Need to grow your hard-earned money? In this article, we will compare VTSMX vs. VTSAX and which one you should buy. Continue reading to learn more and to find out which one suits your financial needs best.
Investing is an excellent option for anyone with the desire to follow and fulfill their financial goals. If you are at the point in your financial journey where you have the capability and appetite to use investment as part of your financial plans, then you’re probably thinking about what will provide you with the best returns on your investment.
This may be a hard choice. But with the right knowledge and tools, you will be able to find the best one.
In this article, we will discuss funds that can suit your investment strategies. We will deep dive into two funds that are commonly part of the portfolio of investors nowadays. Let’s see if these can help either jumpstart or enhance your investment portfolios.
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VTSMX Vs. VTSAX – Overview
One of the core holdings that investors prefer in their stock portfolios is index funds. Index funds are better than individual stocks because they help investors diversify and reduce risk in the long term. This also offers a great hedge against volatility and other forms of risk. Besides, the best index funds charge a minimal fee.
Two of the top index funds worth considering are the Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) and Vanguard Total Stock Market Index Fund (VTSAX).
One of the reasons for the popularity of ETFs is that they enable investors to earn passive income, even with a tax advantage when invested in a 401(k). Investors can simply set them up and forget about it.
However, these two funds have several differences. Let’s compare and contrast the two.
The goal of VTSMX is to track the performance of the stock market as a whole. The fund conceived in 1992 is a good choice for investors searching for a domestic stock fund that invests widely in different industries and capitalizations. One of the benefits of the index fund is that it has no minimum investment as it’s an investor’s share fund. It also has a low-cost expense ratio (0.14%) and is tax efficient.
VTSMX holds over 3,500 stocks. The top 10 holdings in the index fund make up 20.7% of its portfolio, most of which are tech stocks.
One of its main drawbacks is that it is closed to new investors. If you are a new investor considering this fund, you may want to consider its alternative, the Exchange-Traded Fund (ETF), which is Vanguard Total Stock Market ETF (VTI).
VTSAX is a Vanguard Index fund that was incepted in 2000 to track the CRSP Total Market Index. It’s a large-mix fund that exposes investors to the whole equity market in the United States. It is one of the biggest funds under management in the US. The US equity market includes small, mid, and large-cap growth and value stock.
VTSAX has a risk level that is close to that of the S&P 500.
It’s the admiral class of Vanguard Total Stock Market ETF (VTI). The dividends of the fund are distributed quarterly in March, June, September, and December. In case of a capital gain, dividends are distributed at the end of the year. Unlike VTSMX that is closed to new investors, VTSAX is still open.
While it doesn’t have a large exposure to international stock, most of the companies represented in the index have a presence in the global market. For instance, Google, Apple, and Facebook have a significant amount of business overseas. Therefore, the companies still provide exposure abroad.
VTSMX Vs. VTSAX: Key Differences
Here are some of the major differences between VTSMX and VTSAX. These are:
Minimum Investment
VTSAX has a minimum investment of $3,000. This is the entry-level of all Vanguard Admiral Shares. On the other hand, VTSMX has a minimum investment of $10,000. Again, this is the standard for all Vanguard Investor Shares funds.
The fact that the two have different minimum investments means that they target different kinds of investors. The majority of retail investors are more likely to invest $3,000 rather than $10,000. On the other hand, big investors are likely to invest $10,000 instead of $3,000.
The two index funds have different classes of shares. VTSAX is a type of Admiral share fund. This class of shares aims to attract high net worth investors. On the other hand, VTSMX is a kind of Investor share fund. This type of share is usually one class below the Admiral shares.
Availability
VTSAX is usually open to new investors. Therefore, all investors who meet this minimum requirement of being a new investor can buy VTSAX shares today. Like we noted earlier, VTSMX was closed to new investors a few years back as a way of cutting costs and providing investors with a better product at a lower fee.
Fund Size
The number of assets in both VTSMX and VTSAX are almost similar. VTSAX manages assets worth $1,258 billion, while VTSMX manages assets worth $9 billion (as of the time of writing this article). Therefore, both of them can be categorized as large funds.
Fund size can show the number of investors who trust a fund. While a large fund doesn’t necessarily mean it’s good, this is one of the considerations to make before investing.
Suitability
VTSMX is suited for investors with high or moderate risk tolerance and needs low-cost exposure to the US stock market. On top of that, it can act as a single domestic equity fund in your portfolio. On the other hand, VTSAX is more suitable as a core holding for people searching for a long-term investment strategy in the large-cap equity market with lower risk.
Since it doesn’t concentrate on the large capitalization stock that is more conservative, the fund may work better in a more diversified portfolio that has exposure to other kinds of equities for growth purposes.
