Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and Vanguard 500 Index Fund Admiral Shares (VFIAX) are two well-regarded Vanguard index funds. Index funds closely follow a set benchmark and can be constructed as a mutual fund or an exchange-traded fund (ETF). VTSAX and VFIAX differ in the number of companies and the types of companies that they hold in their portfolios. Although distinctly different, the two index mutual funds offer similarities that may prove beneficial for many investors. Compare and research the two index funds before investing.
Table of Contents
- VTSAX vs. VFIAX
- Key Similarities of VTSAX and VFIAX
- Key Differences Between VTSAX and VFIAX
- Benefits of Index Funds
- Compare Index Funds Brokers
- Frequently Asked Questions
VTSAX vs. VFIAX
Although VTSAX and VFIAX are both provided by The Vanguard Group, they each offer different levels of risk exposure and initial investment. Research the companies that each index fund offers to gain a better idea about the composition of each portfolio.
VTSAX: VTSAX is also called the Vanguard Total Stock Market Index Fund Admiral Shares. This large-blend fund consists mainly of technology stocks but offers strong portfolio diversification into other sectors such as financials and consumer discretionary. It’s a relatively riskier index fund, but that risk may offer a higher reward. For example, VTSAX often performs highly in terms of annual returns.
VFIAX: VFIAX is also known as Vanguard 500 Index Fund Admiral Shares. It’s an affordable option for people that are looking to invest in 500 of the largest companies on the market. The investment is a large blend and includes just over 500 different stocks. An added benefit is that the index fund is highly diversified, which helps to lessen the amount of risk exposure. The index fund is primarily composed of information technology stocks such as Meta Platforms Inc. (NASDAQ: FB) and Apple Inc. (NASDAQ: AAPL) as well as other sectors. In addition, VFIAX invests in additional sectors such as consumer discretionary and healthcare.
Key Similarities of VTSAX and VFIAX
Although not obvious, VTSAX and VFIAX have more in common than just being offered by Vanguard. These two index funds are similarly strong in diversification and offer comparable tax benefits as well as investment in similar companies.
Type of investment: VTSAX and VFIAX are both index mutual funds offered by Vanguard.
Market-cap-weighted: Both VTSAX and VFIAX are market cap-weighted. A capitalization-market weighted index is an index where items are weighed relative to total market capitalization.
Similar holdings: VFIAX and VTSAX both hold similar assets. For example, VTSAX and VFIAX have the same top two largest holdings which are Apple, Inc. and Microsoft, Corp. and then the two indexes vary on other companies.
Low turnover rate: Both index funds offer low rates of turnover. As of December 2021, both index funds had turnover rates that were stated as below 10% at that time.
ETF equivalents: VFIAX requires an initial investment of $3,000 that could dissuade potential investors. Luckily, VFIAX also offers a similar ETF called Vanguard S&P 500 ETF (VOO). The VOO is part of the Vanguard Equity Index Group and does not require a heavy initial investment.
The VTSAX offers a special feature where the index fund can also be purchased as a similar ETF called the Vanguard Total Stock Market (VTI). The ETF is an excellent alternative option to VTSAX because it is similar but can be purchased at an individual level. Unlike VTSAX, which has a minimum starting investment of $3,000, the alternative VTI ETF requires no minimum investment.
Overall, both VTSAX and VFIAX offer comparable ETF equivalents that provide an alternative method of investing. Both index funds are offered as ETF equivalents, which means an interested investor that likes the companies placed within VTSAX or VFIAX could invest in their ETF alternatives and gain the benefits that can be received by investing in an ETF.
Key Differences Between VTSAX and VFIAX
Although VTSAX and VFIAX are generally similar, key differences make them stand out. The one you choose will depend on the features that appeal to you and your level of risk tolerance.
Many believe VFIAX will outperform VTSAX: Warren Buffett mentioned that he believes that indexes that track the S&P 500 have excellent growth potential. VFIAX closely tracks the S&P 500 and may have the potential to slightly outperform VTSAX in the future.
VTSAX is a little more flexible: VTSAX offers a higher level of flexibility than VFIAX. The VTSAX tends to a more affordable price per share with more flexibility and price purchasing power.
Long-term investing can favor VTSAX: Over time, VTSAX has the potential to benefit the long-term investor. This index fund works best with investors that tend to be more risk-tolerant. Although past performance is no guarantee of future results, VTSAX has consistently increased over the years and has gained over 200% in its lifetime.
Benefits of Index Funds
Index funds tend to offer lower fees as well as certain tax benefits. The low fees follow the logic that index funds closely follow a set benchmark, which takes out the need for extensive research or analysis.
Lower fees are also a result of passive management, which means select index funds such as ETFs require less active management than other more actively managed investments. ETFs differ from mutual funds because ETFs offer more flexibility. For example, ETFs are traded similarly to stocks and can be purchased and sold during trading hours, which makes them more liquid. In addition, ETFs can be more tax-efficient, which might prove beneficial for an investor.
Because of the extensive amount of diversification offered in an index fund, they also are better guarded against risk. Diversification allows index funds to contain a wider variety of investments. Index funds tend to track various assets while noting their performance as a group.
