If you have been reading online about Vanguard’s funds you may have come across the notion that VTSAX is closed to new investors. Perhaps you also have been trying to purchase VTSAX through another broker such as Schwab or TD Ameritrade and wondered why you can’t. Well, don’t fret. I’m here to help!
Why Is VTSAX Closed To New Investors? VTSAX is in fact not closed to new investors. The fund that is closed is VTSMX. You can still purchase Admiral Shares of VTSAX at a minimum investment of $3,000. Our brokers may display that VTSAX is closed since Vanguard has reserved the right to sell their Admiral Shares solely through them.
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What is VTSAX?
Vanguard’s Total Stock Market Index Fund (VTSAX) comprises more than 3,000 securities and aims to replicate the performance of the entire U.S. stock market.
VTSAX is structured as a mutual fund but operate de facto more like an ETF since it is passively managed. This means that there is not active manager picking stocks to sell or buy. This usually also results in a lower tax burden for investors since the fund is subject to less capital-gains tax.
VTSAX is the counterpart to VTI. Both of these funds, Vanguard’s Total Stock Market Admiral Shares (VTSAX) and Vanguard’s Total Stock Market ETF (VTI), track the performance of the entire domestic market. The only difference is their structure and minimum investment.
- VTSAX: $3,000
- VTI: Price of one share (~$150)
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What’s the difference between VTSAX and VTSMX?
Now, you’ve perhaps heard me mention before that VTSMX is closed to new investors. Both are odd acronyms that don’t make a lot of sense on their own. Additionally, it does not help that they both have the same name:
- VTSAX: Vanguard Total Stock Market Index Fund Admiral Shares
- VTSMX: Vanguard Total Stock Market Index Fund Investor Shares
So, the difference is actually simple. VTSAX is Vanguard’s Admiral Shares fund and VTSMX is Vanguard’s Investor Shares fund. These difference share classes indicate two things: minimum investment and fees.
In general, Investor shares will have a higher minimum investment and a lower expense ratio than Admiral Shares.
Is VTSMX closed to new investors?
As you can see prominently displayed on Vanguard’s fund info page: VTSMX is indeed closed to new investors.
As a result, you no longer have the option to invest in VTSMX. However, you can convert existing Investor Shares to Admiral Shares (VTSAX) at a minimum of $3,000.
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Why are some Vanguard funds closed?
Vanguard will rarely completely close a fund but if they do so, it is for structural reasons. Usually, closures are accompanied by the opening of a new similar and lower cost fund and the option to transfer your existing holdings fee-free.
In 2018, Vanguard made the announcement on their blog and highlighted some additional benefits:
- The main reason for closing VTSMX and moving to VTSAX was to decrease fees and to increase transparency and simplicity.
- They dropped the initial minimum investment for VTSAX from $10,000 to $3,000.
- The change is based upon their core mission: to offer investors a better chance of success.
The biggest advantage of converting your VTSMX to VTSAX or just buying VTSAX now since the other one is close are lower fees. If we look at the expense ratios side-by-side we can see the difference:
As you can see above the difference is quite significant. In fact, Vanguard has dropped the expense ratio by an entire percentage point, from 0.14% to 0.04%.
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There still remains some confusion out there whether VTSAX is closed to new investors or not. But you now know better: VTSAX is not closed to new investors. It is open and alive and well.
Closing VTSMX and lowering the fees and minimum investment for their Admiral Shares has given even more investors the chance to take advantage of Vanguard’s fantastic financial products.
There is not much else to say.
Invest in VTSAX. (Not investment advice).
Until next time!
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I believe this statement is incorrect and should be “reversed”: In general, Investor shares will have a higher minimum investment and a lower expense ratio than Admiral Shares.