VTI vs VTSAX: What Is the Difference?

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Saving money is crucial, but what about building profit? Do you need investing accounts, what are the risks, and where can you even begin?

The most significant advantage of investing is that it is an effective way to use your money to build potential wealth.

This article will explain the differences, similarities, and other important information concerning the VTSAX vs. VTI discussion.

We will cover:

  • What are the Vanguard low-cost funds?
  • What is an index fund?
  • ETFs vs. mutual funds
  • VTSAX vs. VTI: the similarities
  • Differences between VTI and VTSAX
  • VTSAX vs. VTI: tax efficiency
  • What else should you consider before investing in VTSAX and VTI?
  • Gain financial independence with Infinite Banking Concept

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The Vanguard Low-Cost Index Funds 

The Vanguard group’s founder John Bogle created their first low price index funds in the 70s. These funds were passive mutual funds that offered significantly lower fees and a lower expense ratio than competing fund companies and banks offered with their active mutual funds.

The passive funds followed existing stock indexes, such as the S&P 500, rather than actively researching and manually managing the holdings.

Since then, many investors have concluded that actively managed funds tend to lose to the underlying index they’re chasing. 

One of the reasons for this could be higher fees in paying fund managers to handle these funds actively. Another possible reason is that most investors just can’t beat the market over the long term.

Over the recent years, index investing is becoming increasingly popular. Nowadays, the most popular investment funds covering the total stock market in the U.S. are VTSAX and VTI.

Of course, this rise in popularity leads to discussions about VTSAX vs. VTI and which one seems like a better option for investors over investing in multiple funds.

If you want to find out more about this subject, continue reading as we discuss the similarities and differences between VTSAX vs. VTI.

What Is an Index Fund?

Before we get into more complicated investing terms, you should know what an index fund is.

This fund is a type of exchange-traded fund (ETF) or mutual fund with a portfolio made to match or track the components of a stock market index, such as the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite Index. 

Index mutual funds are created to provide broad market exposure, low portfolio turnover, and low operating expenses. These index funds are tied to the benchmark index regardless of the state of the markets. 

Let’s look at what makes them so good and how you can purchase them.

Benefits of Investing in Index Funds

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Probably the most significant advantage of investing in index funds is investing in multiple stocks simultaneously as an investor. 

The main reason why many investors opt for index funds rather than investing in individual stocks is excellent risk management. The investment risk, a vital advantage of this fund, is controlled by placing a higher weight on successful profit-making companies and less on profitable firms.

Furthermore, if a firm is unprofitable, it will probably be entirely removed from the list to make space for growing enterprises. 

Generally, these benefits offer significant risk protection and the opportunity to outperform individual stocks over time. For example, if you want to make the same profit investing in individual stocks, you must choose the top 20% most profitable shares or get lucky. 

Rather than hand-picking individual stocks for investment, index investing seems a more straightforward and sensible option for an average buyer. 

This type of fund is a solid investment vehicle for individuals looking for diverse portfolio holdings for their retirement accounts, such as IRA and 401 k accounts. It’s safe to say that these funds are a relatively safe way to achieve financial independence by retirement age.

How to purchase an Index fund?

You can purchase an index through a brokerage account or directly from a provider, such as Vanguard, Fidelity, Charles Schwab, BlackRock, or Merrill Lynch. 

The Vanguard is the provider offering the two funds with a lower expense ratio that are currently a popular investment option and the topic of this article: VTSAX vs. VTI.

But how can you find the best index fund?

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ETF vs. Mutual Fund

When choosing between an ETF and a mutual fund, you must consider several factors. Also, as an investor, you have to determine what strategy works best for you, whether it’s a buy-and-hold investment strategy or a trading strategy, in which case you should pursue a fund providing more liquidity.

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Vanguard Exchange Traded Fund

The exchange-traded fund offers a bit more flexibility and liquidity, as they can be traded like stocks, bought and sold in a day, perhaps even in just one share. 

Also, when compared to mutual funds, exchange-traded funds carry a lower expense ratio. The ETFs must be sold in a taxable brokerage account. 

Please remember that ETF trades may involve brokerage commission fees!

Generally, ETFs are more suitable for those investors who want lower minimum investments with more control over transaction prices than mutual funds.

On the other hand, ETFs do not allow you to make regular automatic investments and withdrawals, which is possible with mutual funds.

Vanguard Mutual Fund

When comparing a mutual fund to an ETF, we can say that the most significant difference is how much money is being invested. 

Vanguard mutual funds are offering three classes of shares:

  • investor shares
  • admiral shares 
  • institutional shares

Each class of these shares comes with lower expense ratios and better performance. However, this feature comes with a price, and it’s a higher minimum investment than ETFs.

For example, investor shares in most Vanguard funds require a minimum initial investment of $3,000. 

Moreover, institutional shares, best for institutional investors, typically require a $5 million minimum investment or a $1,000 opening investment. 

Low-cost admiral shares typically require a minimum of $3,000 for an index fund, $50,000 for an actively managed fund, or $100,000 for a sector-specific index fund.

Another downside is that some of these funds have high transaction costs, so that you may be charged with redemption fees ranging from 0.25% to 1.00% of the transaction amount. The main reason behind this is to prevent short-term speculative trading. 

Apart from this particular case, Vanguard does not charge sales loads (front-end or back-end) or commissions.

VTSAX vs. VTI

Even experienced investors don’t think it’s easy to choose when it comes to the VTSAX vs. VTI discussion. 

The two Vanguard’s funds with a small expense ratio are becoming increasingly popular among investors worldwide, as they both have shown strong performance through the years.

According to the reports, VTI and VTSAX have over $1 trillion in total net assets.

Moreover, the Vanguard funds tend to reflect identical or similar underlying investment holdings, and that’s why it may be challenging to differentiate between the two. 

However, although VTSAX and VTI are very similar, they are not the same, so let’s break down the essential differences between the two.

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What Is VTI?

The Vanguard Total Stock Market ETF (VTI) is a well-diversified, market capitalization-weighted index. It was created in 2001 by John Bogle to attract investors with the unique advantages of an ETF.

Since then, the Vanguard Total Stock Market has continued to grow, and today it remains one of the most popular ETFs held by investors in the stock market worldwide.

The Vanguard total stock market ETF is a passive index fund with a low turnover rate and relatively low expense ratio.

Additionally, VTI includes different companies with variable market capitalization rates, such as large-cap, mid-cap, and small-cap companies. 

The most significant advantage is that The Vanguard total stock market ETF is based on the CRSP U.S. Total Market Index to account for almost the entire United States stock market.

When combined, these features are the primary reason so many investors find VTI a beneficial investment in terms of diversification, turnover, and expense ratio and for long-term investors.

VTI Profile

  • Expense Ratio: 0.03%
  • Number of stocks: 4139
  • VTSAX tracks the performance of the CRSP U.S. Total Market Index
  • Fund net assets: $1.4 trillion,
  • Minimum investment: $3,000
  • Net assets of top 10 holdings: 25.2%
  • Fund advisor: Vanguard Equity Index Group
  • Ideal for investors looking for low-cost access to broad exposure to the U.S. stock market 

VTI Performance

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Total returns:

  • 1 Month: 2.48%
  • 3 Months: 8.13%
  • 1 Year: 44.42%
  • 3 Years: 18.73%
  • 5 Years: 17.90%
  • 10 Years: 14.70%

Please remember that, like any other investment, VTIs carry an inherent risk of loss that comes with owning assets tied to the stock market. 

In the case of significant market volatility, the broader stock market may turn negative due to a market event. Because VTI is tied to the market, it could impact the underlying assets.

Nevertheless, VTI is still one of the safest ETF investments to purchase, considering its broad market holdings, minimal asset turnover, and low costs.

