In this post, I’m going to review two of the most popular investment index funds: VTSAX vs VTI. We’re also going to look at their competition and alternatives.
I dove deep into each total market fund to uncover the differences (and identify the pros and cons).
With each index fund I evaluated:
- Type (Mutual Fund vs Exchange Traded Fund)
- Minimum investment
- Expense ratio
- Dividend yield
- Historical growth
- Alternatives (from Schwab, Fidelity, etc.)
- What to pick for your portfolio
Stick through this analysis to the end. That way you can make the best decision for your future as you strive for financial independence.
- Low-cost Index Funds
- VTSAX vs VTI Comparison
- VTSAX vs VTI investment performance
- VTSAX vs VTI FAQ
- Alternatives to Vanguard’s Index Funds
- The Perfect Index Fund?
Low-cost Index Funds
Before I get to the review and comparison between VTSAX vs VTI, I want to quickly give you a little background with my experience investing and why I like index funds.
I’ve always been a bit of a collector at heart.
As a kid, I had Pogs, baseball cards, and Military Micro Machines.
As an adult, I started collecting companies. Of course, I couldn’t afford to buy an actual company—just like I couldn’t buy a real M1 Abrams tank. But, I could own the tiny Micro Machine version—a share of stock in a company.
I spent hours researching the future potential of companies I would invest in.
I did the same as a kid, reading through Beckett Baseball Card Monthly to find a rookie pitcher card’s value and future potential.
After a few failures in hand-picking individual stocks, imagine my surprise to find I could buy the total US stock market!
A single fund would own a tiny slice of every American company and all I had to do was buy a share of the fund. But, which of these total stock market funds is best?
Let’s get on to the comparison of Vanguard’s VTSAX vs VTI. And what about alternative offerings from other investment companies?
Vanguard and John Bogle’s index fund
Vanguard pioneered low-cost index funds in the 70s as headed by John Bogle. They created passive mutual funds with much lower expenses and fees than active mutual funds from competing banks.
These passive funds simply reflected existing indexes of stocks (such as the S&P500), rather than having investment experts actively research and create mutual funds and manually manage the holdings in an attempt to beat the well-known indexes like the DOW or S&P500.
Investors have since figured out that actively managed funds tend to lose to the underlying index they’re trying to compete with. This is partly because of their higher fees in paying staff to actively manage the funds.
It’s also because most investors simply can’t beat the market over the long term.
Index funds have seen massive inflows over recent years. More people have come to accept that merely keeping up with the average return of the index (near 10% annually from 1926 to 2018, not accounting for inflation/taxes) is enough.
Two of the most popular index funds for the total US stock market are:
- VTSAX: a Vanguard mutual fund
- VTI: a Vanguard Exchange-Traded Fund (ETF)
Both index funds include a portion of all US public companies (as of writing, 3,529 of them). So, what’s the difference in VTSAX vs VTI?
VTSAX vs VTI Comparison
- Ticker: VTSAX
- Mutual fund
- Minimum Investment: $3,000
- Expense Ratio: 0.04%
- Dividend Yield: 1.73% (July 2020)
Vanguard Total Stock Market
- Ticker: VTI
- Exchange-Traded Fund (ETF)
- Minimum Investment: $0
- Expense Ratio: 0.03%
- Dividend Yield: 1.73% (July 2020)
There are really two key differences: VTSAX is a mutual fund with a minimum investment of $3,000 and VTI is an ETF with no investment minimum.
VTSAX vs VTI: Mutual fund vs ETF
While there are many technical differences between an ETF and mutual fund, for our purposes, just understand that ETFs tend to be more easily and quickly tradable.
ETFs trade like stocks. You can hop on and make a purchase at a fixed price during the trading day just like you can with any other stock share. The primary difference between an ETF vs stock is that an ETF is a group of securities.
Mutual fund prices are calculated at the end of the trading day and anyone who issued an order that day receives that price.
If you want to be exacting with your price execution and want the intraday flexibility of stock trading, VTI may be more appropriate for you than VTSAX.
Mutual funds traded outside their originating bank often have additional, sometimes significant, transaction fees. My IRA in E-Trade will let me purchase VTSAX without any additional fees with a caveat: if I hold less than 90 days, there’s a $49.99 fee.