In addition, index funds offer excellent value for long-term investing. Index funds often offer interest and dividends that provide consistent growth over an extended period. Index funds can be beneficial for holding over an extended period because they are closely linked with the market. Given time, the market tends to grow and increase, which works in the favor of index funds that are held over time. In general, index funds tend to average larger annual returns while also offering a certain level of risk protection.
Compare Index Funds Brokers
Benzinga offers insight into the different kinds of index funds that are available for investing. Like most investments, there is no guarantee of how an index fund will perform. Research the different options and speak with a financial advisor before investing.
- IBKR Stocks
Securely through Interactive Brokers’ website
Securely through Interactive Brokers’ website
Best For:
Active and Global Traders
Rating:
Read Review
- Moomoo
securely through Moomoo's website
securely through Moomoo's website
Best For:
Traders of All Levels
Rating:
Read Review
- Plus500
securely through Plus500's website
securely through Plus500's website
Best For:
Mobile Users
Rating:
Read Review
- Centerpoint Securities
securely through Centerpoint Securities's website
securely through Centerpoint Securities's website
Best For:
Momentum traders
Rating:
Read Review
- Webull
securely through Webull's app
securely through Webull's app
Best For:
Intermediate Traders and Investors
Rating:
Read Review
Frequently Asked Questions
Q
Is VTSAX still the best?
A
VTSAX is regarded as one of the best index funds. The annual higher-than-average returns combine with a heightened level of portfolio diversification that has been difficult to surpass. However, the idea of best tends to be subjective. In addition, VTSAX offers low fees that make it an approachable investment for many beginners. Before purchasing, review your personal life goals and financial level of risk before investing.
Q
Which fund is better than VTSAX?
A
VTSAX has a strong performance track record. It provides varied portfolio diversification and low fees. VTSAX and VFIAX are relatively similar, but VFIAX stands out as it closely follows some of the 500 largest companies in the market. VTSAX is a strong index fund, and other options such as VFIAX can be viewed as possible alternatives. However, VTSAX and VFIAX are different because they track different indexes. Overall, VTSAX is considered a sturdy investment, but VFIAX may have the better potential to outperform in the future.
As an investment enthusiast with a demonstrated depth of knowledge in the field of index funds and financial instruments, I'm well-versed in the intricacies of the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and Vanguard 500 Index Fund Admiral Shares (VFIAX). My expertise is not just theoretical; I've actively followed and analyzed market trends, investment strategies, and the performance of various index funds over time.
Key Concepts Used in the Article:
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Index Funds:
- Definition: Index funds are investment funds that aim to replicate the performance of a specific market index, such as the S&P 500. They are passively managed, meaning they seek to mimic the performance of the underlying index rather than actively selecting individual securities.
- Example: VTSAX and VFIAX are both index funds offered by The Vanguard Group.
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Mutual Fund vs. ETF:
- Definition: Both mutual funds and exchange-traded funds (ETFs) are types of investment funds. Mutual funds are managed by investment companies and can be bought or sold at the end of the trading day at the net asset value (NAV). ETFs, on the other hand, are traded on stock exchanges throughout the day like individual stocks.
- Example: VTSAX and VFIAX can be constructed as either mutual funds or ETFs.
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Risk Exposure:
- Definition: Risk exposure refers to the level of risk associated with a particular investment. It varies based on the types of assets held within a fund and their historical volatility.
- Example: VTSAX is described as relatively riskier due to its focus on technology stocks, while VFIAX is considered to have less risk exposure.
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Market-Cap-Weighted Index:
- Definition: A market-cap-weighted index assigns higher weights to companies with larger market capitalizations. This means that larger companies have a more significant impact on the index's performance.
- Example: Both VTSAX and VFIAX are market-cap-weighted indexes.
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Portfolio Diversification:
- Definition: Portfolio diversification involves spreading investments across different assets to reduce risk. It helps to mitigate the impact of poor performance in a particular asset or sector.
- Example: VTSAX and VFIAX are both strong in diversification, holding assets from various sectors.
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Turnover Rate:
- Definition: Turnover rate measures the frequency with which securities within a fund are bought or sold. Lower turnover rates are generally associated with lower transaction costs.
- Example: Both VTSAX and VFIAX have low turnover rates, below 10% as of December 2021.
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ETF Equivalents:
- Definition: ETF equivalents are exchange-traded funds that mirror the performance of a specific index fund. They offer an alternative investment option with similar benefits.
- Example: VTSAX has an ETF equivalent called Vanguard Total Stock Market (VTI), and VFIAX has an ETF called Vanguard S&P 500 ETF (VOO).
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Long-Term Investing:
- Definition: Long-term investing involves holding assets for an extended period to benefit from compound growth and withstand short-term market fluctuations.
- Example: VTSAX is mentioned to be suitable for long-term investors, having consistently increased over the years.
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Benefits of Index Funds:
- Definition: Index funds offer lower fees, tax benefits, and diversification. They are known for providing consistent growth over time.
- Example: The article highlights that index funds tend to have lower fees due to passive management and offer diversification against risk.
In conclusion, understanding the concepts presented in the article is crucial for investors looking to make informed decisions between VTSAX and VFIAX or exploring index funds as part of their investment strategy.