This fund also give you the same dividend yield as a VTSAX.

Over the last two decades, the VTI has even outperformed the S&P 500 Index.

The Definition of VTSAX

The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is a mutual fund designed to provide diversified exposure to the entire U.S. market with large-cap, midcap, and small-cap growth and value stocks traded on the New York Stock Exchange and Nasdaq composite. 

As the name indicates, the Vanguard Total Stock Market Index Fund has access to the entire U.S. equities market, as it tracks the CRSP U.S. Total Market Index.

VTSAX is a type of mutual fund created in 1992. The Vanguard Total Stock Market Index Fund Admiral Shares comes with a low expense ratio of 0.04% and a required minimum investment of $3,000. 

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VTSAX Profile

  • Expense Ratio: 0.04%
  • number of stocks: 4139
  • VTI tracks the performance of the CRSP US Total Market Index
  • Fund net assets: $1.4 trillion
  • diversity with large-, mid-, and small-cap equity across growth and value styles
  • Net assets of top 10 holdings: 25.2%
  • VTI is run with a passively managed, index-sampling strategy
  • the fund provides low expenses to minimize net tracking error

VTSAX Performance

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Total returns:

  • 1 Month: -6.32%
  • 3 Months: -5.59%
  • 1 Year: 11.27%
  • 3 Years: 19.33%
  • 5 Years: 17.21%
  • 10 Years: 14.70%

VTSAX vs. VTI: The Similarities

Portfolio and Diverse Holdings

VTSAX and VTI are low-cost index funds designed to track the same CRSP U.S. Total Market Index to cover almost the entire U.S. stock market. 

Also, if we compare them from the stock selection perspective, we would find both funds almost identical, so investors seeking the diversified portfolio can expect the same results with assets invested in either VTI or VTSAX. 

Furthermore, the annual returns, and the dividend yield, are very similar, and what’s even better is that they both don’t impose load fees.

VTI and VTSAX have a similar investment portfolio, with $1.4 trillion in assets, about 4139 stocks, and the same top 10 holdings making approximately 25.20% of their total assets. 

Here are the names of the ten most significant Vanguard’s holdings: 

  • Apple
  • Microsoft 
  • Alphabet Inc.
  • Amazon.com 
  • Tesla
  • Meta Platforms 
  • Nvidia Corp.
  • Berkshire Hathaway Inc.
  • UnitedHealth Group
  • JPMorgan Chase & Co.

Great Performance

When reviewing VTSAX vs. VTI, if we carefully compare the figures, we would find that the performance of these two funds is almost identical. The reason for this is that they track the same index.

The nearly identical investments share the same holdings, but VTI performs somewhat better in one, three, and five-year categories in terms of overall performance. Both VTI and VTSAX offer excellent performance for long-term investing, and investing in a total market fund is probably all you need to ensure your profit.

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VTSAX vs. VTI: Expenses

These funds have low expense ratios, 0.03% for VTI and 0.04% for VTSAX. When figuring out where to invest, you may wonder if this difference in expenses is significant. Well, it is not, as it means that you as an investor would have to pay $1 more on every $10,000 that you invest.

Both of these funds are also very tax-efficient, especially in comparison to other funds, like a bond fund.

Differences Between VTI and VTSAX

Once we have covered the similarities of VTSAX vs. VTI discourse, let’s discuss what makes VTSAX and VTI different. 

The primary and most obvious difference is that VTSAX is a mutual fund, and VTI is an ETF. Some of the key differences between these two funds are:

  • minimum investment
  • real-time pricing 
  • automatic withdrawals and investments
  • liquidity

Minimum Investment

When discussing the VTSAX vs. VTI, we must mention one crucial difference: minimum investment. So what exactly is this minimum investment, and how big is it?

The minimum investment is the smallest dollar amount you must deposit with a mutual fund when buying shares. The VTSAX minimum investment amount is VTSAX is $3000, and for VTI, it doesn’t exist as a requirement at all. 

In the case of VTSAX, after you’ve purchased the first investment, the following assets will depend on how much you are willing to invest.

On the other hand, the minimum investment equals the share price with VTI. Suppose VTI’s share price is $100, it means you would need $100 to purchase one share. Once the share price changes, the minimum investment amount will also change. 

Some brokers will also let you purchase fractional shares, making it possible to spend even less money on this financial venture.

Real-Time Pricing

Another vital difference between an ETF and a mutual fund is trading in the stock market.

Generally, as an investor, you can only buy or sell mutual funds, whether actively managed funds or index funds, once per market day. Also, once you want to buy or sell your VTSAX shares, your order will not be processed until the trading day is over. 

Even though your order will be handled later, it will have the same price as during the trading day. The same applies to all actively managed mutual funds, not just the Total stock market index VTSAX.

When it comes to VTI, ETFs trade like any other type of stock with real-time pricing while the stock market is open. Furthermore, VTI allows you as an investor to buy and sell your shares at any price point, and the price can fluctuate during the trading day. 

On the other hand, with VTSAX, that is not the case, as you’re allowed to price each share only at the end of the trading day.

Another feature that comes with VTI is you can monitor how prices change during the open hours in the stock market. However, please be cautious, as it may feel appealing to trade your stocks instead of investing long term, which is usually more profitable. 

Automatic Investments

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Another distinction between VTI and VTSAX is that you can use an automatic investing option with VTSAX and other mutual funds. 

Mutual funds and VTSAX, in particular, allow you to automatically invest every month or every week without bothering to think about it. 

On the contrary, you must purchase the ETF manually each month with VTI. A manual approach is not a bad thing on its own; however, it carries some insufficiencies as it depends on the human factor.  

Choosing an investment with the benefit of automatic investing can be very useful, as you won’t have to worry about forgetting to pick your investments, and you can ensure a faster-growing profit by using this feature.

In case you want to invest a certain percentage of your every payment automatically, then VTSAX is a better choice for you, and it’s more convenient.

If you prefer to have tight control over your investments, then VTI is a superior option.

Liquidity

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When it comes to investing, one crucial aspect is the asset’s liquidity. There are two types of liquidity: market and financial liquidity. 

Market liquidity is used to describe how quickly you can sell your investment without negatively impacting its price (without losing value). 

The Vanguard index funds are pretty liquid compared to unlisted securities or non-liquid real estate. 

Although both VTSAX and VTI are liquid, ETF is always a little more liquid than mutual funds, and so is VTI. 

VTI vs. VTSAX Tax Efficiency

In general, ETF is a bit more tax-efficient investment than a mutual fund is. But what is behind this tax efficiency? 

In this case, VTI would count as a more tax-efficient investment than VTSAX.

The primary reason for ETF’s tax efficiency is based on how the fund structures investor-share balancing and whether it counts as an open-end or closed-end fund. 

Open-End vs. Closed-End Fund

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The two popular investment funds can be either open-end or closed-end funds. An open-end fund provides the investment trades between an investor and the fund with a limitless number of shares for public investment. 

A closed-end fund issues a fixed number of shares available to the investing public for public investment, regardless of investor demand. 

In most cases, an ETF operates as a closed-end investment, while a mutual fund can be an open or closed-end fund.

Because of its closed-end nature, an ETF generally has lower capital gains than a mutual fund due to how they trade in the total stock market.

Additionally, as an investor, you may have to pay a capital gains tax on a proportional share of the fund’s capital gains obtained during the year.

