Marjolein at Radical Fire has written this post for investors on the key differences between two ETFs, VTSAX Vs. VTI. Tim
VTSAX vs. VTI? Which one suits your financial needs? Which can help you achieve your investment and financial goals? Learn the similarities and differences of each to maximize your returns.
When investing, it is best to do your research. Know the pros and cons of the different stocks, bonds, funds, and securities offered. Understand the risks involved when investing in the stock market in general.
You have many options when investing in stocks. A lot is going on, which means you have to be updated all the time to keep up with the new developments.
But, with low-cost index funds, you don’t have to stay updated all the time and can minimize investment risk. But what’s the best index fund?
Continue reading as we discuss VTSAX vs. VTI and learn how similar they actually are.
What Is VTI?
VTI, or the Vanguard Total Stock Market ETF, is an open-ended fund that accounts for the entire US stock market and was created by Vanguard.
The fund is designed to be a passive indexing fund, meaning a low expense ratio and a very low turnover rate.
VTI is also known for its diversification in asset classes and industries. The transfer and transaction are surprisingly low, meaning that it can quickly be converted into cash if your investment strategy calls for it.
For this reason, VTI is one of the best investments for people looking to invest over a long time but want to ensure a safe investment.
Past statistics have shown that the fund has been performing well. With a 10-year return of 15.16% and 8.86% since its inception in 2001, it earns consistent returns.
VTI also provides you with a 1.80% dividend yield.
However, if you require more passive earning streams, we suggest adding a few additional income-producing assets alongside VTI.
What Is VTSAX?
On the other hand, VTSAX, or Vanguard Total Stock Market Index Fund, is a diversified mutual fund also centered around the US market.
To date, it holds to be the biggest mutual fund in the entire world, with more than $800 billion in controlled assets. These are accredited mainly to financial, industrial, technology, health care, and consumer service companies.
Many big names such as Facebook, Apple, and Google also add in the assets of VTSAX. It means that the fund has international exposure, as these companies do have their business overseas and in the US.
It has continued to yield consistent and profitable returns. VTSAX is one of their oldest products developed in 1992. Since that year it has given an average return of 8.87%.
VTSAX has shown an average of 15.15% 10-year return and has continued to prove itself as one of the best products to invest in.
VTSAX Vs. VTI: The Similarities
Before moving on to the differences between the two funds, let’s look at the similarities.
Both VTI and VTSAX are from Vanguard, a big ETF and mutual fund company.
John “Jack” Bogle, the founder, stated,” It’s better to follow the stock market, rather than going against it and fighting it.”
This is why VTI and VTSAX both are based on the CRSP US Total Market Index and account for nearly the entire United States Stock Market.
In addition, both funds have more than 800 billion US dollars in assets, with the technology industry being the dominant investment factor.
Now that that’s out of the way let us look at some of the most basic similarities the funds have that makes them almost identical to most people,
- Both of the funds follow the same investment profiles and have taken stocks in the same companies being products of a single enterprise. So the number and amounts invested in businesses are virtually the same.
- Both funds have the same market capitalization, amounting to a staggering $840 billion each.
- The expense ratio of both the funds is very similar, with the ratio for VTI being 0.03% while it is 0.04% for VTSAX.
- The dividend yields on both funds are nearly the same, with 1.81% for VTI and 1.80% for VTSAX in the last year.
- Both are good choices for people looking to not invest in multiple funds and want to find a low-cost index fund.
- Over an extended period, both these funds will provide you with almost an identical return.
After reading these features, do you also not believe that these funds are virtually the same and do the same thing?
However, after we expand on some of the key differences, we see that a few underlying factors make them different.
What Are The Differences Between VTSAX And VTI?
Let’s now discuss the differences between VTSAX and VTI. Here are some factors that make them different from each other.
The most basic distinction between the two is that VTI is an ETF, whereas VTSAX is a mutual fund. Therefore, there is a clear difference in investing in these funds.
ETFs deal in stocks and take in investment by selling shares like your usual stocks and bonds. You can buy a share of VTI for $229 at the moment of writing. With many stockbrokers, like M1 Finance, you can buy fractional shares. Meaning you can invest from $100.
However, you just need to have a set amount of money you want to invest in a mutual fund. In the case of VTSAX, you need to have at least $3,000 to start investing in the fund.
Another difference between VTSAX and VTI is that you can use automatic investing with mutual funds (VTSAX).
WIth VTSAX, you can automatically invest every week or month without having to think about it. With VTI, you have to purchase the ETF manually every month.
If you’re a lazy investor like me and want to set it and forget it, picking an investment that automatically lets you invest may be a good idea.
What About Tax Efficiency?
By the stock market rules, ETFs have always been more tax-efficient than mutual funds.
However, Vanguard has its own way of dealing with this. They use so-called heartbeat trading, where the ETF is treated the same as an identical mutual fund tax-wise. In this case, VTI and VTSAX are taxed the same, meaning that there’s no difference in taxes between the two.
Frequently Asked Questions: VTSAX Vs. VTI
Now that we discussed the similarities and differences between VTSAX and VTI, here are some of the frequently asked questions that will surely help you.
Are VTI And VTSAX The Same?
No, the most basic and notable difference is that the VTI is an ETF. At the same time, the VTSAX is a mutual fund, meaning that you would need a minimum of $3,000 to start investing there.
Why Is VTI More Tax-Efficient Than VTSAX?
VTI isn’t more tax-efficient than VTSAX. Vanguard has its own patented way of avoiding taxes on VTSAX, which means they both get treated equally when it comes to taxes.
Can I Convert VTSAX To VTI?
Yes, you can, as most shares that operate based on ETF shares allow you to convert from conventional shares to ETF shares, especially if the providers are the same business.
However, remember that you cannot return once you go through with this. There are no ways yet to turn ETF shares back into conventional shares, so before making this decision, make sure that you have considered all the pros and cons.
Do VTI And VTSAX Pay A Dividend?
Yes, both of these funds are identical in the long run and pay off dividends regularly, either quarterly or yearly. You can also decide whether you want to reinvest your dividend or have it paid out to you.
Conclusion – VTSAX Vs. VTI
So now that we have discussed the ins and outs between VTSAX and VTI in detail. By now, you should already know which one fits the bill for you.
Which of these two have more upside for you? Which one will be more beneficial and is aligned with your financial plans?
As always, the choice is up to you. You need to sit down and know what your plans are now and for your future. You should be aware of your current financial situation so you may factor in which of the two suits your current budget.
What is and will always be important is your financial plans and goals in life. And investment should form a part of your overall roadmap as this can help you reach those goals. So strap up and enjoy your ride through this investment journey!
Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Tim Thomas has no positions in the stocks, ETFs, mutual funds, forex, or commodities mentioned.
This post originally appeared on Radical Fire and was syndicated by Tim Thomas / Timothy Thomas Limited.
Featured image credit: Unsplash.