VTSAX vs VFIAX: Which Vanguard Fund Should You Select?

There are many low-cost mutual funds available, making them hard to compare. When weighing up VTSAX vs. VFIAX, we run into a pair of very competitive funds. After sizing them up, you may find that they provide almost equal opportunities and costs.

This article will find out how these funds are created and maintained and compare them. Through risk, returns and expenses, you will be able to see the full picture and understand these mutual funds.

First, let’s learn about the huge business that created VSTAX and VFIAX.

What Is Vanguard?

Vanguard Group is an investment company founded in Pennsylvania in 1975. Its premise is that businesses like these should manage funds in the interest of their clients and nothing more.

Nowadays, it has 21 office locations and an army of 17,600 employees across the planet. In total, it maintains 415 different funds worldwide.

Vanguard manages over $7 trillion in assets serving more than 20 million investors. This is a result of gaining the trust of individuals, institutions, and financial advisors all around the globe.

While the market is unpredictable and the future always holds some uncertainty, some things are controlled. Well, fees are one of those things. This company takes pride in reducing costs, and rightly so.

When it started, the average expense ratio for Vanguard funds was 0.89%, and now it is 0.09%. That makes Vanguard’s expense ratio 83% lower than the industry average, one of the reasons many investors love it.

The Vanguard Group makes a strong point about being owned by funds unitholders. This is because the group’s owners are its U.S.-domiciled funds and ETFs, which investors own.

What Kind of Funds Does Vanguard Offer?

VTSAX and FIAX are only two of the hundreds of mutual funds, and ETFs Vanguard has in stock. Each option is listed with its unique asset class, expense ratio, price, and returns. Funds can be focused on energy, health care, real estate, and many other attributes of the constituting assets.

On Vanguard’s site, you can order assets by their most important properties. You can also compare them to see how they do against the others, allowing you to compare up to five funds. Such a large variety of offers will let you make your investments broader to mitigate possible losses.

What Are Vanguard’s Admiral Shares?

In some of Vanguard’s funds, you will have the possibility to qualify for Admiral Shares. These are a special class of shares that sometimes require a higher minimum investment than standard Investor Shares.

The advantage Admiral Shares have is that they offer lower fees in general. VTSAX and VFIAX, the two funds we will analyze today, offer Admiral Share options for all investments.

In general, to qualify, you will need to invest over $3,000 for most index funds from Vanguard. There are 43 index mutual funds run by Vanguard that have this offer available.

For most actively managed funds, this minimum will be $50,000. In some sector-specific funds, it goes up to $100,000. While it can seem like a high number, administering such large funds of these characteristics can be complex. These limits help reduce costs and simplify things.

While some of the required minimums can run quite high, these funds show very low expense ratios. Some can be up to 82% lower than the industry average.

What Is VTSAX?

VTSAX is one of the better-known giant funds run by Vanguard. Also called Vanguard Total Stock Market Index Fund, it has been going since 1992 and totals nearly $1.3 trillion in assets. Its popularity comes from is having some of the best fees and reasonable performance.

The Vanguard Total Stock Market Index Fund is based on the CRSP US Total Market Index. This index, developed by the Center for Research in Security Prices, covers almost all equities available in the U.S. It includes nearly 4,000 different holdings from small to large capitalizations.

Close to a third of assets owned by VTSAX are securities issued by technology companies. This reflects how well those companies do in terms of returns and value and capitalization.

However, the 10 largest holdings of the fund represent about 25% of its assets. That number could be higher and shows how it contains lots of small-capitalization assets.

VTSAX has a turnover rate of 8%. This number somewhat reflects the rate at which securities are bought and sold and has important implications. These operations are necessary to keep the fund growing and updated.

High turnover rates often mean more fees and more taxes for shareholders. This often isn’t reflected in returns listed for funds, so keep an eye on this number. Consider that it can change from one year to the other, but similar funds can have a 6% turnover rate.

What Is VFIAX?

The specialty of VFIAX when it comes to selected assets is following the Standard & Poor’s 500 Index. Also known as the S&P 500, this index tracks 500 large companies listed in U.S. stock exchanges. The S&P 500 is one of the most followed equity indices.

Over $5 trillion was invested in assets related to this index up to 2020. The S&P 500 covers about 80% of the available market capitalization.

The fund attempts to buy stocks similarly to what the S&P index shows. Several other factors may affect Vanguard’s decisions on buying and selling securities, especially as the fund grows and adapts.

What Fees Does Vanguard Charge for VTSAX and VFIAX?

You should know that while fees are great when working with Vanguard, other brokers sell their funds too. Brokers can charge other fees unrelated to those generated by the fund or Vanguard itself. Keep this in mind when considering a broker. Look around to know the different fees that may apply.

