November 30, 2021

VTI vs VTSAX: How Different Are These Index Funds?

Today we focus on Vanguard Index Funds, specifically Vanguard VTI and VTSAX. Both the funds have been openly criticised owing to their volatile nature and blatant misinterpretation of the total funds market.

But the truth of the matter is, both funds have exceeded market expectations over the years. They both are excellent entry points for beginners who do not want to take too much risk but don’t want to miss out on the infinite opportunities the market offers either.

VTI vs VTSAX

vti vs vtsax

VTSAX is an index fund, whereas VTI is an ETF fund. If you are familiar with the concept of an ETF and index fund, you would know that both the funds share more similarities than differences. It is a fact that you can build wealth over time in the stock market. But investment in specific stock can be a risky venture, especially when you are a newbie.

Research conducted by Longboard Capital Management evaluated the annual returns of 14,500 investors throughout 1989 through 2015. The results were disheartening.

Out of the total active stock, 976 stocks underperformed by at least 500% in the S&P 500. 3431 stocks, which is 23.7% of all active stocks, underperformed by 200%. It is pertinent to note that 25% of the total active stock failed to create any returns and lost money even before hitting inflation.

Only 7.7% of the active stock outperformed the market. So, only 20% of the total stocks constituted all the profits while 80% failed to create any returns for its investors.

So, if you failed to identify and invest within the 20% outperforming stock, you would have made zero returns. If the above findings deter and make you want to run away from the trap, you must give it second thoughts.

Even though you could have selected some strong gainers, the odds of that happening were not very high. In cases like this, index funds come to the rescue.

Top gainers in the market make up the majority of index fund portfolios. In addition, a poor-performing stock with a declining price holds low positioning in the fund. Eventually, bad performing companies are delisted to make room for better performers. This is a significant reason behind the consistent and impressive performance of Index funds despite S&P 500 performing poorly over the years.

Hence, most investors, especially beginners, are advised to invest in index funds instead of direct stock investment. It increases the probability of higher returns and creates a portfolio with top gainers.

Comparing the Investment in VTSAX and VTI

Comparing the Investment in VTSAX and VTI

Once you have gotten hold of the fact that index funds are the most efficient way of investment, the only decision left to make is which fund should be chosen for maximum returns.

While there are multiple index funds, having different combinations of securities and portfolios to meet the risk appetite of different investors, the fund that holds all the stock in its portfolio becomes the ideal choice.

These funds are called total market funds and include all the 3500 publicly listed companies in the US. And while there are several platforms to start investing in total fund markets, Vanguard is one of the most sought-after financial brokerage platforms.

We would cover the two most popular financial products of Vanguard

  •         VTI – Stands for Vanguard Total Stock Market ETF
  •         VTSAX – Stands for vanguard Stock Market Fund Admiral Shares

Given below is a brief insight into the expense ratio and minimum investment amount for both the funds:

Fund Name VMAX VTI
Expense Ratio 0.04% 0.03%
Minimum Investment $3000 Single share Price

 As you can note, there is a negligible difference in the expense ratio of both funds.

If you are to invest $10,000 per annum, only 3 dollars will go towards maintaining your VTI account, while for VTSAX, the maintenance charge would be $4 per annum. Apart from the slight expense variation, the minimum investment amount for both funds is a significant point of difference.

For investing in VTSAX, you need to spend a minimum of $3000. Unfortunately, if you have lower than $3000 initial capital, you can’t have VTSAX in your portfolio. However, once you spend $3000, you can spend any amount of your desire after that, without any obligations.

On the other hand, for VIT, you have to shell out only the price of a single share.

The good news is, you can continue to invest in VTI based on your preference, and once it crosses the $3000 mark-up, your VTI fund would automatically convert to tax-free VTSAX shares if you wish to do so.

Why VTI and VTSAX so Well Known

They are popular because they create what investors are looking for – wealth. These two funds help the average US citizen get a slice of every publicly listed company in the stock market.

For an average person, the concept might sound too simplistic, but those who trust the market are the ones to take away the benefits. Both VTI and VTSAX:

  •         Are Diversified
  •         Straightforward
  •         Follow Set and forget the concept
  •         Are Historical gainers
  •         Passively Managed Funds
  •         Have Low expense ratio

This strategy has helped thousands of middle-class families get rich over some time without strategizing too much or getting all technical.

The author of the book “The Simple Path to Wealth” points out VTSAX investment’s significance. He quoted that the readers of his books would walk away with one thing in mind -VTSAX.

Another renowned investor, Taylor Larimore, recommends maintaining a three-fund portfolio that includes VXUS, VTI and BND.

With so many financial advisors and experts emphasising the importance of these funds, you might be wondering why not hold onto the funds long term and gain financial independence over time. Adding a wide range of stocks that help generate consistent returns is the highest priority of both VTI and VTSAX. They are popular because they fulfil the aims of investors along with being efficient and straightforward.

Difference Between VTI and VASAX based on Real-Time Pricing

VTI and VASAX based on Real-Time Pricing

Another minor yet crucial difference is that VTI lets you check the market price of shares in real-time. So, you can get updates of price fluctuation throughout the trading hours.

On the contrary, VTSAX does not let the investor see price fluctuations until the end of trading hours because mutual fund prices are fixed once stock markets close.

No matter what time you choose to invest in VTSAX, you will be spending the same as other investors as the prices are not determined until the market closes.

So, if you are into intraday trading, opting for EFT funds would be a great option. But if you are in for the long term and not trying to time the market, investing at any time would not make much of a difference.

The variance between on Computerized Investments and Withdrawals

The final difference between the two funds is that Vanguard lets its investors make automated investments in mutual funds. This means, if you want to automate your monthly investment amount, you can do so with VTSAX but not in VTI.

For instance, if you wish to shell out $500 from your monthly income, even when you have a busy schedule, you can do so using the automated investment feature of VTSAX. In the case of VTI, you will have to do it manually.

In a nutshell, VTSAX gives you the convenience to convert your monthly SIP program into an automated process, so you don’t have to visit the investment app or website to do it yourself.

VTI and VTSAX as Investment Types

VTI and VTSAX as Investment Types

As far as Investment types are concerned, VTI and VTSAX are entirely identical. They offer the same dividend rate, have the same range of stocks in the portfolio, and provide the same annual returns. Vanguard even enables the investors to reinvest the dividend income for both its funds.

If you plan on getting the best out of all the US-listed companies, investing in either fund would give you the same results.

Can One Fund be Enough for all Investment Needs?

If you are a person who has long term aims and does not plan to touch your investment for years on roll, entering the total funds market is the best way to go. It has historically provided better returns and is also more susceptible to market changes than other funds types.

Final Verdict

Based on the above facts, for greater flexibility, Vanguard VTI is a good choice. You can own it anywhere, buy it anytime and get the real-time price fluctuation information throughout the day. Most people who own VTSAX do it through a Vanguard brokerage account. While it is true that many financial brokers allow you to buy VTSAX, they are likely to charge $30, $40 or $50 every time you want to purchase shares in the said fund. And given the fact that we are going to limit our expenses while investing, it is better to buy VTSAX through a Vanguard brokerage account. At the end of the day, the decision depends on your goals and how you strategize your timeframe for the investment. For getting in-depth analysis of both the funds, consult a certified financial advisor to limit the chances of running into loss.

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