What’s the DIfference Between VTSMX vs VTSAX?

What if I told you that instead of trying to pick winning stocks from all the noise, you could simply invest in the entire US Economy instead? That’s basically what VTSMX and VTSAX allow you to do! Both of these are Vanguard’s Total Stock Market Index Funds with only a couple of key differences.

What’s the difference between VTSMX and VTSAX? They sound pretty much the same! VTSMX is Vanguard’s Total Stock Market Index Fund purchased as Investor Shares whereas VTSAX is Vanguard’s Total Stock Market Index Fund purchased as Admiral Shares. Both represent small, medium, and large-cap exposure to the US Stock Market and track closely to the CSRP Total Market Index which consists of over 3,500 equities.

It seems that the main difference is the types of shares you are acquiring, so let’s go over each one and see how they stack up to one another as far as minimum cash required to open an account with each and what fees are associated with each.

What is VTSMX?

VTSMX is made up of investor shares of Vanguard’s Total Stock Market Index Fund. In order to contribute to this fund, you would have needed a minimum of $3,000 since that is the common minimum requirement for Vanguard Investor Shares.

The fund consists of small, medium, and large-cap companies and is a large blend of the entire US Stock Market consisting of more than 3,500 companies. Rather than investing in only the largest 500 companies in the US like those that make up the S&P 500, you are exposed to companies of all sizes. The fund is now closed to new investors.

Wait a Sec. Is VTSMX Closed?

Yes, as of 2018, Vanguard closed VTSMX along with other investor class funds. The reasons they closed these funds were to save on costs associated with managing different classes of virtually the same structured fund and to allow investors with less money to invest with lower fees in their admiral class fund.

This is actually good news for new investors though because VTSAX is actually better than VTSMX for a couple of reasons.

Why Is VTSAX Better Than VTSMX?

VTSAX has lower fees than VTSMX which means that you get to keep more of your investment earnings in your pockets. Admiral Shares generally require $10,000 as a minimum investment and Investor Shares only generally require $3,000.

Since, VTSMX closed to new investors, Vanguard has reduced the minimum investment amount of VTSAX to $3,000 in order to match VTSMX. Now you get better shares in the same fund with lower fees!

Comparing VTSMX vs VTSAX

Here’s how VTSMX and VTSAX stack up in an apples to apples comparison:

Fund SymbolVTSMXVTSAX
Fund NameVanguard Total Stock Market Fund, Investor SharesVanguard Total Stock Market Fund, Admiral Shares
Expense Ratio0.14%0.04%
Minimum Account BalanceNot open to new investors$3,000
Average 10-Yr Return12.69%12.82%
S&P Benchmark 10-Yr Return10.65%10.65%

So, as you can see, both outperformed the S&P 500 and the Admiral shares offered slightly higher performance with fewer fees. VTSAX is the clear winner.

The biggest difference is that lower expense ratio which really could add up over time. If you calculate what a difference that could make over the long-term you’d probably be surprised.

A $10,000 portfolio compounded annually with an average of even 7% growth suffers from higher expense ratios.

For example, with a 0.14% expense ratio, after ten years this investment would equal roughly $19,415. With an expense ratio of 0.04, it would have grown to $19,598. That’s only $183 but imagine if your investment was $100,000 over 25 years.

Every little bit goes a long way!

How to Buy Shares of VTSAX

Since it’s a mutual fund, you would need to purchase it through a brokerage account that allows you to invest in funds. Most large brokerage companies will allow you to purchase VTSAX. You can also signup for a Vanguard Account and simply sign up that way.

Either way, you will need a minimum of $3,000 to open the account. You can invest in a Personal Brokerage Account or Retirement Account.

Once you have an account all setup, simply fund it let it do its thing. You can set up automated contributions to keep adding to your position and benefit from dollar-cost averaging or you could simply do a lump sum investment.

Although past performance doesn’t guarantee future success and earnings, if you have a long-term time horizon, this fund can complement almost any portfolio.

Vanguard Total Stock Market Fund Performance

This chart was pulled straight from Vanguard’s website so you can see how it has fared against the S&P 500.

Over the last 10 years, it has an identical shape as the S&P 500 which goes to show that for the most part the top 500 largest companies in the US perform about as well as the entire economy of over 4000 companies of varying sizes that are represented by VTSAX.

VTI is the ETF Version of VTSAX

If you would like exposure to this fund without having the minimum capital or just prefer to buy and sell ETFs and equities, VTI is Vanguard’s Total Stock Market Index ETF. It tracks the same portfolio but instead of investing your money into the fund, you can simply buy shares of the ETF on any broker.

If you have a broker that doesn’t offer mutual funds, you can still take advantage of the low fees that Vanguard is known for by investing in VTI.

VTSAX vs VTI vs SPY

So what’s the difference between VTSAX and VTI? Let’s compare them below against the S&P 500 as a benchmark.

SymbolVTSAXVTISPY
Type of InvestmentMutual FundETFETF
Expense Ratio0.04%0.03%0.095%
Minimum Investment$3,000Individual Share PriceIndividual Share Price
Performance over 10 years12.82%12.82%13.00%

When looking at the differences, it seems that VTI may be more enticing since it has a slightly lower fee but it really is up you as investor to decide what’s more important.

Do you want the flexibility of automated contributions into a fund that builds up over time or do you want to simply buy into this with one time purchases of shares? For retirement accounts, funds are going to be the best way to go but for an everyday investor, maybe the ETF is enticing.

Either way, both offer much lower fees than the S&P 500.

If you are having a hard time deciding which type of investment you’d prefer, I’d recommend you read about whether ETFs are better than Mutual Funds. It should help clear out some common questions about the two.

Final Thoughts

VTSAX is Vanguard’s most diverse fund and offers exposure to the entire US economy.

It’s fund consists of exposure to thousands of companies and has consistently performed well over time. With a lower expense ratio than VTSMX and the reduced investment minimum of $3,000, it’s clear that it beats VTSMX.

When you stack it up against the S&P 500, you can also see clearly that it correlates very well the top largest companies in the United States.

For most investors with a longer time-horizon, I’d say VTSAX is an excellent addition to a balanced portfolio.

I hope you found this helpful!

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