have to invest through Vanguard to gain exposure to the S&P 500 or the entire stock market. If you’re looking for a broker to help you start investing, we can help.

Our brokerage comparison tool allows you to see some of the top brokers along with their trading fees, minimum investments, and other features.

View Article Sources
  1. VTSAX | Vanguard Total Stock Market Index Fund Admiral Shares — Vanguard
  2. VFIAX | Vanguard 500 Index Fund Admiral Shares — Vanguard
  3. ETFs vs. mutual funds: A comparison — Vanguard
  4. VTSAX vs. VTI: Which One Should You Choose? — SuperMoney
  5. QQQ vs. ARKK: ETF Comparison For Long-Term Investing — SuperMoney
  6. VUG vs VOO: Which Vanguard ETF Should You Buy? — SuperMoney
  7. VTI vs. VOO: Which One Should You Choose? — SuperMoney
  8. SPY vs. VOO: Which ETF is Best? — SuperMoney
  9. CDs vs. Bonds: Differences And Pros & Cons of Each — SuperMoney
  10. Index Funds vs. Mutual Funds: 3 Differences that Matter — SuperMoney
  11. Edward Jones vs. Vanguard 2023 Comparison — SuperMoney
  12. Short-Term CD vs. Long-Term CD: Comparison & Which To Choose — SuperMoney
  13. Roth IRA vs. Index Fund: Which is Right For You? — SuperMoney
  14. How To Start Investing with $1,000 or Less! — SuperMoney
  15. Best Brokerages — SuperMoney
  16. Best Investment Advisors — SuperMoney