Keep an eye out for transaction fees if you’re buying mutual funds in other brokerage accounts.
VTSAX vs VTI investment performance
I’ve attempted to make the argument that there’s very little practical difference in VTI vs VTSAX.
But, what happens when we actually look at the numbers?
Perhaps most importantly, what would $10,000 in each VTI and VTSAX have been worth if you invested ten years prior to the publish date of this article?
$10,000 Invested Ten Years Ago
- VTSAX per share 8/30/2010: $26.08
- $10,000 invested $26.08/share = 383.43 shares
- VTSAX per share 8/30/2020: $86.47
- 383.43 shares worth $33,155.19
- Dividends over the decade: $3,807.46
- Total value: $36,962.65
- VTI per share 8/30/2010: $53.59
- $10,000 invested $53.59/share = 186.60 shares
- VTI per share 8/30/2020: $177.68
- 186.60 shares worth $33,155.09
- Dividends, capital gains over the decade: $3,812.05
- Total value: $36,967.14
Note: In my calculations, I included a fractional share of VTI.
In general, brokerages will only permit you to trade whole integers of ETFs (just like any other stock). However, you can wind up with fractional shares due to Dividend Reinvestment Plans (DRIPs).
Both VTSAX and VTI have grown by about 370% over the last decade. The difference is negligible and can be attributed to rounding plus the minor expense ratio difference (0.01% = $1 on $10,000 by the way).
Tax implications, transaction fees, and the ease of access to either fund should play a greater role than any performance difference between VTSAX and VTI.
VTSAX vs VTI FAQ
Before reviewing comparable options to VTSAX from other banks, let’s run through a few VTSAX vs VTI frequently asked questions as a little review.
They’re similar. VTI is an ETF traded like a stock and VTSAX is a mutual fund. They are both index funds. Their holdings are the same roughly 3,500 US companies represented on the public stock market. Their investment performance is nearly the same except for some minor tax differences and negligible expense ratio difference.
VTI is not more tax-efficient than VTSAX. Typically ETFs would be more tax efficient. However, Vanguard’s patented heartbeat trading system allows them to treat the ETF as a share class of an identical mutual fund, VTSAX in this case. This permits the mutual fund to gain the tax advantages of the ETF.
There’s not a very good reason to do this, but you technically can. If you have an account with Vanguard, you can contact them to initiate an exchange. If you do not, you can still “convert” manually: sell the VTSAX and purchase VTI. However, you may experience transaction costs and tax implications. Proceed with caution.
Yes, both pay dividends. VTI pays a quarterly dividend. VTSAX pays a quarterly dividend as well.
Alternatives to Vanguard’s Index Funds
Vanguard isn’t the only investment company that offers funds that track the entire US stock market, or at least close to it. Vanguard’s dominance of low-fee index funds that started years ago has spurred competition to create very similar low-fee, broad market funds.
If you already have an account with one of the large investment houses, it’s probably best to purchase their VTSAX clone fund rather than pay fees to own Vanguard’s or open an account at Vanguard. Most investment houses don’t charge a fee to purchase their in-house mutual funds. There are good VTSAX alternatives available.
Fidelity and Schwab, two very large investment companies, offer broad market mutual funds that nearly mirror VTSAX.
Schwab (SWSTX) vs Fidelity (FSKAX)
Schwab Total Stock Market Index Fund
- Ticker: SWSTX
- Mutual fund
- Minimum Investment: $0
- Expense Ratio: 0.03%
- Dividend Yield: 1.64% (July 2020)
Fidelity Total Market Index Fund
- Ticker: FSKAX
- Mutual fund
- Minimum Investment: $0
- Expense Ratio: 0.015%
- Dividend Yield: 1.75% (July 2020)
Both SWSTX and FSKAX index funds compare favorably with VTSAX, however there are some minor differences.
Fidelity’s FSKAX is a mutual fund by Fidelity Investments that nearly mirrors VTSAX. The biggest difference is that it has an expense ratio of 0.015%, less than half of VTSAX’s. FSKAX has no minimum investment whereas VTSAX’s minimum is $3,000.
