Choosing where to invest your money isn’t always easy. However, it’s far harder when two options seem to be incredibly similar. Both the Vanguard Total Stock Market Index (VTSAX) and Vanguard Total Stock Market ETF (VTI) share a foundation, featuring the same underlying holdings. However, there are a few differences that set them apart, too. If you need to figure out if you should invest in VTSAX or VTI, here’s what you need to consider.
When You Can Trade
When it comes to key differences between VTSAX and VTI, one of the main ones is the type of investment. While VTSAX is an index fund, VTI is an exchange-traded fund (ETF). As a result, each plays by a different set of rules in the market.
An ETF can be traded like any other stock. You have the entire trading day to buy or sell, and the price adjusts during the day based on supply and demand.
Index funds are different. Their price is set at the end of each trading day, so trades occur as the market closes. There isn’t any intraday activity, something that may not matter much to some investors but will influence others when it comes to choosing between VTSAX and VTI.
Another main difference between VTI and VTSAX is the minimum investment you have to make. Since VTI is an ETF, the minimum amount is usually the price of a single share, making the cost around $227 as of September 23, 2021. However, if you’re using a broker that offers fractional shares – like Robinhood – you may be able to invest in VTI for as little as $1.
Index funds like VTSAX are different. Usually, brokers set a higher minimum. In the case of VTSAX, that minimum is $3,000, which is a pretty substantial difference when you compare it to the price of a single VTI share.
In some cases, the minimum investment requirements determine whether VTI or VTSAX is a better fit on their own. Not all smaller investors can afford to send $3,000 to one index fund at once, making VTI a stronger choice for them if they don’t want to wait.
While the expense ratios for VTI and VTSAX are similar, they aren’t exactly the same. VTI comes in at 0.03 percent, which is a bit lower than VTSAX, which is set at 0.04 percent. Functionally, that’s only a difference of about $1 per every $10,000 investment, which most would agree is minute.
However, in both cases, those expense ratios are incredibly low. Additionally, they are close enough together that most investors wouldn’t notice a substantial difference financially. But some investors feel strongly about getting the lowest possible ratio. If you fall in that camp, VTI comes out ahead, albeit only slightly.
While there are usually some tax efficiency differences between index funds and ETFs, that isn’t the case when you’re comparing VTSAX and VTI. Vanguard has created mechanisms that reduce any drawbacks that would be associated with a fund like VTSAX. As a result, the two options are nearly identical from a tax efficiency perspective, making this a non-concern for most investors.
When it comes to the stock assets that make up VTI and VTSAX, they are essentially identical. Each investment option has the same makeup, dividend yield, and annual returns. As a result, investing in either option gets investors the same result financially, making this point a wash.
VTSAX or VTI: Which One Is Right for You?
In many ways, VTSAX and VTI bring the same things to the table. Their differences when it comes to performance and ongoing costs are minuscule to non-existent, allowing investors to achieve the same results regardless of the option they choose.
However, investing in VTI may be easier for many. It’s traded during the entire trading day, which could make it more accessible. Additionally, the minimum investment required is far lower than VTSAX, especially if you use a brokerage that allows for fractional shares of VTI.
Other than that, the two options are nearly indistinguishable. As a result, either could certainly serve you well.
Have you figured out whether VTSAX or VTI is the best option for you? How did you make your decision? Share your thoughts in the comments below.
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