A close friend recently asked me about saving for retirement. We talked about how stocks are a great way to build wealth over decades. Looking to keep things simple, we turned to a discussion about index investing and two great options: VTSAX vs. VTI.
Here we’ll explore VTSAX vs. VTI and how either one might be a good foundation for your long-term stock portfolio.
VTSAX vs. VTI Overview
The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is a mutual fund that aims to track the entire US stock market.
Here is a summary from the Vanguard site:
Created in 1992, Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity
market, including small-, mid-, and large-cap growth and value stocks.
The fund’s key attributes are its low costs, broad diversification, and the potential for tax efficiency.
Investors looking for a low-cost way to gain broad exposure to the U.S. stock market who are willing to accept the volatility that comes with stock market investing may wish to consider this fund as either a core equity holding or your only domestic stock fund.
Basically, if you own shares VTSAX, you own a small piece of every single company across the US stock market that is tracked in the index. This creates very broad diversification.
The Vanguard Total Stock Market ETF (VTI) is an exchange-traded fund (ETF) that also aims to track the entire US stock market.
Here is the product summary of VTI from the Vanguard site:
- Seeks to track the performance of the CRSP US Total Market Index.
- Large-, mid-, and small-cap equity diversified across growth and value styles.
- Employs a passively managed, index-sampling strategy.
- The fund remains fully invested.
- Low expenses minimize net tracking error.
Despite ETFs being a newer product than mutual funds, Vanguard created VTI in November 2000 (vs. VTSAX which Vanguard created in 1992).
Similar to VTSAX, if you own shares of VTI, you get exposure to every US company within the stock index.
Similarities between VTSAX vs. VTI
Here are some of the things that VSTAX and VTI have in common.
Portfolio and Holdings
From a stock selection perspective, VTSAX and VTI are identical. Both are designed to track the same index of US stocks.
The top 10 stocks are the same, as are their weighting in the index.
They track the same number of stocks and share the same characteristics.
VTSAX and VTI also track the same US stock market sectors of the economy and in the same percentages.
Performance
Performance is nearly identical when reviewing VTSAX vs. VTI.
Although both VTSAX and VTI have the same identical holdings, VTI performed slightly better than VTSAX in terms of overall performance in the 1-, 3-, and 5-year categories.
How is this possible that two identical investments have the same but different performance?
Expenses.
We’ll cover that in further detail coming up.
Differences between VTSAX vs. VTI
Despite being similar investment options, here are some of the things that VTSAX and VTI don’t have in common.
Liquidity
While not extensively different, both VTSAX and VTI are very liquid compared to non-listed securities, such as Real Estate – a long-term, illiquid investment.
As an ETF, VTI is slightly more liquid, as you’re able to buy and sell at any price point during open market hours.
If you enter an order to buy or sell VTSAX, comparatively, your order will get processed after market hours at the same price as anyone else who entered a buy or sell order during the day.
This is the case for all mutual funds such as VTSAX.
Share Price
As mutual funds are only pricing at the end of the trading day, VTSAX’s net asset value (NAV), or share price, is struck after the market closes.
Comparatively, since VTI is an ETF, the share price changes throughout the day and is priced in real-time.
Minimum Investment and Fees
With VTI’s slightly lower expense ratio of 0.03% vs. VTSAX’s 0.04%, VTI is slightly cheaper.
As we saw above, this isn’t necessarily a huge difference in cost, but it is a consideration.
Over 10 years for every $10,000 invested, here is how much you would pay in fees:
- VTI = $71
- VTSAX = $95
In this regard, VTI will save you more money over the longer term – even if both investments are identical and performed exactly the same.
Lower costs make a difference.
As for minimums, you can invest in:
- VTI for the price of 1 share
- VTSAX with a minimum of $3,000
While both are relatively accessible investments,
VTI requires less capital than VTSAX in order to invest.
What else should you consider before investing in VTSAX vs. VTI?
Assuming stocks are a good fit for your long-term portfolio, here are some things to consider.
Account Type & Tax Efficiency
Both VTSAX and VTI have low turnover rates. This means the list of securities in the index or benchmarks that they track don’t change frequently because of the need for lower trading. This increases tax efficiency.
If you’re not able to utilize a retirement or other tax-advantaged account, both of these investments will be good candidates to hold in a taxable brokerage account if they meet your investment objectives.
In comparison, assets that might be taxed as ordinary income, such as a bond fund or Real Estate Investment Trusts (REITs) are generally less tax efficient and should ideally be held in a tax-advantaged account.
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Liquidity
Despite purchases and sales of VTSAX being only available at the end of the trading day (vs. VTI that can be bought or sold throughout the trading day), there really isn’t much difference here.
Both VTSAX and VTI are publicly-traded securities that should generally be accessible if you need to sell and access the cash – depending on your account type.
Obviously, the question of whether or not you should do so is an entirely different matter.
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Risk Tolerance
VTSAX and VTI both offer investors the broadest exposure to the U.S. stock market.
Compared to individual stocks that come with much higher risks (though also the potential for higher returns), the index approach of VTSAX and VTI spans the entire U.S. stock market.
Despite this broad diversification, the stock market certainly contains volatility that can swing dramatically in any period of time (whether from hours to years). VTSAX and VTI are no exception.
What percentage of your portfolio and how long you should be invested in stocks is also another consideration.
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Other Investment Objectives and Timeline
Related to risk, you need to consider the purpose or objective of your investment dollars. Why are you investing in the stock market? Among other things to consider:
- How long until you need the money?
- Are you able to risk losing your capital?
- Why are you investing this money?
- Is there a specific purchase you intend to make?
You likely shouldn’t be investing your money in VTSAX or VTI, or stocks, in general, if you’re intending to use or access the specific funds within the next couple of years.
What happens if there is a massive downturn when you intended to use the money you invested? Utilizing a proper asset allocation and asset type is important.
Both VTSAX and VTI should be considered long-term investments.
Regardless of the VTSAX vs. VTI discussion,
non-US, or international stocks, are also not captured by either investment.
You’d need to utilize a different mutual fund or ETF for international or non-US stock exposure. Bonds and other asset types are another consideration for your wider portfolio and investment needs.
VTSAX vs. VTI summary – which one is better?
With VTI’s slightly lower expense ratio of 0.03% vs. VTSAX’s 0.04%, VTI appears to be better considering the holdings and other characteristics of the two are practically identical.
As we saw above, this isn’t necessarily a huge difference in cost, but it is a consideration.
I also found I don’t check my portfolio constantly throughout the trading day if I know the price won’t change intraday if I’m invested in a mutual fund.
Overall, both VTSAX and VTI provide investors with an inexpensive way to gain broadly-diversified exposure to the entire US stock market.
Either VTSAX or VTI can provide a solid foundation for your long-term portfolio.
Readers, do you own VTSAX or VTI in your portfolio? If so, which one? Do you generally prefer ETFs or mutual funds?
Related:
How I Got to Averaging $1,000 a Month in Passive Income
M1 Finance: Why I Transferred My IRA From Vanguard
MoneyMade: Passive Income & Investment Ideas
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