What’s the Difference Between VFINX and VFIAX?

A friend of mine has been interested in starting to invest. He has been looking at some of the Vanguard Mutual Funds and was having a hard time deciding which on to get started with. He started reading up on VFINX and VFIAX but found it confusing in determining the key differences and minimum account balance required for each. I’m going to go deep into the differences between these two funds.

VFINX vs VFIAX: VFINX is Vanguard’s S&P 500 Index Fund for Investor Class Shares. VFIAX is Vanguard’s S&P 500 Index Fund for Admiral Class Shares. Although both track the S&P 500 Index, they differ in expense ratios and minimum account balance requirements. VFIAX’s Admiral Shares require more capital but have lower fees.

Although they track the same portfolio, there are some key things to know and I’m going to go in detail on why these differences matter for not only these two funds but also other investor and admiral grade shares.

What is VFINX?

VFINX is a mutual fund created by Vanguard in 1976 and was the first index fund to track the S&P 500 for individual investors. Although many funds now track this index, Vanguard has the right to tout that it was the trailblazer for this type of fund.

Although it tracks the S&P 500, it is actively managed and as with any actively managed index fund tends to lag the overall S&P 500 by a small margin. At the time of this article, it’s 10-year average annual return is 11.54% vice the S&P 500’s 11.69%.

The expense ratio for this mutual fund is only 0.14% which is very low considering that the industry average for mutual fund expense ratios comes just shy of 0.50%. Expense ratios can really eat into your gains so choosing a fund with a low expense ratio is critical and only becomes more and more important as the size of your investment grows.

Can I Buy Shares of VFINX?

Vanguard has actually discontinued allowing new investors to buy into this fund.

The fund exists only for those that already have capital invested in the account or fail to meet the requirements of admiral shares of VFIAX. That means if you were trying to invest in VFINX now, you’re unfortunately out of luck!

Don’t fret though because I’m going to show you why VFIAX is the better investment anyways by far.

What is VFIAX?

VFIAX is similar to VFINX in that they both track the S&P 500. VFIAX, on the other hand, is the Admiral Shares variant of Vanguard’s 500 Index Fund. It was created 11/13/2000 and offers a lower expense ratio but requires a larger minimum balance.

The minimum balance for VFIAX is $3000. Not only does the account balance need $3000 to open this fund, but it must also maintain a balance of at least that amount. Failure to maintain an account balance of $3000 will cause the shares to be converted to Investor Shares (VFINX).

VFINX vs VFIAX

Let’s do a simple comparison:

Fund SymbolVFINXVFIAX
Fund NameVanguard 500 Index Fund – Investor SharesVanguard 500 Index Fund – Admiral Shares
Expense Ratio0.14%0.04%
Minimum Account BalanceNot open to new investors$3,000
Average 10-Yr Return11.54%11.66%
S&P Benchmark 10-Yr Return11.69%11.69%

As you can see above, the main difference is the fees are much less with VFIAX and it tracks closer to the benchmark S&P 500.

How To Buy Shares of VFIAX

Since it’s a mutual fund, you will not be buying individual shares but rather investing your money in a pool of shares managed by Vanguard. The reason this is beneficial is because you can invest any amount above the minimum required and all of your money will be put to work for you rather than needing to buy individual shares each time you invest.

So, if you wanted to buy VFIAX, you would need to first open a Vanguard account. There are many accounts to choose from depending on your goals and investment needs. They offer investing accounts, retirement account, and accounts designed to save money for children’s education. Whatever the account you decide to open, VFIAX can be made part of that account’s portfolio.

You can get started at Vanguard (Also, there is no incentive for me to endorse them. I’m just trying to be helpful).

Vanguard 500 Index Fund Performance

Since VFIAX follows the performance of S&P 500, it’s really easy to see how it has performed historically.

As you can see from the chart above, I have both the VFIAX and S&P 500 chart pulled up together and you can not differentiate one from the other because of how well VFIAX tracks S&P 500.

VFIAX traded for $124.88 on the day of its inception in November, 2000. Currently, it trades for $273.36 for a gain of just shy of 119% (about 5.95% annually).

Considering that this weathered 4 market crashes and corrections, I’d say that’s a pretty good performance. That means your money more than would have doubled despite:

  • 2000 Dot Com Market Crash
  • 2008 Housing Market Crash
  • 2018 Correction
  • 2020 COVID-19 Crash

If you are a passive investor, choosing a fund that follows the S&P 500 has proven to be a trustworthy method of building wealth.

Disclaimer: Past performance does not guarantee future performance. You can still lose money in any investment. Managing risk and practicing due diligence is still a must for any investment.

VFAIX vs VOO vs SPY

One thing I often get asked is “Can’t I just buy shares of an ETF that tracks the S&P 500 instead of a mutual fund?”

The short answer is “Yes!” Vanguard actually offers an ETF if you’d prefer to go that route and there are definitely benefits to an ETF. Let’s dig a little deeper to see which is better for your situation.

Vanguard’s Index 500 ETF is VOO. It tracks the same index but investing in it is different. Rather than funding an account that automatically invests your money in a large pool of shares, you are physically purchasing individual shares every time you add money to it.

I could write a whole article on the differences between mutual funds. In fact, I did! Feel free to read up on the differences between ETFs and mutual funds!

It requires more work on your part because you must be more active in procuring shares. If I want to invest $50 every week into the S&P 500, I could set up an auto-deposit of $50/week into a Mutual Fund and it will load my funds into the fund right away (usually performed once daily). On the other hand, if I want to invest it into an ETF, I need to wait 6 weeks to accumulate $300 so that I can buy one share at $270. That’s six weeks that my money wasn’t working for me.

If I have a lump sum that I want to invest such as $3000, an ETF might be what I’m leaning towards because I can just log into any brokerage and buy shares. In the case of VOO, I could just buy 11 shares for a total of $2970 (@$270/share).

The most common ETF that you hear about regarding the S&P 500 is SPY. It has long been held as the standard for tracking the S&P 500.

So how does Vanguard’s VFIAX fare against it’s own ETF (VOO) and SPY?

Fund SymbolVFIAXVOOSPY
Fund NameVanguard Index 500 Fund, AdmiralVanguard Index 500 Fund, ETFSPDR S&P 500 ETF Trust
Fund TypeMutual FundETFETF
Expense Ratio0.04%0.03%0.09%
Historical 5-yr Average9.09%9.08%9.03%
Data Collected From Yahoo Finance

If you want to place your money in an ETF rather than the VFIAX mutual fund, it’s clear that by looking at the expense ratio, VOO does actually make the most amount of sense.

There is one exception that I didn’t really cover and that’s average trading volume. This site really doesn’t focus much on day trading so I don’t really put much emphasis on it. That being said, SPY does experience a lot more volume on average and as a result, it is going to be slightly more liquid and easier to fill orders. That being said, to the average person, this difference is pretty negligible.

Final Thoughts

VFINX and VFIAX offer about the same return but VFIAX is going to cost you less to manage. Since VFINX is no longer accepting new investors, your decision is easy as a new investor. If a mutual fund that follows the S&P 500 sounds good but you prefer ETFs, check out VOO or SPY for a very similar performance over time.

The most important thing is to get started. People that spend too much time studying the small nuances between funds to the point that they take no action are no closer to building wealth than they started. Choose the fund that makes the most sense to you and start funding it.

If you like Vanguard’s Funds, check out their site to compare funds and get started. If you need a brokerage and want to get started with ETFs, choose from any of the free brokerages out there such as Webull or TDAmeritrade.

Take care and let’s start investing!

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