Vanguard’s total stock market funds are probably the most popular among long-term investors. And this total stock market fund comes in many different shapes and forms: VTI, VTSAX and VTSMX.
So, what’s the difference between VTSAX and VTSMX? The first and most important difference you should know is that VTSMX is closed to new investors. VTSAX, however, remains open. Besides that, VTSAX also has a lower expense ratio than VTSMX as well as a lower minimum investment.
In this post, I’ll look at these differences in a bit more detail to give you an idea of why Vanguard decided to close their once most popular fund. Here are the differences between Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and Vanguard Total Stock Market Index Fund Investor Shares (VTSMX):
VTSAX vs. VTSMX – Overview
|Asset class||Domestic Stock – General||Domestic Stock|
|Category||Large Blend||Large Blend|
|Minimum investment||$3,000||Closed ($10,000)|
|Fund advisor||Vanguard Equity Index Group||Vanguard Equity Index Group|
Difference #1: Expense Ratio
As mentioned previously, one of the biggest differences between VTSAX and VTSMX is their expense ratio.
VTSAX has an expense ratio of 0.04%. This is an excellent value for such as well-diversified fund with over 3,500 securities in its holdings. Interestingly, the ETF version of VTSAX – VTI – has an even lower expense ratio of only 0.03%.
At first, this may seem contradictory since Vanguard advertises their Admiral Share funds as generally cheaper. However, there are some additional benefits to VTSAX that are lacking in VTI such as auto-investing and fractional shares.
VTSMX has an expense ratio of 0.14%. Among mutual funds, this is still considered fairly low, but a lot higher than the average Vanguard funds.
Compared to VTSAX, however, the fees for VTSMX are more than three times higher.
This means that a $10,000 investment in VTSAX would cost you around $3 in fees per year while the same investment in VTSMX would result in a total of $14 in fees. Not a huge difference at first glance, but one that certainly can add up over time while your portfolio grows.
Difference #2: Minimum Investment
The next point of contention is the minimum investment.
The minimum investment for VTSAX is $3,000. This is Vanguard’s standard entry-level for all Admiral Share funds. Compared to the ETF counterpart, however, the entry price seems quite steep. For VTI the minimum investment will simply be the price of one share which roughly revolves around $150.
The minimum investment for VTSMX is $10,000. Again for Vanguard’s Investor Share funds, this seems to be the standard.
Of course, this difference in minimum investments attracts different kinds of investors. Retail investor will surely be more hesitant to invest $10,000 in a single fund right from the get-go. A $3,000 minimum appears more feasible.
To circumvent minimum investments like these for Vanguard’s higher share classes you could simply invest in the ETF counterpart of the target fund for as long as your investments total less than the required minimum. Once you reach the required minimum you can easily convert your ETF shares to Admiral Shares.
If even the ETF minimum of one share is too high or if you would like to diversify more early on, you could also consider finding a broker that offers fractional share investing, such as M1 Finance.
The next difference between VTSAX and VTSMX is their share class.
VTSAX is an Admiral Share fund. Admiral Share funds differ from “regular share” funds mostly just in terms of the type of investor they are aimed at. While regular shares simply aim to keep the costs as low as possible the Admiral Shares are geared towards investors who tend to have a higher net worth. However, it is questionable if Admiral Shares are really worth it.
VTSMX is an Investor Share fund. The Investor Share class is one class lower than the Admiral Shares. The hierarchy goes like this: Regular Shares –> Investor Shares –> Admiral Shares –> Institutional Shares:
As you can see from the overview above they mainly differ in fees and minimum investment requirements. The Investor Shares’ expense ratio ranges between 0.09% to 1.80% with an average of 0.27%.
For us as retail investors the share class only plays a minor role. What’s relevant are the metrics that various classes provide.
Difference #4: Availability
This point is probably the most relevant for any investor new to Vanguard’s funds.
VTSAX is open to new investors. This means once you meet the minimum requirements you are able to buy VTSAX shares today. Note that Vanguard’s mutual funds as opposed to ETFs are only traded once a day. Thus, you will only be able to buy shares at the price of the previous day’s closing.
VTSMX is closed to new investors. As a new investor you cannot buy any VTSMX shares. However, existing investors in VTSMX can remain invested in the fund. New investors are encouraged to invest in VTSAX instead:
Why is VTSMX closed to new investors?
Vanguard decided to close their Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) a few years ago to cut costs and offer investors an even better product at lower fees.
This decision fell right in line with Vanguard’s ongoing mission to provide investors with the very best chance of success.
Now you are able to invest in the exact same stocks at lower fees and at a lower minimum.
The main difference is that VTSMX is closed to new investors and VTSAX is open. As we have seen they also differ in expense ratio, minimum investment, and share class.
VTSAX has a lower expense ratio and minimum investment than VTSMX. How great is it then, that this is the fund now available to new investors?
If you have been considering investing in one or the other, simply choose VTSAX. And rest assured that Vanguard is continually striving to make investing for us even better!
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