Understanding the differences and similarities between VTI and VTSAX index funds may seem complicated at first, but it’s relatively easy once you take a moment to compare and contrast the two. In general, the two Vanguard index funds are different because one is an exchange-traded fund (ETF) while the other is a mutual fund. In summary, VTI is the ETF equivalent of VTSAX with a few minor differences. Before investing, it’s important to understand the potential pros and cons of each possible investment so you can better understand which investment works best with your time frame, potential investment size, and risk tolerance.
What is VTI?
VTI stands for Vanguard Total Stock Market, and it is considered an ETF. An ETF is a fund that helps reduce your exposure to risk by diversifying your portfolio. An ETF comprises a collection of different assets that help you spread your risk exposure.
In terms of VTI, it is considered a relatively riskier ETF for investment, but also offers the possibility of higher returns. It is categorized as a mix of large index funds that help measure the overall market. VTI is passively managed and tracks the CRSP US Total Market Index, also known as the Center for Research in Security Prices. Due to passive management, the associated fees are relatively low and the ETF has a beta score that hovers around 1.
A beta score measures the amount of volatility contained in a stock. For example, other stocks are placed against the market for reference. The market has a beta score of one, and all other stocks are measured against this performance. In general, stocks with beta scores greater than one are considered more volatile and generally riskier than the market.
In general, the VTI is made up of a majority of technology stocks. Tech stocks currently make up more than a quarter of the holdings included in the basket. Although relatively stable, an investor should diversify to help counter the level of risk that VTI is exposed to in terms of higher volatility investments such as small cap stocks.
What is VTSAX?
VTSAX stands for Vanguard Total Stock Market Index Fund Admiral Shares. It’s considered an index fund; more specifically, it is a type of mutual fund. An index fund is considered a type of mutual fund or ETF that rates the financial market; an index fund tracks a benchmark and then provides a return.
VTSAX tracks the performance of the CRSP US Total Market Index as a benchmark and includes large, mid and small cap stocks. In general, VTSAX currently includes industry movers such as Apple Inc. (NASDAQ: AAPL) and Amazon.com Inc. (NASDAQ: AMZN). In March 2022, it included more than 4,000 different farms. VTSAX currently maintains a beta score slightly above 1. VTSAX operates relatively in line with the general market and is not considered highly volatile even though it is relatively risky. The mutual fund offers relatively lower fees and is passively managed.
Although the expenses are relatively low, it requires a minimum investment which hovers around $3,000. Consider that this option offers some risk protection due to its diversified nature, but still responds to market fluctuations.
Key Similarities of VTI and VTSAX
VTI and VTSAX are similar in several key areas that make them relatively comparable investments. VTI and VTSAX offer relatively low expenses and are both passively managed. Passive management means that fees are generally lower than those associated with actively managed investments.
In addition, both VTI and VTSAX include similar and nearly identical holdings. An interested investor can potentially invest in one index fund and have a similar understanding of the companies invested in the other. Index funds follow specific rules and aim to replicate the performance of certain baskets. For example, VTI and VTSAX are mostly made up of technology holdings. In terms of stock style, both also offer a wide range of different stocks that are mostly large cap in nature. Both investment options also have betas close to one. This is not surprising given that VTI and VTSAX have an extremely similar composition of their holdings.
VTI was established just over 20 years ago in 2001 to enable interested investors to gain the benefits of ETFs from the previously established VTSAX mutual fund. VTSAX was created in the early 1990s. VTI was created to include essentially the same holdings as VTSAX but with the ability to gain the benefits of an ETF.
Notable Differences Between VTI and VTSAX
A notable difference between VTI and VTSAX stems from the fact that they are different types of investments. Although ETFs and mutual funds both include and measure diverse baskets, the two differ in several respects.
For one thing, ETFs like VTI can be traded the same way as stocks, but mutual funds like VTSAX usually have to be purchased from a brokerage or Vanguard. Additionally, mutual funds tend to be more actively managed than ETFs. ETFs are more tax-efficient and include a higher level of liquidity that some investors might consider advantageous.
VTSAX requires a much higher minimum investment than VTI. This minimum initial investment for VTSAX may act as a potential barrier to entry and deter some potential investors from deciding to invest in the mutual fund.
Advantages of investing in index funds
Investing in index funds can be considered beneficial in several ways. One of the reasons index funds are considered advantageous is because of their low fees. Typically, index funds offer low fees because they tend to be passively managed.
Index funds offer diversification, which means they help reduce your level of risk exposure by providing several different investments at once. Diversification helps protect capital and potentially mitigate losses. For example, if a particular holding performs poorly, the other holdings in the group could potentially reduce the loss.
Compare index funds
Benzinga offers a wide variety of insights and reviews to provide perspective on different types of index funds. Before investing, research different options and consider your risk level and investment timeframe. Like any investment, you cannot rely on any guarantee as to the future return of an investment.
Frequently Asked Questions
Why is VTI currently more expensive?
Why is VTI currently more expensive?
Currently, VTI is more expensive than VTSAX for a multitude of reasons. One of the reasons for the price difference stems from VTSAX’s requirement of a minimum investment of at least $3,000. The fixed minimum investment potentially acts as a barrier to entry for some potential investors. On the other hand, VTI does not have a high barrier for investors and is therefore more accessible to a wider range of potential investors. Another reason for the price difference stems from VTI’s better tax efficiency. In general, ETFs such as VTI are more tax efficient and therefore may be viewed by investors as the more attractive option.
Are VTI and VTSAX the same?
The short and long answer is yes and no. Although VTI and VTSAX have virtually the same holdings, the main difference stems from their different investment styles. While VTI is an ETF, VTSAX is a mutual fund. ETFs work similarly to stocks and can therefore be considered a more flexible investment option in terms of trading. In contrast, VTSAX is an investment fund and can only be purchased through approved channels such as the fund itself or an online brokerage. VTI and VTSAX work and function differently from each other in terms of accessibility and accessibility.
However, the slight differences could prove useful for an investor interested in owning VTI or VTSAX. VTI offers greater trading freedom as it can be bought and sold more easily in the same way as stocks. Additionally, VTI requires a much lower minimum investment. However, VTSAX currently has a much lower price than VTI, so it may seem like the more accessible option if you intend to invest a larger sum upfront.
Before investing, consider your level of risk and research which option would best suit your portfolio by weighing the pros and cons of each investment option.
Overall, VTI and VTSAX offer potential as long-term investments, as holding over time gives both investments a better opportunity to weather market fluctuations. Although VTI and VTSAX are extremely similar, the key details that differentiate the two could potentially be crucial for the sophisticated investor.