When buying shares of VTSAX or VFIAX through Vanguard, you will pay no purchasing fees. Redemption fees are nonexistent in these funds, meaning you can get your investment back for free. Of course, the value of your assets can change between your buy and sell operations. That is the case in most cases.

Many funds charge annual distribution fees, also known as 12b-1 fees. That money is used to pay for marketing and similar expenses. These two funds do not have that kind of fee, probably due to Vanguard’s huge structure. Being one of the top fund managers means many clients go to Vanguard for its reputation alone.

Management fees are the same for both VTSAX and VFIAX, at 0.04%. This is much better than the average index fund and is one of the main selling points of these two. Suppose you invest $10,000, you could expect to pay around $4 each year. Compared to how assets change in value over a year, this is a very small fee.

Vanguard sometimes charges an Account Service Fee Per Year, totaling $20 for each account you have. However, there are some ways to avoid these fees. Having a balance of over $10,000 in the account is one of them, but there’s a simpler way. First, sign up for account access on vanguard.com and select electronic delivery of documents.

What Are the Risks Associated With VTSAX and VFIAX?

All mutual funds that follow an index face similar weaknesses, which overlap with all exchange investments. All funds can lose money in shorter or longer timeframes. That’s normal when working with stocks.

For that very reason, some of these large blend funds exist to stabilize performance by diversifying. Of course, you should do that too! So probably putting all of your funds in one fund is not a good idea. Instead, you should see what other investments can make your holdings less vulnerable.

Stock market risk is one of the things that can go wrong when working with these funds. There are also risks associated with the investment style or the index sampling.

Of course, stock market risk will be present with most investments related to the stock market. This means that if the market generally does badly, these funds can have lower returns and see price drops. This is something to consider as you can end up selling for a lot less money than what you bought for.

The investment style can also result in bad performance for funds. This means that the specific sector of the market that a fund tracks can have a bad performance. VTSAX is a type of fund that attempts to represent the totality of the market.

That means this issue should not apply to it, as it’s broader in the securities it covers. VFIAX, on the other hand, focuses on companies with larger capitalization.

Those companies can do better or worse compared to companies with small and mid-capitalization. As a result, that market segment has gone through losing streaks that lasted years. Again, more in favor of diversification.

Index sampling risk is the risk of having the fund’s securities do worse than the target index. Companies like Vanguard have to assess how to buy and sell to copy the index using multiple weights and considerations. When a tracking error appears, you will see the difference between the fund’s performances and the index.

In any case, you should always consider that these investments are not insured like money deposited in banks. You can face low liquidity or lose a significant portion of your assets.

What Kind of Returns Did VTSAX and VFIAX Have in the Past?

VTSAX and VFIAX are very close in every measure considered regarding returns. VFIAX took the lead with a 12.65% return last year. This is after taxes on distributions and the sale of fund shares. In the case of VTSAX, those returns averaged 11.13% through the same year.

If we consider the average of the last 5 years, VTSAX was above by a slight margin. It saw 12.29% in returns against VFIAX’s 12.11%.

After comparing average returns after taxes and the sale of shares of the last 10 years, this margin gets smaller. VFIAX takes a 0.08% lead in that matchup, barely enough to make a difference for the average investor.

Overall, returns are similar enough on these funds to consider them close competitors.

Are These Funds Available As ETFs?

You can access both of these funds through Exchange Traded Funds. They have the two most ETFs in the stock market. ETFs are groups of assets that are traded like stocks or other securities.

The equivalent of VTSAX in the form of an ETF is called VTI, and VFIAX’s parallel is VOO. They propose some benefits, such as being available at a minimum of one share. This makes investing easier to start with as you will not have to cover the $3,000 minimum. As of December 2021, VTI is available at around $235, while VOO costs nearly $425.

This is something to consider to get a very diverse portfolio. Many other ETFs are available in exchanges providing countless options.

Conclusion on VTSAX and VFIAX

When it comes to VTSAX vs. VFIAX, these funds are quite close in performance and expenses. You will see averages in performance run very close.

Starting with either of these, you will face a minimum investment of $3,000. After that, investments can start at $1.

Morningstar gives these two funds great ratings but favors VFIAX with five stars against VTSAX four. This can move you towards VFIAX, but you should consider your goals and other variables when comparing mutual funds.

In a sense, VFIAX is a fund that contains a subgroup of the assets of VTSAX. These securities in VFIAX tend to be those with large capitalizations. At the same time, VTSAX owns thousands of small and mid-capitalization assets. That should provide benefits in terms of stability.

This will be mostly a matter of timing, and of course, that fund can worsen during certain timeframes. That relative instability of VFIAX can be detrimental, but in those cycles, it has you can perceive better earnings. And that has happened before, even for years at a time.

In short, when comparing VTSAX vs. VFIAX, you will see very similar performances. If you want to invest over $6,000, you could choose a blend of investments between these two. This is always a smart strategy and will reduce your risk of losses.