VTSAX vs VTI: A Duel of the 2 Best Passive Investments

It’s a well-known fact that I’m a fan of index funds and growing rich (go figure, they are related!). Due to my enthusiasm, I’m frequently asked about what I think the best actual funds to buy are. And this boils to looking at VTSAX vs VTI to determine which of the two amazing funds is the BEST overall. 

If you’re new to what VTSAX and VTI are, I’ll run through some of the basics, how they’ve performed over time, what the big differences are and how to maximize your investments.

VTI vs VTSAX: Why Focus on Them?

The easiest answer is that you’re a smart investor. What I mean by that is that Vanguard funds are amazing options for index funds. They usually lead the whole investing world in terms of low fees but historically they have never rested on their champion’s position and they keep driving themselves to get better. So blamo, Vanguard is pretty awesome.

But what about VTI vs VTSAX specifically?

VTI = 3 letter stock ticker to purchase Vanguard Total stock market Index ETF shares.

VTSAX = code for the Vanguard Total Stock Market Index Funds.

Why dig around for diamonds in the rough when Vanguard presents options that have already been polished for you? If you’re looking for very tax and time friendly options, sticking to VTSAX or VTI will very easily beat 99% of investors today while basically costing you no time and no commissions/fees or any money.

If it sounds too good to be true, index investing is basically a life hack. And I prefer VTI and VTSAX over all the options around (see these comparisons for VTI and VTSAX)

But of these 2 kings of the investing world which one do you choose?

Next, I’ll crack open VTSAX vs VTI to help you decide which one to choose.

VTI vs VTSAX: The Major Differences

Compositional Differences

When doing an apples-to-apples spin on VTI vs VTSAX, the first thing to know is that you’re actually choosing between a mutual fund (VTSAX) and ETF (VTI) version of the same thing. 

Both track the performance of the roughly 3,500 U.S. companies on the public stock market. It’s often called the “Total” market instead of some subsection (e.g. S&P 500 is only the top 500 stocks) and it’s where the funds’ names come from. 

Yes, that means you’re getting access to almost ALL publicly traded stocks in the United States with either option. Zero difference. Tiny fees all around.

That means that you’re not doing some big-cap vs small-cap comparison, or total market vs specific markets that you’re usually doing when comparing other stock vehicles. 

Compositional winner: Neither. They are literally the same!

Ease of use differences: 

My “in a nutshell” way to help you tell the two apart is this:

• The fund (VTSAX) is traded in a controlled way on a controlled platform owned by the fund. (e.g. you trade the Vanguard fund on the Vanguard website).
• The ETF (VTI) is traded like any other stock throughout the day. Which is great if you already have a stock trading account!

Winner: VTI – Most people have stock trading accounts and you can keep using whatever you have to get in on these amazing indexes.

Minimum Investments:

Where you run into the first big difference between the two options is investment minimum. In fact, you may get your answer right here once you see how much is needed to invest in VTSAX vs VTI.

With VTSAX, you’re required to make a $3,000 minimum initial investment. If you go with VTI, your minimum investment is the price of one share. 

Winner: VTI – A $3000 minimum isn’t a lot in the world of investing, but it’s a big deal for a beginner.

Expense Ratios:

In general ETFs offer lower fees than mutual funds (like VTSAX) and this is no different. The one catch is that the difference is tiny!

You’re looking at a 0.04% expense ratio (VTSAX) versus a 0.03% expense ratio (VTI). If you have $1,000,000 dollars invested it only adds up to $100/yr so it’s not the end of the world, but I could do something fun with $100 so you might as well keep it!

The reasoning behind it is that the trading platform has to be funded somehow to pay for all the software and people involved. So often online brokers will charge fees when trading ETFs whereas fund trading platforms don’t. That’s the balancing act and where that 0.01% ends up. 

But as you will see soon, there don’t have to be any extra fees. Which means…

Winner: VTI – The fee isn’t that different but it’s still $100 a year for a millionaire!

Automation:

So VTSAX is a fund on Vanguard’s Fund trading platform. It is the only place you can buy it and it’s set up for automated investments (where you automatically pull money from your paycheck and automatically invest it without any buttons).

VTI is an ETF which is traded on online brokerages. There are a pile of choices out there. Some of which have no automation, some of which have super duper automation. So automation with ETFs is a mixed bag and is determined by where you are doing your trades. 

I went through and reviewed all the online brokerages to find a #1 recommendation!

Winner: VTI – Vanguard fund automation is better than some places and worse than others. Why would you invest with a place with poor automation? You wouldn’t…so VTI wins 😛

Flexibility:

Your actual investing experience will also be different with VTSAX vs VTI. 

And there are two big flexibility differences: 

Timing:

Generally, VTI offers the possibility of a more interactive, real-time investing experience. This includes real-time pricing that is based on the time of day that you place your order in many cases.

Yes, that means two different people will often pay two different prices for a stock in the same day. With VTSAX, it’s a same-day price all day based on an end-of-day price as is typical of mutual fund investing. 

That means you don’t have the option to buy at a “good time” of the day if you wanted to. I don’t really care for time of day buying but I do have a flexibility considering that does get to me.

Choices:

When you are buying ETFs on an online brokerage (Like M1Finance which is awesome!) you can buy from anyone you want. You can even go YOLO and start trying to buy individual stocks (which I don’t recommend). Maybe vanguard will turn evil someday and raise thier rates, but if I’m not trading on their platform, I don’t care, I’ll just start funnelling my money elsewhere.

Winner: VTI – You’ll be trading on an online brokerage and you can always jump ship* from Vanguard if you like (*that’s a sick pun…Vanguard’s logo is a boat! Damn I’m good).

Taxes:

From the tax angle, ETFs and Mutual Funds are typically considered “pass-through” investments that won’t open you up for capital gains taxes in most situations. Even better, Vanguard uses (and invented/patented) heart beat investing which is a funny way to basically ensure you make no capital gains on your funds. A trading style that basically keeps all investments in a game of musical chairs to avoid capital gains that would apply if they were continuously held.

Winner: Everyone wins when you don’t pay taxes! Overall, VTSAX vs VTI have nearly identical tax efficiency for the average investor.

VTSAX vs VTI Historical Performance

Performance is truly neck-and-neck here as you would expect of 2 funds with the exact same investments underneath. The average annual 10-year market return for VTI is 14.02 percent. The 10-year market return for VTSAX is 14.04 percent.

1. 14% annual return is freaking amazing.
2. A difference of 0.02% on 14% is pretty much nothing.

A lot of people make a lot out of the fact that you can get burned on commissions with VTI (ETF) if you do a ton of trades which would hammer down this return. 

While this is something to watch out for, there are workarounds. Some platforms offer free ETF purchases. It’s also possible to set things up to auto-invest your dividends and transfers to avoid fees.

VTI vs VTSAX: What do I use?

I like ETFs (VTI) over funds (VTSAX) because of the extra freedom you get. I also like the lower fees that go along with ETFs because I don’t really see the advantage of paying more for access to the same investments with roughly the same 10-year return.

While I acknowledge the fact that you can get into trouble with mounting commissions due to the active nature of VTI, I covered some easy ways to work around that above (use a zero-commission platform/auto-reinvest your dividends).

And best of all, my recommended brokerage comes with some sweet automation bonuses that do 1-better than just easily invest your money. So from those things I am pro-VTI and pro-ETFs.

Overall, I think choosing between VTI vs VTSAX won’t send you in the wrong direction either way but when it comes to improving our lives with money I don’t leave any optimizable stone unturned.