FSKAX’s dividends pay semi-annually while VTSAX pays quarterly.
VTSAX will be slightly more tax-efficient than FSKAX as it occasionally distributes capital gains. This is more relevant if you’re holding either fund in a taxable account rather than a 401(k) or IRA. Still, the difference is minor.
If you have a Fidelity investing account, there’s no great reason to make any extra effort to obtain VTSAX instead of FSKAX.
Schwab’s SWSTX is a mutual fund by Charles Schwab with a very similar holdings profile and goal to VTSAX but no minimum investment. SWSTX’s expense ratio is 0.03%, slightly less than VTSAX.
TicTocLife’s donor-advised fund is partly invested in SWSTX.
SWSTX’s dividends pay annually while VTSAX pays quarterly.
If you have a Schwab investing account, there’s no great reason to make any extra effort to obtain VTSAX instead of SWSTX.
Vanguard used to offer VTSMX when the minimum investment was $10K in VTSAX. With the lowering of the minimum to just $3K for VTSAX, Vanguard converted VTSMX holders to VTSAX for free.
VTSMX closed to new investors in 2018.
That means you’ll need at least $3K to invest in VTSAX or go with an alternative fund with no minimum investment.
Honorable mention: Fidelity’s FZROX
Fidelity created a new market for mutual funds: those with zero expense ratios. It’s good to think of these funds as loss leaders for big investment banks.
They get you in the door with these funds in hopes of having you as a lifelong customer for their products.
Fidelity’s largest zero-fee mutual fund is FZROX which launched in 2018. It covers about 1,900 US companies and will have very similar performance to VTSAX as it attempts to emulate the broad US market.
Hypothetically, the zero expense ratio could mean higher returns for investors over the years. We’ll need a longer timeline to get an idea of how historical performance looks. There’s some risk in the lower diversity offered by narrower coverage of the index (which is likely narrower to reduce Fidelity’s costs).
Which index mutual fund is best for you?
Overall, the differences between the three mutual funds we discussed (VTSAX, SWSTX, and FSKAX) are incredibly minor in terms of performance. What matters most is which index fund you have the easiest access to with no transaction fees.
If you’re trading in a non-tax advantaged account, you’ll see a minor performance improvement with VTSAX over other options due to Vanguard’s sneaky way to avoid taxes.
There is a large variety of alternatives to Vanguard’s total US stock market mutual fund. There’s a little less choice for ETFs.
What are alternative options for their index fund ETF, VTI?
Schwab’s SCHB and iShares’ ITOT are similar ETFs tracking the broad US stock market.
Both ITOT and SCHB have very low expense ratios like VTI. The downside of ITOT or SCHB instead of VTI is that neither tracks quite as many stocks in their underlying index. VTI has better coverage of the total US stock market.
Ultimately, the effect on your returns for choosing SCHB or ITOT instead of VTI will be minimal.
If you have a Fidelity account and can trade ITOT with no fees as compared to VTI, it might make sense to purchase ITOT.
Similarly, if you’re with Schwab, SCHB could be a better choice than VTI.
And of course, if you’re at Vanguard or have a third party brokerage that charges fees for any of these ETFs, VTI is likely the best option.
The Perfect Index Fund?
I don’t find myself collecting too many things these days, except for the occasional piece of nostalgia from childhood here or there. However, I do find myself happily collecting larger and larger chunks of companies around the world.
Looking at our portfolio of mostly index funds, we own a slice of every public company in the US and thousands of others around the world.
As those companies find success, we share in the profits.
Index funds, whether that’s VTSAX vs VTI vs one of the alternatives, make it incredibly easy and inexpensive to own a chunk of the entire US economic world.
Once you understand the simplicity and value of owning index funds, you just need to develop the behavior to routinely invest in them.
Surprisingly, many don’t manage to match an index fund’s performance even when they own them because of their buying (and selling) choices.
That’s the investor’s behavior gap: we need to be disciplined investors to earn the underlying performance of our investments.
We’re rebalancing our investments to a simplified three-fund portfolio of US stocks, international stocks, and bonds.
What’s your trick to owning a piece of Earth’s economy at a low cost with great tax efficiency?
Let us know in the comments!