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VTSAX vs VTI: What’s the Real Difference?

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VTI vs VTSAX

Here at Turbowallet, we have covered various investment products over the past few weeks. We’ve covered a variety of different funds that track different indexes. From Mutual Funds to ETFs, some track the S&P 500 to other total market indexes.

We’re great fans of the Vanguard products as a whole and have covered their stuff in the past. If you want to check out some of our past reviews, don’t hesitate to keep an eye on our Investing page. That way, you can find our most recent reviews and make the best of your money.

In today’s article, we’ll be covering two different investment products offered by Vanguard Investments. We’re talking about VTSAX vs. VTI.

While they are both total market index funds, they go about this differently. VTSAX is a mutual fund, while VTI is an Exchange Traded Fund or ETF. This means that we are asking: What is the difference between these two ways of tracking an index? It’s as simple as that. First off, let’s look at what these funds have in common.

VTSAX & VTI: What they have in Common

Although this article is a head-to-head of VTSAX vs. VTI, they are very similar in many aspects. First off, they are both managed by the same management firm, Vanguard Group.

Who are the Vanguard Group?

Set as the second-largest investment firm globally, Vanguard Group manages over $7.5 trillion in assets for its investors. The firm is the largest issuer of mutual funds and thus has tremendous experience in this regard.

Vanguard is entirely owned by its investors, launching its first fund in 1975, and is known for its very small expense ratios. These are tiny, thanks to their unique structure. This means that they are focused solely on offering what investors want. In this case, small expense ratios are a definite inclusion.

vanguard

The company offers mutual funds and ETFs and IRAs, 401(k) plans, and several other investment options. They have over 209 different funds at the time of writing, and they serve 30 million investors in 170 countries. All this makes it easy to see how they have placed themselves on the top of the Investment firm mountain.

The Vanguard Total Stock Market Fund

Among the different investment tools that Vanguard offers are the Vanguard Total Stock Market Fund. Created in 1992, the fund looks to expose investors to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks.

Starting in 1992, the fund has different share classes, among which both VTSAX and VTI are a part. Others of the shares types are as follows:

  • Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX): one of the shares we’re tackling today started in 2000. While requiring a minimum investment of $3,000, the expense ratio is much lower at 0.04%. 
  • Vanguard Total Stock Market Index Fund Institutional Shares (VITSX): The shares of the mutual fund were created in 1997. Investing in these shares will have you make a minimum investment of $5 million. This comes with a smaller expense ratio of 0.03%. 
  • Vanguard Total Stock Market Index Fund Institutional Plus Shares (VSMPX): Created in 2015. While they have a much higher investment minimum, $100 million, the expense ratio drops to 0.02%.
  • Vanguard Total Stock Market ETF (VTI): This is the ETF share class of the index. This investment product gives the benefits of the Total Index Fund while gaining access to the ability to trade the same over an exchange. With a minimum investment of only one share. The same is also accompanied by a small expense ratio of 0.03%. 

What is the Dow Jones?

All these have something in common. They track the same thing, the Dow Jones U.S. Total Stock Market Index. This is a market-capitalization-weighted index that looks to provide broad-based coverage of the U.S. stock market.

Doing so, it represents the top 95% of the U.S. equity market. The fact that it’s a total stock market index means that large and mid, and small-cap stocks are included, unlike what happens in the likes of the S&P 500, where only the large ones are represented.

stock index

This means that only the smallest and least liquid companies in the Dow Jones are excluded from the exchange and thus not represented.

Added up, the index includes 4090 different constituents. This does give anyone investing in the same, be it VTSAX or into VTI, exposure to the totality of the U.S. market. Given how well the U.S. has performed in recent years, it’s easy to see that investing in it is a sane thing to do.

What do VTI and VTSAX Hold?

The fact is that both VTI and VTSAX are the same in their holdings. Both share the Vanguard Total Market Fund net assets of $1.3 trillion, distributed among 4156 different stocks. Of these different stocks, the top ten in holdings are:

Microsoft Corp: 5.30%Apple Inc: 5.00%
Alphabet Inc: 3.60%Amazon.com Inc: 3.10%
Tesla Inc: 1.90%Meta Platforms Inc: 1.60%
NVIDIA Corp: 1.30%Berkshire Hathaway Inc: 1.10%
JPMorgan Chase & Co: 1.10%UnitedHealth Group Inc: 0.90%

These ten stocks add up to 24.90% of the total net assets. When looking into sector distribution, these come to:

Technology: 28.20%Consumer Discretionary: 16.30%
Industrials: 13.00%Health Care: 12.80%
Financials: 11.60%Consumer Staples: 4.40%
Real Estate: 3.50%Energy: 3.00%
Utilities: 2.60%Telecommunications: 2.60%
Basic Materials: 2.00%

When looking at this, you may be thinking that the fund is too heavily invested in the technology sector. This is due to the massive importance these have in the U.S. economy. That being said, if you are more of the mind that this sector is the way of the future, You’re in luck.

