The Vanguard Total Stock Market Index Fund (Admiral Shares) (symbol VTSAX) and the Vanguard Total Stock Market ETF (symbol VTI) are two of the largest and most popular total market index funds in the world. Some compare VTSAX vs VTI not realizing that they are just two different share classes of the same portfolio; VTI is the VTSAX ETF equivalent.
A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.
The Short Answer
Many investors ask whether VTI or VTSAX is better? The short answer is that VTSAX and VTI are different share classes of the same portfolio, which is made possible by Vanguard’s ETF share class structure. The decision to buy one or the other depends on investor-specific factors (some of which are listed below).
The Longer Answer
Vanguard ETFs are structured as share classes of their mutual funds. This is a patented structure that is scheduled to expire in 2023, so we may see this structure more frequently in the near future. In other words, VTSAX and VTI are not two funds pursuing an identical strategy; they are different share classes of the same fund.
That being said, investors should evaluate several factors before deciding whether to use VTSAX or VTI.
Historical Performance: VTSAX vs VTI
VTSAX was launched on November 13, 2000 and VTI was launched a few months later on May 24, 2001. Since that time, performance has been identical: 7.67% vs 7.68% annually. Despite changes in fees and expenses over the past 20 years, the cumulative difference in performance over that time period is less than 1%! Looking at the chart of VTSAX vs VTI below, it is obvious that they are identical.
Differences Between VTSAX and VTI
Since the two funds are actually two share classes of the same fund, I will skip the usual comparisons here. The geographic exposures, sector weights, market cap coverage so on is identical because the two funds are shares in the same portfolio. There are some resources on the internet indicating differences, but that is incorrect because they are the same fund!
Factors to Consider
Expenses
Some investors may point out that the expense ratios between Vanguard’s Admiral Shares and Vanguard’s ETFs differ. This is true, but it is also reflected in the net performance chart above. At a certain level, differences in expense ration do not matter. A small absolute difference (in basis points) is essentially meaningless (even if it appears large on a percentage basis) and is often smaller than the bid-ask spread (see transaction costs below). Expenses do matter, but I would not sweat infinitesimally small differences of one basis point (and they’ll show up in net performance anyways).
Transaction Costs
ETFs are free to trade at many brokers and custodians, including Vanguard. However, many brokers and custodians still charge commissions and/or transaction fees to buy/sell mutual funds. To my knowledge, Vanguard does not participate in the pay-to-play arrangements that would allow their mutual funds to trade for free on many platforms. So if an investor account is at Vanguard, it is free to trade VTSAX or VTI. However, only VTI is free to trade in non-Vanguard accounts.
There is a bid-ask spread when trading ETFs, but this spread is typically less than .01% for VTI and individual investor trades will not generally be large enough to “move” the market. In the case of VTI, individual investors should not have a problem trading.
Tax Efficiency & Capital Gain Distributions
ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). However, since Vanguard ETFs are a share class of their mutual funds, the mutual funds are able to benefit from this feature of the ETF. In other words, VTI is able to extend its tax benefits to VTSAX, so VTSAX and VTI are equally tax-efficient.
VTSAX paid out a capital gain distribution at the end of 2000, the one year it existed before VTI was launched. VTSAX has never paid a capital gain distribution since then! I noticed some posts on the internet saying that VTI is more tax-efficient than VTSAX, but this incorrect. As the below history of distributions shows, things changed once VTI was launched in 2001.
Tax Loss Harvesting
My personal preference is to keep a portfolio entirely mutual funds or entirely ETFs, due to the mechanics of settlement during tax loss harvesting. If an ETF has declined in value and an investor sells it, the trade and cash proceeds will not settle for two business days (T+2). That investor may want to “replace” the sold ETF immediately and attempt to buy another ETF or mutual fund simultaneously.
However, mutual funds settle on T+1 basis, so cash for the mutual purchase would be due in one business day (which is one day earlier than the cash from the ETF sale is received). This can obviously cause problems and (even though this issue can be addressed with careful planning) I find it easier to keep accounts invested in similar vehicles. In this case, if a portfolio is all mutual funds, I might lean more towards VTSAX. If all ETFs, I might lean more towards VTI.
On this topic, investors should probably avoid using VTI and VTSAX as tax loss harvesting substitutes for one another since they could be considered “substantially identical” which would trigger a wash sale.
Tradability
VTSAX does have a stated minimum initial purchase of $3,000, so that may be a factor for some investors looking to initiate a position. The minimum purchase size for VTI is typically one share, although fractional shares are becoming more common.
Investors can trade ETFs intraday, as well as in the pre-market and after-hours trading sessions. Investors can only buy/sell mutual funds once per day. This is not necessarily a major factor for long-term investors however.
Final Thoughts: VTSAX vs VTI
VTSAX and VTI are two different share classes of the same exact fund. However, investors should consider the above factors when deciding whether the mutual fund VTSAX or the ETF VTI is best for their personal situation.
