Created in 1992 with the help of John “Jack” Bogle, Vanguards founder, the Vanguard Total Stock Market Index Fund was designed to provide low cost, broad diversification, and the possibility for tax efficiency. It seeks to track the performance of the CRSP US Total Market Index. But of the three most popular index funds, VTSAX vs VTSMX vs VTI, which is the best strategy for you?
Updated 5/23/2020: VTSMX is closed to new investors, VTSAX minimum investment was been lowered to $3000 in 2018. VTI expense ratio changed between 2018 and 2019.
VTSAX vs VTSMX vs VTI – What do these cost?
The Admiral shares class index fund. Provides the lowest expense ratio with the highest minimum investment.
- Expense Ratio: 0.04%
- Minimum Investment: $3,000
The investor shares class index fund. It comes in with a higher expense ratio but a lower minimum investment.
- Expense Ratio: 0.14%
- Minimum Investment: $3,000 CLOSED
This fund differs as it is not an index fund, but rather an Exchange Traded Fund, or ETF for short. This option allows you to purchase an individual share and avoids the minimum investments of the index funds above.
- Expense Ratio: 0.03%
- Minimum Investment: Current stock price
VTSAX vs VTSMX vs VTI
|Minimum Investment||$3,000||$3,000||Current Stock Price|
|Fund Type||Mutual Fund||Mutual Fund||Exchange Traded Fund (ETF)|
With the minimum investment lowered for VTSAX, it has effectively replaced VTSMX, hence why Vanguard closed VTSMX to new investors. VTI instead of a index fund, it is an ETF. The ETF can incur a trading fee, Vanguard offers a commission free trading system but if you invest with other stock brokers check to make sure you aren’t paying any fees.
VTSAX vs VTSMX vs VTI and their Historical Average Annual Returns
A look at the returns over various years and compared to the S&P 500.
|S&P 500||3.47%||7.27%||6.81%||10.51%||6.26% (01/01/1957)|
With a total of 3611 stocks making up Vanguard’s total stock market fund in 2019, a large chunk is comprised of their top holdings. The top 10 holdings account for 19.04% of the total assets in the index fund. These top holdings change, but here are companies that you will most likely see:
- Apple Inc.
- Alphabet Inc.
- Amazon.com Inc.
- Facebook Inc.
- Berkshire Hathaway Inc.
- JP Morgan Chase & Co
- Johnson & Johnson
- Procter and Gamble
Which Total Stock Market Fund Should You Choose?
If you are debating between VTSAX vs VTSMX vs VTI, it really should be based on how large of an investment you can make.
VTI – With the same expense ratio as VTSAX, use this ETF all the way until you can reach the minimum investment of $3K for VTSAX.>$3,000 investment
VTSAX – If you can meet the minimum investment requirement then this is simply the easiest approach to take. You don’t have to worry about buying individual shares of VTI and since VTSAX is a index fund you can buy fractional shares and know all your money is going straight towards collecting you interest.
This is especially true if the fund will be housed in a 401k, IRA or HSA. If you don’t know about investing with your HSA then I recommend reading my other article Investing with an HSA.
There are some caveats to this though. Depending on which type of account you are housing these investments in, there can be certain tax efficiencies using ETF’s. You can read further on how ETF’s can be more tax efficient.
Vanguard Total Stock Market Fund as a Single Fund Portfolio
There is rising popularity in holding 100% VTSAX or VTI for your portfolio. Some may choose to balance the risk out with bonds, but regardless the stock portion still remains as Vanguard’s Total Stock Fund. The logic behind this strategy is the largest US corporations that make up VTSAX have such a large market share and do business internationally that holding this “US” stock actually diversifies you globally.
I’d rather bet on the U.S. This is a great nation with great places to invest. Great financial institutions, great government institutions, although a little bit faltering. – Jack Bogle
While foreign stocks may be cheaper, they are riskier, he says. Citing that U.S. companies are actually international companies since so much of their profits come from outside of the United States.
With this sentiment and the extremely low expense ratio, it makes sense to have this as your singular stock holding within your portfolio. Add on to the fact that there is no front-end/back-end sales load or distribution expenses makes this a very cheap fund. So whether you choose VTSAX vs VTSMX vs VTI, it can be a great opportunity to put your retirement in a secure investment for the future.
Those who wish to diversify further can choose to pick international holdings, but is it really necessary? Only you can decide for yourself.
If you want to see all your investments in one place, I personally use and love Personal Capital. It’s an account aggregate tool that is completely free that gives an easy way to see your investments growing.