You may look into another investment product we’ve covered before: QQQ vs VTI. In this case, QQQ is representative of the tech sector as a whole as it tracks only the 100 largest companies.

VTI vs. VTSAX. How Are They Different?

While VTI and VTSAX are very similar, there are some differences because they are different fund types. There is an inherent difference between mutual funds and Exchange Traded Funds. Let’s take a look at some of these differences:

Mutual Funds vs. ETFs

When comparing VTSAX vs. VTI, an essential aspect is seeing how a Mutual Fund and an ETF compare. First things first, let’s look at the commonalities. Both funds consist of a basket of different assets and are ways for investors to diversify their portfolios.

Here we come to the differences. Firstly, ETFs can be traded like stocks, while mutual funds only can be bought at the end of each trading day based on a calculated price. This means that you receive the same price as everybody else with a mutual fund on any particular day, regardless of when you put your order in.

investment fund

In this matter, if you do want to trade equities faster, an ETF would be the way to go. In this fund, you have faster access to the fund and have a more updated price. With a mutual fund, you would only know how much you’re paying for the same at the end of the day.

Mutual funds are also, as a general rule, actively managed.

A fund manager makes decisions about how to allocate assets in the fund. On the other hand, ETFs are usually passively managed and based more simply on a particular market index. In this case, both are passive as both are just looking to track an index, in this case, the Dow Jones U.S. Total Stock Market Index.

funds

There are other key differences between these two. First is that with an ETF, you need to invest enough to buy an entire share. That being said, some services let you buy fractional shares. On the other hand, Mutual Funds let you invest what you want directly as they already offer fractional shares.

That being said, there is another issue. Some mutual funds, like VTSAX, have a minimum investment. Getting into an ETF is as easy as buying one share. On the other hand, you may have to invest the equivalent of multiple shares to even access some mutual funds.

Taxes

Now let’s look at a key difference between a mutual fund and an ETF – tax efficiency. As a general rule, ETFs are more tax-efficient than mutual funds. This is in great part due to how these different funds are built. ETFs structure investor share balancing, specifically whether these are counted as an open-ended or closed-ended fund.

What is the difference between an open-ended and closed-ended fund? Open-ended means an unlimited amount of shares are available to the investing public. Closed-ended means that the fund issues a fixed number of shares for investment, regardless of how much demand there is.

Tax documents

As a general rule, ETFs are closed-ended investments. This means that they tend to have lower capital gains than mutual funds because they trade in the market.

Let’s look at what happens when an investor in a mutual fund sells the shares back to the fund. In that case, the same will redeem the shares and sell the underlying asset to give the investor the dollar equivalent of the investment. This can also happen to reallocate assets to keep us with their targets.

If a mutual fund sells its securities, these capital gains have to be distributed to all shareholders by law. This entails that the sale of securities within the mutual fund portfolio will generate capital gains and a taxable event for the shareholders.

sinking fund

On the other hand, an ETF manager accommodates these movements into and out of the ETF by creating or redeeming “creation units”. These are a mix of assets that approximate the entirety of the ETF investment exposure. This means that you as the investor are not exposed to capital gains on any individual security in the fund structure.

On top of that, ETFs trade person to person and not person to fund. When someone sells an ETF, the person paying them is the one buying. The fund does not have to generate this cash value of their fund to pay the investor. As such, ETFs, VTI, in this case, tend to be more tax-efficient as they have fewer taxable events than their mutual fund counterparts.

Final Thoughts on VTSAX and VTI

While there are certain differences between VTSAX and VTI, the same are indistinguishable in terms of what they hold. Given that they are different investment products, you can see certain differences and may go for one or the other.

If you are the type that is willing to invest at least $3,000 and aren’t looking to be restricted by buying whole shares, you may be happy with VTSAX. To invest smaller amounts, and if you like the idea of trading it over an exchange, you have VTI.

Either way, we’re happy to say that investing in a Total Market Index like the Dow Jones is a great idea for the long run.

The same has seen great results over the years and is a staple in any investor’s portfolio. That being said, we can’t predict the future, although we try. We still have to say that past performance does not guarantee future results. Nobody can say when the next apocalypse will hit. 

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