Vanguard
Both VTI and VTSAX are investment products from Vanguard. Vanguard is one of the World’s largest issuer of Mutual Funds and Index Funds. With over 6 TRILLION $s of Assets under management as of this writing.
In this article I would like to dive-deep into the similarities and the differences so that you can make an informed choice.
VTI vs VTSAX – The similarities
Firstly, I would like to point out some of the similarities between these two instruments. Both VTI and VTSAX are two different formats of the same underlying fund, the Vanguard Total Market Index Fund.
VTI is an Index Fund whereas VTSAX is a Mutual Fund. (More on the differences later in the article).
The underlying Index fund, created in 1992 invests nearly 100% into the US stock market.
What does it mean?
It means that the Fund spreads out almost all of the cash into over 3000 US stocks weighted by the size of the companies. This naturally means that the majority of the investments are concentrated in some of the largest companies in the US.
Here is how the First 23$ of every 100$s worth of VTI or VTSAX that you buy would be invested
The remaining ~77$ is spread over the remaining ~3000+ stocks, about 3,781 stocks as of this writing.
This was meant as an explanation of what is under the hood of what you buy, but in most cases it is not possible to access the underlying stocks within either VTI or VTSAX directly.
Now that we understand the basics of VTI and VTSAX let us look more closely at the differences
VTI vs VTSAX the differences
ETF, Mutual Fund
VTI – is an ETF (Exchange traded Fund). This means that it can be bought and sold on the stock exchange just like any other stock. All you have to do is to search for the ticker symbol VTI like any other stock and place a BUY or a SELL order.
VTSAX – is a mutual fund. This means that it has to be bouts through a Mutual Fund distributor. In the case of Vanguard, you could buy directly from Vanguard and save on the distributor fees.
MER – Management Expense Ratio
VTSAX has a slightly higher (relatively speaking) expense ratio of 0.04% vs 0.03% for VTI. I think over the long run it can make a difference, but this alone cannot be the only criteria to choose one over the other.
Advantages of VTI over VTSAX
No minimum – There is no minimum amount of VTI that you have to buy. You can get started with as little as 1 share of VTI. VTSAX has a minimum investment amount of 3000$s.
Market Hours – With a Mutual Fund you would have to wait for the end of the day to make a purchase, whereas with an ETF you could BUY or SELL at any time when the market is open. This is particularly advantageous if you are comfortable with trading and keeping an eye on the market movements.
International Availability – VTI is available outside of the US. This allows investors from around the world an opportunity to invest in the US market at a very low cost.
Advantages of VTSAX over VTI
Truly Passive – Once you have opened an account with the initial 3000$s. You can set up automated payments into the fund account for any amount and any frequency. This can be very powerful over the long-term. In fact the founder of Vanguard, the legendary Mr. Bogle recommends simplicity as the most powerful factor in ensuring financial success.
Investor not Trader – To invest in VTSAX you do not need a brokerage account and all the hassles that come with it. Although the MER for VTSAX is slightly higher than VTI. VTSAX could be effectively much cheaper than VTI. This is because of VTI being traded like a stock on the exchanges, it is subject to BID/ASK spreads which are an additional cost that is not transparent. In addition there could be brokerage commissions and associated fees.
International Availability – VTSAX is not available outside of the US so, this is not so much of an advantage for international investors. Although VTI is available internationally, investors should note that VTI is priced in US Dollars. This means there is an additional cost of converting the local currency into US Dollars.
So, How to Choose?
It depends. If you are an international investor, then there is not much of a choice but to invest in VTI. It has all the advantages of VTSAX and the low MER means that even with the additional costs from brokerage and currency conversion it still is one of the cheapest ways to get a broad exposure to US stocks.
If you are in the US, then it depends a lot on your personality more than anything. Do you like to VTSAX and chill? Which means setting up automated payments and not caring about price movements. Then VTSAX is the choice for you.
On the other hand, if you already have a brokerage account and would like to be more engaged in the buying and selling, along with the flexibility that comes with instant access during market hours? Then VTI is the choice for you.
In either scenario you would be ultimately buying the same underlying assets which are broadly diversified and backed by a firm that is trusted by millions of people around the world. So, whatever you choose, you cannot go too wrong.
Disclaimer: All content in this website is not to be construed as investment advice in any form. The author is not affiliated with Vanguard or any of its subsidiaries.