VTSAX vs. VTI: Which One Should You Choose?
JS
Summary:
VTSAX and VTI are two popular Vanguard funds that offer opportunities for diversifying your investment portfolio. Though both track the CRSP Total Market Index, VTSAX is a mutual fund and VTI is an exchange-traded fund. Both funds include small-, mid-, and large-cap stocks and have low expense ratios. The main difference between the two funds, apart from their classification, is that VTSAX requires a minimum initial investment of $3,000, while VTI doesn’t have a minimum investment amount.
While the stock market can be confusing (especially if you’re just starting out), it’s important to figure out the best investment strategy for your risk tolerance and financial situation. Along with determining your best strategy, you need to find the right stocks and index funds to include in your portfolio.
Choosing an exchange-traded fund (ETF) or a mutual fund to add to your portfolio can allow you to put your money into many companies at once, which helps diversify your portfolio across several popular stocks. VTSAX is a mutual fund that closely mirrors the broader stock market, while VTI is a low-fee, consistent ETF option that can take some of the pressure off your investment decisions. In this article, we’ll look at both ETFs and mutual funds to see how they differ and which might make a better investment choice for your trading style.
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What’s the difference between ETFs and mutual funds?
Though many exchange-traded funds and mutual funds are index funds, ETFs and mutual funds are different investment options. Keep the following differences in mind if you prefer one trading or management style over another.
- ETFs. Exchange-traded funds are mostly passively managed and can be traded throughout the entire day, similar to individual stocks. This means prices can fluctuate during this time as well.
- Mutual funds. Mutual funds are usually actively managed, but there are plenty of passive mutual funds, such as VTSAX. Mutual fund trades don’t close until the end of the trading day, so they are usually not a good option for day traders.
To learn what investment option is best for your trading strategy, you may want to speak with a brokerage specializing in these investments.
CRSP U.S. Total Market Index
The Center for Research in Security Prices (CRSP) Total Market Index tracks shares of 99.5% of U.S. stocks, ranging from small-cap stocks to larger companies such as Apple and Microsoft. It currently includes over 3,700 stocks.
The approach is that by taking a broad, total market index fund, investors don’t have to worry about picking winning companies. With so many stocks in its portfolio, even if there are some losers, it’s likely there will be many winners as well. Both VTI and VTSAX track this index.
VTSAX strategy
The Vanguard Total Stock Market Index Fund (VTSAX) is an index-based mutual fund that was established in 1992. It tracks the CRSP U.S. Total Market Index, providing investors with exposure to small-, mid-, and large-cap growth and value stocks.
It’s an incredibly popular fund and is often held in the portfolio of robo-investors. This is because VTSAX doesn’t involve much maintenance since it’s so representative of the market. In fact, the turnover rate within the fund is just 8%. Additionally, since it’s a mutual fund, VTSAX only trades once a day.
Even though it’s a mutual fund, VTSAX is index-based and, therefore not actively managed. Because it is an index fund that tracks 99.5% of U.S. stocks, VTSAX will perform no better or worse than the general market. It also supports automatic investing.
VTSAX portfolio and fees
As of August 2022, VTSAX has about $278.5 billion in assets under management (AUM), making it a large fund (similar to VTI). VTSAX has 4,076 stocks currently in its portfolio: VTI, Apple, Microsoft, and Amazon are the three companies it holds the most shares in. In fact, nearly a quarter of VTSAX’s portfolio is held in just ten companies.
VTSAX requires a minimum investment of $3,000 but also has a low expense ratio of just 0.04%. As of August 2022, VTSAX’s year-to-date (YTD) returns are down around 13.5%. It has a median market cap of $124.9 billion. VTSAX is considered more appropriate for passive investors with long-term goals who are willing to take on moderate risk to see their investment grow.
VTI strategy
Originally established in 2001, the Vanguard Total Stock Market ETF (VTI) is a passive index fund that provides wide exposure to the U.S. stock market. This ETF tracks the CRSP Total Market Index and contains large-, mid-, and small-cap stocks, similar to other total stock market ETFs.
VTI is comprised mostly of large-cap stocks, including large percentage holdings in the technology and consumer discretionary markets like Apple, Microsoft, and Amazon. VTI is market cap weighted, meaning it is weighted by the size of the constituent stocks. Like VTSAX, VTI is considered ideal for long-term investors.
Pro Tip
It’s important to always analyze the basket of stocks that are offered in any ETF. A fund might claim they are linked to an underlying index, but only by analyzing its basket of stocks can you be absolutely sure.
VTI portfolio and fees
VTI has about $281 billion in AUM as of August 2022 over the 4,076 stocks that make up its portfolio. This makes VTI one of the largest index funds on the market. Investors can experience broad exposure through VTI since the fund has a range of large-cap stocks, mid-cap stocks, and small-cap stocks.
With an expense ratio of only 0.03%, VTI could be a rewarding investment choice. That being said, the fund’s YTD returns are down around 11.6% as of August 2022, and its median market cap sits at $124.9 billion.
Understanding expense ratio and fees
When deciding between investing in a mutual fund and an ETF, fees can make a big difference. Although ETFs tend to have lower fees, they can add up over time. However, because both VTSAX and VTI have low expense ratios at 0.04% and 0.03%, respectively, there won’t be much of a difference in what you pay in fees over time.
That said, VTSAX has a minimum investment requirement of at least $3,000, which can provide a barrier for some investors. VTI has no such minimum investment amount.
Past performances of VTSAX and VTI
As you can see, the two funds have both differences and similarities between them, which includes how they have performed in previous years.
VTSAX
VTSAX is an older mutual fund that was launched in 1992. Since it was started, its posted a 7.62% gain overall. The fund had an average earnings growth rate of just over 12% for the past five years.
There is not so much volatility in the fund, and it generally follows the same trends as the stock market overall. The large size of the companies within its portfolio won’t provide much in the way of fast returns, but it does provide stability and steady gains over a longer period of time. VTSAX wasn’t designed to outperform the market, meaning it will never waiver much from its performance.
VTI
VTI is an ETF released in 2001, which is relatively old in the index fund world. It has posted an 8% return overall since being established and has an average earnings growth rate of just over 20% for the past five years.
That said, VTI does experience some volatility because of the mid- and small-cap stocks included within the fund. Despite this volatility, the fund’s risk level is still similar to that of the S&P 500 index.
VTSAX vs. VTI
The biggest difference between VTSAX and VTI is that VTSAX is a mutual fund and VTI is an ETF. VTSAX also has higher fees associated with it, including a minimum investment requirement of $3,000 and a 0.04% expense ratio. They also have vastly different share prices, with VTSAX hovering around $100 a share and VTI hitting upwards of $207 a share.
Despite the difference in the types of funds and the fees associated with them, VTSAX and VTI ultimately have similar performances when compared to one another. Essentially, on the basis of portfolios, longevity, and size, there’s virtually very little that separates these two funds.
Both funds offer investors tax efficiency and can serve as core holdings in any investment portfolio. There are arguments to be made that — due to the minimum investment requirement and higher fees that VTSAX has — VTI might be an easier entry into the market. That said, there are enough similarities between the funds that there won’t necessarily be a huge disparity in returns over time.
Different share prices
While this may not be a huge concern in the grand scheme of things, the share prices of VTSAX are lower than those of VTI. For example, at the close of business on August 22, 2022, VTSAX was at $100.88 and VTI was at $207.24. The lower share costs of VTSAX may be more attractive to some investors.
However, with VTSAX’s minimum investment requirement of $3,000, investors won’t be able to buy fractional shares, as they might with VTI. Additionally, VTSAX only allows trading once a day, while VTI offers trading all day long.
VTSAX vs. VTI: Which is better?
These are two very similar funds, but they do come with key differences. The main difference is VTI has a lower expense ratio, which explains why it has historically provided a higher return.
VTSAX is a mutual fund that offers trading only once per day, while VTI is an ETF that gives investors the ability to trade throughout the day.
Actively-managed mutual funds can sometimes generate more capital gains, resulting in higher income tax and forcing investors to pay capital gains tax. Since ETFs, such as VTI, are usually index based, they generate fewer taxable capital gains. VTSAX is passively managed so this is not really an issue here. However, VTSAX comes with a minimum investment fee, while VTI does not.
| Feature | VTSAX | VTI |
|---|---|---|
| Type of Security | Mutual fund | ETF |
| Composition | Large blend | Large blend |
| Index | CRSP | CRSP |
| Net Assets | $278.5 billion | $281 billion |
| Expense Ratio | 0.04% | 0.03% |
| Management Style | Passive | Passive |
| Dividend Yield | 1.41% | 1.42% |
| 10-Year Return | 13.41% | 13.42% |
That said, historically speaking, VTSAX and VTI have performed about the same. Both funds have small-, mid-, and large-cap companies in their portfolios, which gives the funds more possibility of gains. If you’d rather not have to meet a minimum investment requirement, however, VTI might be a good choice considering it doesn’t have one and allows you to buy fractional shares.
Both funds have low expense ratios, similar companies in their portfolios, a similar dividend yield, track the same index, and provide a broad exposure to the market. There’s not necessarily one right answer for this question since the investment depends primarily on your individual investment strategy. However, if in doubt, it’s always a good idea to consult with an investment advisor before investing your hard-earned money.
FAQs
Is VTSAX better than VTI?
Whether or not you feel VTSAX is better than VTI depends on your own personal investment strategy and goals. Both funds are fairly similar, except that VTSAX is a mutual fund and VTI is an ETF. Otherwise, the same companies comprise much of these two funds, both are from Vanguard, and both track the CSRP US Total Market Index.
Is VTSAX more tax efficient than VTI?
VTSAX is not more tax efficient than VTI. As a mutual fund, VTSAX generates more capital gains, resulting in higher income tax and forcing investors to pay capital gains tax. Since ETFs are usually index based, they generate fewer taxable capital gains.
Additionally, VTSAX has a tax-cost ratio (measured as how much a fund’s annualized return is reduced by the taxes investors pay on distributions) of 0.70%, while VTI has a tax-cost ratio of 0.49%. Therefore, VTI is the more tax-efficient option.
Why is VTSAX so popular?
VTSAX is popular because it doesn’t require much maintenance on the part of the investor or investment fund managers. In fact, it is often held in the portfolio of robo-investors, since it’s so representative of the market. The turnover rate within the fund is just 8%. Additionally, since it’s a mutual fund, VTSAX only trades once a day.
Should I own VTI and VTSAX?
You can own both VTI and VTSAX. However, because both funds have virtually the same stocks, it doesn’t necessarily make sense to own both. Both funds have a negative YTD return as of August 2022 and both have low expense ratios. You will get virtually the same return on both funds, although historical performance indicates VTI does better over time.
Key Takeaways
- VTSAX is a Vanguard mutual fund and is one of the most popular mutual funds available. Established in 1992, the fund tracks the CRSP Total Market Index and includes small-, mid-, and large-cap stocks. That includes some of the biggest companies on the market.
- On the other hand, VTI is a Vanguard ETF that also tracks the CRSP Total Market Index. Originally established in 2001, this fund includes large-, mid-, and small-cap stocks and thus provides broad exposure to the U.S. stock market.
- VTSAX has a $3,000 minimum investment requirement and comes with a 0.04% expense ratio.
- Overall, VTI has outperformed VTSAX, but only by a small difference.
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