Some investors may wish at some point to convert their VTI (Vanguard Total Stock Market ETF) to VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares). You may wish to do this after you have invested enough in VTI to qualify for VTSAX.
Unfortunately, unlike converting from VTSAX to VTI, you cannot automatically convert VTI to VTSAX, and instead, you will need to sell VTI and purchase VTSAX.
It is important to understand what comes along with transferring your VTI holdings to VTSAX, and what the process of switching from VTI to VTSAX entails. Whilst there are plenty of benefits in doing so, there are also some disadvantages.
FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!
What are the differences between VTI and VTSAX?
A VTI and a VTSAX are similar in the way they perform, in that they have low expense ratios and that they are both considered low risk with a long history of returns. They also have very similar holdings that offer a way for investors to tap into the U.S. stock market.
They differ in that VTI is an ETF and VTSAX is a mutual fund. The only other real difference between VTI and VTSAX is that VTI can be purchased for the price of one share, whilst VTSAX can only be purchased with an initial investment of $3,000.
FYI: The best way I've found to invest is through M1 Finance. It's free and you even get an instant line of credit and 100$! Have a look here (link to M1 Finance).
How do I convert from VTI to VTSAX?
To convert VTI to VTSAX, you will need to sell VTI and purchase VTSAX. You will need to meet the minimum requirement of an initial investment of $3,000 to purchase. It is important to note that doing this will incur taxes on the shares that are sold.
At Vanguard, you can convert other investments, such as Investor Shares to VTSAX. This conversion takes place automatically when you become eligible for VTSAX, although you will have some time to confirm if you want to make the switch. You can also convert VTSAX to VTI with no tax obligations, even though you cannot convert the other way around.
What are the benefits of changing from VTI to VTSAX?
VTSAX offers easier automation with investing than VTI does. If you wish to automatically invest funds, say from each paycheck, you can only do this with VTSAX. An automated option is not available with VTI and instead, you will need to invest manually. This can be an issue for investors who want to make regular investments without having to remember to do so at a specific time either weekly or monthly. Automatic withdrawals can also be set up with VTSAX, unlike with VTI.
Also, there are zero commission fees for VTSAX, whilst there is a commission of 0.03% for VTI. This makes investing in VTSAX a bit cheaper by a small margin.
NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).
What are the disadvantages of transferring from VTI to VTSAX?
Most importantly, VTSAX has a minimum of $3,000 initial investment. If you do not have enough invested in VTI, you are ineligible to convert to VTSAX. You will either need to invest more to meet the minimum requirement, wait until you have $3,000 available or convert funds from another investment to VTSAX in order to reach the initial investment requirement.
Another downside of VTSAX is that shares are purchased and sold at market close, so you will not know how the fund is priced until the trading day is over. With VTI, you will be able to see the price change throughout the day.
Most importantly, a major disadvantage of moving VTI to VTSAX is that you will be taxed on the shares sold from VTI. You will receive a capital gain/loss statement and will need to pay tax on any profits.
ALSO: Small-cap equities can add a lot of upside to a portfolio while mitigating risks. Recently, I've discovered Mainvest's investment platform which makes it easy to invest in small and local businesses with returns of 10-25%. Take a look here (link to Mainvest).
Should I convert VTI to VTSAX?
Converting your VTI to VTSAX is a decision only you can make. It depends on how you plan to use either investment. If you are okay with manually investing your funds and do not need the automation available with VTSAX, there is really no major reason to convert.
If you want to take advantage of the zero commission offered with VTSAX, however, making the switch may be worth it if you plan to invest enough for it to make a difference.
Are there any tax implications for transferring a VTI to a VTSAX?
Due to the fact that you will need to first sell your VTI in order to convert over to VTSAX, making the switch from VTI to VTSAX is not tax-free. You will receive a capital gain/loss statement when you sell your VTI in order to change over to VTSAX.
How should I use VTSAX?
VTSAX, like VTI, is best for long-term investments. Buy-and-hold investments are very common with VTSAX since they offer good returns over a long period of time due to good diversification.
Many investors choose to purchase the fund in a ROTH IRA or Stocks and Shares ISA. This is to avoid the tax event which you are liable for when you sell VTI. Using a ROTH IRA or Stocks and Shares ISA as an investment vehicle can help you avoid tax on withdrawing funds since investments are after-tax contributions.
The bottom line
VTI and VTSAX are both very similar in makeup. However, due to the automation available with VTSAX, many investors prefer the mutual fund simply due to its ease of use. If you decide to switch from VTI to VTSAX, it is important to understand this cannot be done automatically, and instead, will involve selling and buying. There are both benefits and disadvantages associated with converting VTI to VTSAX, so it is important to understand the implications of both.
Current recommendations:
Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:
P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!
1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!
2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!
3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).
4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.
5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!
To see all of my most up-to-date recommendations, check out the Recommended Tools section.
I believe that money is just a means to an end: to be free to spend your time as you wish, to maximize your positive impact on the world.
how much will i pay in taxes by converting vti to vtsax?
Hi Adam, you’ll pay the regular capital gains tax rate, as the sale of VTI will be a taxable event.