VTSMX Vs. VTSAX: Composition Differences
The top holdings in VTSAX are Apple, Microsoft, Amazon, and Johnson & Johnson. By the end of 2021, the total assets of the fund were in 3,980 holdings. The top five sectors where VTSAX invest in include:
- Technology: 25.23%
- Financial: 16.65
- Healthcare: 14.57%
- Customer services: 13.98%
- Industrials: 12.01%
Some of the top companies that make VTSAX are:
- Apple: 5.36%
- Microsoft: 4.78%
- Amazon: 4.03%
- Facebook: 1.89%
- Alphabet Class A: 1.32%
- Alphabet Class C: 1.25%
- Berkshire Hathaway: 1.19%
- Johnson & Johnson: 1.18%
- Procter & Gamble: 1.04%
- Visa Class A: 1.04%
VTSMX comprises mostly Microsoft, Apple, Amazon, Alphabet, and Facebook. However, it also provides exposure to more than 3,500 other stocks. The top 10 holding of the fund accounts for 19.04% of the index fund.
There may be changes in holdings, but top VTSMX holdings are:
- Microsoft
- Apple
- Alphabet
- Amazon.com
- Berkshire Hathaway
- JP Morgan Chase & Co.
- Johnson & Johnson
- Procter and Gamble
- Visa
VTSMX Vs. VTSAX: Performance Differences
In the last 5 years, the VTSAX fund had an annual stock growth of 13.9%. The index fund had a dividend yield of 1.80%. However, when the economy is performing well, this usually rises to over 2%. Here is a comparison of their performances since inception as compared to the S&P 500.
| Return Period | VTSAX | VTSMX |
| 1 year | 23.11% | 22.99% |
| 3 years | 14.45% | 14.33% |
| 5 years | 13.67% | 13.55% |
| 10 years | 14.77% | 14.64% |
| Since Inception | 7.42% (since 2000) | 9.99% (since 1992) |
VTSMX Vs. VTSAX: Fees
Fees can make a huge difference, especially for investors investing in the long term. When investing in the index fund for the long-term, fees can greatly eat into your investment. This is why investors should target an index fund with low fees. But how do the two index funds compare in terms of fees?
The expense ratio of VTSAX is 0.04%. This is a great value for a fund that is well-diversified and has over 3,500 securities. The ETF version, VTI, has an even lower expense ratio of 0.03%. With Vanguard promoting their Admiral share funds as cheap, this may seem contradictory. However, VTSAX has other benefits, such as fractional shares and auto-investing that VTI doesn’t offer. Here are the exact differences between VTI and VTSAX.
On the other hand, VTSMX has an expense ratio of 0.14%. This is still low as compared to other mutual funds. However, it is higher than many other Vanguard funds. But as compared to VTSAX, the fees charged by VTSMX are almost three times higher.
For every investment of $10,000, it will cost you $3 per annum in VTSAX and $14 per annum in VTSMX. While the difference may not look big at first, this may add up to higher figures over time.
VTSMX Vs. VTSAX: Which One Is Better?
Since both funds are US stock large blends, investors should choose one of them and not both. But which of these two should you choose? VTSMX has several advantages over VTSAX. One of these is the lower expense ratio. Secondly, it doesn’t have a minimum investment as long as you have an investor account balance of $3,000.
By investing in VTSMX, you can easily keep your fees low so that you can focus on increasing your savings and moving towards your investment goals. It’s also worth noting that VTSMX has already closed investing to the public. Vanguard is now directing new investors to the Vanguard Stock Market ETF (VTI) or VTSAX. Therefore, if you consider investing in one of the two and you’re not invested in VTSMX yet, the only option available is VTSAX.
In Summary – VTSMX Vs. VTSAX
Now that you know the ins and outs between VTSMX and VTSAX, which one suits your needs? Each offers its own advantages and disadvantages, and the bottom line is that you need to know which one can help your portfolio now and in the long run.
Know where you are in your financial goals and plans so that you will be able to make an informed and educated decision. No need to gamble on which is better as the choice should be backed up by what you want and what you can afford.
The important takeaway here is that these funds are a valuable investment option for your portfolio. And since the end goal is to grow your money through investing, you just need to make a decision based on your risk appetite. You have already done the important part of doing your due diligence on the subject at hand. Now is the time to make that choice.
Investing is always tricky but doing the checks based on your finances will help you mitigate the risks. The reward at the end of the tunnel will surely outweigh the initial challenges you faced when making the decision. Once it’s done, buckle up and enjoy the ride to financial freedom.
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Founder of Spark Nomad, Radical FIRE, Journalist
- Expertise: Personal finance and travel content
- Education: Bachelor of Economics at Radboud University, Master in Finance at Radboud University, