It’s pretty well established that the stock market is the place to be if you’re looking to build your wealth over time.
However, investing in individual stocks can be quite risky, which is why many of us – including me – choose to invest in index funds instead.
Why wouldn’t you when, in more than 92% of cases, index funds produce better returns than actively managed funds!
And a common query for those looking to put their money in a broad, reliable index fund is the question of whether to invest in VTSAX vs VTI.
But what, exactly, is the difference between these two – and which one is best for you?
Investing in VTSAX vs VTI
A great option for any investor is to invest in a total stock market index fund.
In the US, this means that the fund tracks the performance of every publicly traded stock in America, which amounts to more than 3,500 individual stocks.
This not only helps to maximize your diversification, but by doing this through an index fund, you’re also locking in the low costs that are one of the hallmarks of investing in index funds.
While there are a range of platforms that let you invest in total stock market funds, Vanguard created the index fund in 1976 and has since become one of the most trusted names in the market.
I use them for all my index fund investments and have no hesitation in recommending them if you’re considering investing in a total stock market index fund.
That then begs the question: VTSAX vs VTI? That is:
- VTSAX: Vanguard Total Stock Market Index Fund Admiral Shares
- VTI: Vanguard Total Stock Market ETF
What do you mean by a “total stock market index fund”?
This is a type of mutual fund or exchange traded fund (ETF) that tracks the performance of a broad stock market index.
That is, returns are based on how all of the stocks in that index – in this case, the entire US stock market – perform. This means they differ from another popular type of index fund, a broad market fund, which tracks a significant yet smaller portion of the market, such as the S&P 500.
However, total stock market index funds are market-cap weighted. This means that bigger companies in the index are given higher allocation than smaller ones.
In the case of VTSAX and VTI, which have the exact same holdings, the largest holdings in each fund are listed here – with just a few names that you may recognize:
Are total stock market funds only available through Vanguard?
Not at all – you can certainly buy total stock market funds through other companies, like Charles Schwab, that offer index funds.
That said, Vanguard is often considered the champion of low-cost index funds so are always a solid choice for your portfolio.
What is the difference between VTI and VTSAX?
Difference 1: Minimum Investment
To invest in VTI, you buy units of shares. This means that the minimum investment is the price of one share which, at the time of writing, is $128.46.
For VTSAX, the minimum investment is $3,000.
This means that if you’re not quite at the level of investing $3,000 and don’t like the idea of waiting to save enough to meet that threshold, VTI may be a better option for you.
Difference 2: Purchasing Units
So we’ve seen there are differences in the minimum investments, but one other point to note is that as long as you have $3,000 or more, you can put it all into VTSAX.
However, for VTI, you can only buy exact units of shares.
Let’s round up the current VTI price to $130 and assume you have $3,500 to invest. In that case, you could put all of that into VTSAX immediately.
However, you could only buy 26 units of VTI at a total cost of $3,380, meaning you’re left with $120 hanging around.
Difference 3: Time and price of trades
In the case of VTI, buying and selling of shares is done while the markets are open.
This also means that the price of a share fluctuates throughout the trading day, allowing you to buy at the price you see.
On the other hand, the price of VTSAX is determined at the end of each trading day. This means that you won’t know the exact price you’re paying until the trading day is over, even if you place a trade during the day.
This means that everyone who buys and sells VTSAX on a particular day gets the same price as everyone else, no matter what time you place an order.
While it may sound better to know what you’re paying, this is only the case for those who are looking to hold stocks for short periods of time and do faster trades.
If your investment strategy is to buy and hold for years (as mine is), such as if you’re investing for your retirement, a small change throughout one specific day won’t mean much at all in the long term.
Difference 4: VTI vs VTSAX Expense Ratio (AKA Fees)
The difference in the expense ratio, or the fees charged by Vanguard, is so minimal that it’s almost not worth mentioning. But it is, nevertheless, a difference.
For VTI, it’s 0.03% per annum. For VTSAX, it’s 0.04%.
Vanguard’s website actually has a nifty little graphic on this point. It shows that if you have $10,000 invested in each of these funds over 10 years, you’ll pay $71 throughout the entire period with VTI and an astronomical $95 over the same period with VTSAX.
Keeping an eye on fees is highly important for any investment strategy. But when the difference is $1.40 per year, I wouldn’t lose too much sleep over it.
Difference 5: Automating Your Investments
Because of how Vanguard is set up, it only allows automatic investing with VTSAX.
This could be a consideration for you if you’re the kind of person who’d like to automatically invest $500 whenever you’re paid at the end of each month. In this case, you’d have to stick with VTSAX.
Otherwise, you can do the same thing manually with VTI, making this a simple question of which one is more convenient for you.
Difference 6: VTSAX vs VTI Tax Efficiency
You should always consult a professional for the tax implications of your investments.
That said, as a general rule, ETFs like VTI are more tax efficient than mutual funds like VTSAX. Although, if you hold them for a long period of time, the difference overall is more than likely going to be negligible.
Why is VTI more tax efficient than VTSAX?
Very simply put, because of how they are structured, ETFs generally result in lower capital gains taxes than mutual funds.
This is because of how they are traded. If someone sells their shares in a mutual fund like VTSAX, the fund has to sell some of the underlying assets to give the investor their cash, which creates a taxable event.
For ETFs, assets are traded from person-to-person within the fund so, when someone sells, the fund doesn’t have to sell the underlying assets and thus there’s no taxable event.
So in response to the question: “Is VTI tax efficient?” – yes, but only marginally.
VTSAX vs VTI: Similarities
There are a ton of similarities between VTSAX and VTI. Namely:
- They invest in the exact same collection of stocks – 3,551 of them, to be exact – and thus the same top holdings
- This means that they both have the exact same returns (and so the same historical performance)
- And both have the exact same dividend yield
- Both allow for automatic reinvestment of dividends
- Despite what I said above, they have almost the same (very low) expense ratio
- Both offer the benefits of investing in highly diversified, low cost index funds
What are the returns for VTSAX vs VTI?
Take a look at this graph showing the returns over the last 10 years for VTSAX – which are identical for VTI:
This doesn’t show performance after the 2008 crash, so we can’t see the major drop there – and this is being written right at the start of the 2020 crash, so this line may look a bit different in the coming weeks and months.
That said, you can easily see the consistently strong returns offered by total market index funds like VTSAX and VTI.
While past performance is no guarantee of future performance, history has shown that the US stock market is a reliable performer over time, and these funds offer a great, low cost way to invest in it.
So are VTSAX and VTI the same?
Not quite, but pretty close – and, for many of you, the differences won’t even be noticeable.
Is Vanguard VTI a good investment?
Absolutely. Investing in individual stocks brings an inherent risk so the sheer amount of diversification offered by VTI (and VTSAX, for that matter) is a great option for most investors.
It’s also low cost and super convenient given how low the minimum investment is.
Why is VTSAX so good?
For the same reasons as VTI – as far as index funds go, these both offer all of the benefits you could want.
The fact that VTSAX allows automatic investing is also a major plus for me. At the same time, the $3,000 minimum buy-in may be a bit daunting for some people.
VTSAX vs VTI: Which is better?
It’s truly tough to pick one over the other.
As you would have seen, they’re both very similar and many of the differences may not even matter to you in the end. This especially applies if you plan to buy and hold for years as a strategy for growing your wealth.
Ultimately, it becomes a question of what suits your individual circumstances and what you find more convenient.
- Do you prefer automating your investments and have $3,000 to invest? Go for VTSAX.
- Do you want more flexibility in terms of when you can buy and sell and don’t want to have to worry about any minimum investment amount? You might prefer VTI
At the end of the day, if you’re simply looking to maximize your diversification in publicly traded US stocks, either product is an excellent option and you’ll get the exact same results no matter if you choose to invest in VTSAX or VTI.
Can VTI convert to VTSAX?
You can! This is actually great news for people who have less than $3,000 to invest.
What you can do is simply invest in VTI until your balance exceeds $3,000. You then tell Vanguard to convert your shares from VTI into VTSAX shares, which can be done tax-free.
Is VTSAX closed to new investors?
No, it’s definitely still open to new investors.
There was a different but very similar Vanguard fund called VTSMX (Vanguard Total Stock Market Index) that closed in August 2018. VTSAX is exactly the same but at a lower cost.
How much should I invest in VTSAX or VTI?
Unfortunately, I can’t answer this for you.
The US stock market has historically had the best returns over time, outperforming all other investment categories, including property.
That said, it’s also extremely volatile, with a number of peaks and troughs.
Having all your money in the stock market can be full of joys as your numbers soar…and white knuckles the whole way down as they drop.
So the question of how much should you invest in VTSAX or VTI – or any other asset, for that matter – depends on a lot of factors, including your own risk tolerance.
If you’re willing to buckle in for high volatility, investing all of your money into a fund like VTSAX or VTI is, based on historical results, likely to give you the highest returns compared to other portfolios over time.
That said, many investors prefer to diversify by investing in bonds. They’re far less volatile but also generally have lower returns.
Similarly, investing in index funds that track different indices, such as international stock markets or real estate (check out REITs if you want to see what I mean), can also provide the diversification you might be looking for if you want to lower the risk of investing solely in the US stock market.
Is there a VTSAX ETF equivalent?
This question was asked so I had to include it.
So you like the sound of VTSAX but perhaps you want to buy in with less than $3,000 at a time? Or you want something that’s ever-so-slightly more tax efficient? Even if you can’t set up automatic investing?
I think you may want to re-read this article as it sounds like VTI is what you’re looking for.
As you can probably see, a comparison of VTSAX vs VTI shows there really isn’t much to compare at all.
The features of each of these funds are so similar that choosing which one to invest in simply comes down to a question of what suits your personal circumstances.
At the end of the day though, both of them are great options for making sure your money is working for you.
Only around half of Americans own any stocks at all, including in retirement savings accounts, like a 401(k) or IRA.
And if you’re not investing, your entire financial future is at serious risk. In particular, this makes its highly unlikely that you’ll ever be able to retire.
So the fact you’re asking the question of where to invest is a great start. Once you’ve figured out how much you want to invest, including based on your risk appetite, investing in a total stock market fund like either VTSAX or VTI will definitely put you on the path to a strong financial future.