When you sell your securities for a net profit, you should expect to pay taxes, specifically the capital gains tax. However,  VTSAX and VTI gather less of this tax for several reasons:

  • VTSAX and VTI operate as index funds, so they are not technically actively managed mutual funds.
  • You can sell an ETF to another investor rather than through the securities sale, like a mutual fund. Once an authorized participant redeems ETF’s shares directly from you (the issuer), you can grant the AP the shares of the underlying stock. It may sound a bit complicated; however, this type of transaction is not considered a sale; so no capital gains accrued means excellent tax efficiency. 
  • Vanguard Inc. implemented a method of eliminating taxes known as heartbeat trading. The way this method operates is simple; the money is quickly being pumped in and out of ETF portions of a mutual fund equivalent, without taxable gains for their mutual fund shareowners. Furthermore, heartbeat trading is why a VTSAX (mutual fund) is also a tax-efficient investment. 

What Else Should You Consider Before Investing in VTSAX and VTI?

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Regardless of the VTSAX vs. VTI discourse, the two funds do not capture international stocks. If you are interested in international exposure, it’s best to utilize a different low-cost index fund that trades with global stocks.

Even though these vanguard mutual fund company products do not offer adequate exposure to international stocks, many of the companies represented in these indexes have a significant role in international markets. 

To illustrate the case, major tech companies like Facebook, Apple, and Google do a significant amount of business overseas.

VTSAX vs. VTI: Which One Is Better?

As we already mentioned before, you can safely use both VTSAX and VTI, as they are very similar yet excellent investment vehicles in the long run.

While ETFs are generally more tax-efficient than mutual funds, we would argue that that is not the case with Vanguard indexes. VTSAX and VTI are not going to make much of a difference.

New investors often don’t care bout details like net assets, tax cost ratio, share price and other similar things, and they just buy the fund and hold onto it.

Please make sure your investment choice is based on several factors like your risk-bearing capacity, age, and financial goals. Don’t forget about tax implications, as it is also a core factor. There are plenty of choices on the market, so make sure you’re making the right choice for yourself. 

Gain Financial Independence With Infinite Banking Concept

It’s safe to say that investing is a great tool to obtain present and future financial security. Investing allows you to generate your wealth and save for retirement. But is there another way to utilize the power of compounding without any market risks? 

If you find yourself asking the same question, we may have a solution for you, called the Infinite Banking Concept. 

With the help of Infinite Banking, you can start making smarter financial decisions by investing your money in the right direction. Let us introduce you to the Infinite Banking Concept and help you finally achieve the financial security you always wanted. 

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How Does Infinite Banking Work?

The Infinite Banking Concept is a unique method utilizing your Whole Life insurance policy to finance everything you would typically finance through a bank. It helps you secure your financial future but also brings additional benefits.

The best thing about Infinite Banking is that it allows you to stop depending on a third party finally. By imitating how the traditional bank operates, you can become your own bank in a sense, thus becoming entirely financially independent!

Rather than borrow money from a bank, you can borrow money against yourself. Consequently, you will single-handedly dictate the cash flow and earn dividends through your insurance policy, even though you may be using that money elsewhere.

With the use of Infinite banking, you will build your wealth while borrowing and repaying the money held in the cash value of your permanent life insurance policy.

Infinite Banking Involves:

  • Overfunding (with after-tax funds) a high cash value whole life insurance policy from a life insurance company
  • Accumulation of Cash Value (tax-free) throughout the years you are a policyholder of your Whole Life insurance policy
  • Tax-Free Loans against your whole life insurance policy’s cash value to cover your financial expenses

By following these three steps, you will ensure you correctly implemented the Infinite Banking strategy to create your bank and reach your financial goals successfully. Let us help guide you through the Banking Business towards achieving financial independence.

Final Thoughts

In summary, Vanguard’s index funds have a history of consistently outperforming other types of funds available out there, especially actively managed ones. They can be excellent investments for investors that don’t mind moderate market risk. 

When it comes to investment planning, the essential thing is to conduct proper research and take time to understand your investment options. Keep in mind that is no such thing as a one-size-fits-all investment plan.

We hope our article has interested you with the Infinite banking concept! If you found this article helpful, we encourage you to explore other financial topics on our blog.