VTSAX vs. VTI

VTSAX vs. VTI – Which Is Better?

It’s no secret that Vanguard offers probably the best index funds on the market. Not only are they inexpensive, but they generally hold a large number of securities ideal for increased diversification. VTSAX and VTI are two prime examples. But what exactly is the difference between VTSAX vs. VTI? And which of these funds is better?

In terms of overall performance, VTI is slightly better than VTSAX. VTI has a compound annual growth rate (CAGR) of 7.97% compared to VTSAX’s growth rate of 7.95%. VTSAX’s expense ratio is also 0.01% higher than that of VTI. Other than that, the main difference is that VTSAX is a mutual fund and VTI is an exchange-traded fund. However, composition-wise both funds are essentially identical.

VTSAX vs. VTI: Overview

This post will examine the basic differences between VTSAX and VTI and conclude with a portfolio backtest. First, we’ll look at the differences in fees, fund structure, and composition. Later on, we’ll compare some risk metrics and each fund’s performance over the past 10 years.

What’s The Difference between VTSAX and VTI?

VTSAXVTI
NameVanguard Total Stock Market Index Fund Admiral SharesVanguard Total Stock Market ETF
IndexCRSP US Total Market IndexCRSP US Total Market Index
Expense Ratio0.04%0.03%
Minimum Investment$3,000~ $150
IssuerVanguardVanguard
StructureMutual FundETF
Holdings3,5133,513
Inception Date11/13/200005/24/2001

Index

The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) tracks the CRSP US Total Market Index. This index includes more than 3,000 U.S. companies and aims to emulate the performance of the entire market. Even though VTSAX is actually a mutual fund, it follows an index rather than actively picking stocks. It is a sort of hybrid index-mutual fund.

The Vanguard Total Stock Market ETF (VTI) tracks the exact same index. But VTI is an exchange-traded fund (ETF) not a mutual fund.

The difference here is that investor shares are not regularly but and sold by the fund, but rather traded among investors. This can significantly reduce the capital gains tax burden for investors.

Expense Ratio

VTSAX has an expense ratio of 0.04%. Compared to other mutual funds with an average expense ratio of 0.63%, this is very low. Even compared to other Vanguard mutual funds which average around 0.10% in annual fees, VTSAX is has a clear advantage.

VTI has an expense ratio of 0.03%. While it is true that ETFs generally have lower fees than mutual funds, few have fees as low as 0.03%. The industry still hovers somewhere around 0.28%.

On a portfolio of $10,000, you would be $4 or $3 in annual fees for VTSAX and VTI respectively. That’s a difference of $1 per year. Hardly enough to impoverish you.

Issuer

VTSAX and VTI are both issued by Vanguard. As mentioned before Vanguard offers excellent investment products especially for us retail investors.

They were also founded and built on Jack Bogle’s (at the time) unique business philosophy to put investors first and do everything to give them the best chance of success.

(Read: Why Vanguard Is The Best)

Structure

VTSAX is a mutual fund. True, it is not a typical mutual fund. There is no manager actively buying and selling securities in hopes of beating the market. Rather VTSAX follows the same index as VTI does.

VTI is an ETF. This means that shares of the fund are not commonly bought and sold from and to the market but traded on exchanges among investors.

There are several advantages and disadvantages to both. Mutual funds like VTSAX will allow you to buy fractional shares and set a fixed amount to auto-invest each month but are only available through Vanguard. On the other hand, ETFs like VTI are tradable through most brokers but don’t offer the same benefits as a mutual fund.

Other Differences

The minimum investment differs significantly for both funds. While the minimum for VTI is simply the price of one share – currently around $150 – VTSAX requires you to invest a minimum of $3,000.

To circumvent this you could simply start investing in VTI and transfer your holdings to VTSAX once your portfolio meets the minimum investment requirement.

VTSAX vs. VTI: Fund Composition

Now, we’ll take a look at how both funds are composed. The equity market capitalization expresses the ratios between large-, mid-, small-cap companies and the industry exposure will give us an idea of the weight of various sectors.

Equity Market Capitalization

VTSAX - Capitalization
VTI - Capitalization

As you can see, there is absolutely no difference in fund composition between VTSAX and VTI. The left chart is VTSAX and the right one VTI. This is simply because both funds follow the same index and hold exactly the same securities.

76.1% of the funds market cap is made up of large-cap companies. Mid-cap companies make up 17.5% and the remaining 6.4% are small-cap stocks.

This closely resembles the composition and distribution of the entire U.S. stock market.

Industry Exposure

VTSAX - Industry Exposure
VTI - Industry Exposure

VTSAX and VTI also have the same exposure to industry sectors. Again, it’s because the hold the exact same securities.

The technology industry makes up over 20% of each fund’s exposure, followed by healthcare and financial services somewhere between 13-15%.

At the low end, energy companies, basic materials, and utilities only make up about 6-7% combined.

VTSAX vs. VTI: Analysis

In the following paragraphs, I’ll compare some risk metrics such as volatility and maximum drawdown. Obviously, due to their similar composition, there won’t be a huge difference between VTSAX and VTI here, but there are some:

MetricVTSAXVTI
Volatility (monthly)4.35%4.34%
Volatility (annualized)15.06%15.04%
Downside Deviation (monthly)3.01%3.00%
Max. Drawdown-50.84%-50.84%
US Market Correlation11

Volatility

VTSAX has an annual volatility of 15.06% (4.35% monthly). This makes VTSAX about as volatile as the entire market. Since VTSAX encapsulates the domestic market performance it is going to experience similar levels of volatility.

VTI has an annual volatility of 15.04%. This makes VTI slightly less volatile than VTSAX.

Since both funds hold the exact same securities, what causes the difference in volatility? Well, the answer lies in the different ways in which they are traded. Since VTI is an exchange-traded fund its price fluctuates throughout the day. VTSAX, however, is only bought and sold once a day at a closing price.

This perhaps gives rise to difference in volatility between VTI and VTSAX.

Drawdown

Next, we’ll look at the drawdowns both funds have experienced from 2002 up until today. By far the biggest drawdown occured in 2008/2009 when the financial crisis was in full bloom.

VTSAX vs VTI - Drawdowns

VTSAX and VTI experienced a maximum drawdown of 50.84% in the market crash of 2008/2009. This was the highest drawdown either fund has ever lived through in its history.

And unsurprisingly, there is no difference in how both funds dealt with the drawdown and recovered after. If you look at the graph above, both lines actually stick right on top of each other and the blue line is barely visible. That’s how similar both funds are.

VTSAX vs. VTI: Performance

In the final part of this comparison between VTSAX and VTI we’ll look at their performance and simulate a portfolio growth of $10,000 over a time frame of 18 years. The annual returns will give us some indications as to which years and stock market cycles were particularly beneficial for each fund.

Annual Returns

VTSAX vs VTI - Annual Returns

Although the returns each year look fairly similar for both VTSAX and VTI, there are some minute differences.

In 2002, VTSAX quite clearly sustained more losses than VTI. Conversely, in the following year VTSAX was also able to make up that same difference. Recently, in 2019, we can see that VTSAX slightly outperformed VTI.

Overall, VTSAX and VTI differ very little in annual returns.

Portfolio Growth

VTSAX vs VTI - Portfolio growth
PortfolioInitial BalanceFinal BalanceCAGR
VTSAX$10,000$40,9287.95% 
VTI$10,000$41,0787.97% 

A $10,000 investment in VTSAX would have resulted in $40,928 by now with a compound annual growth rate (CAGR) of 7.95%. This represents more or less the average return of the entire market and includes all dividends that have been reinvested.

A $10,000 investment in VTI would have resulted in $41,078 with a CAGR of 7.97%. All in all, VTI just performs a little better than VTSAX. The difference over 18 years is $150. That’s about $8 per year more you’d get on $10,000 with VTI.

So, why does VTI outperform VTSAX in the long run? This answer is two-fold: the most obvious reason is the higher expense ratio of VTSAX. However, this only accounts for one part. The other far less obvious reason is tax efficiency. ETFs simply are more tax-efficient than mutual funds which you can witness here first-hand.

Conclusion

The differences in between VTSAX and VTI are marginal.

VTSAX is a mutual fund that behaves like an index while VTI is an ETF. VTSAX charges slightly higher fees at 0.04% compared to VTI’s 0.03%. In terms of composition, both funds are identical.

But, there is one important distinction: VTI outperforms VTSAX in the long term.

This is simply due to the lower fees VTI charges and the increased tax-efficiency that ETFs have over mutual funds.

VTSAX vs. VTI – which is better? In light of this, the answer seems quite simple. VTI is better.

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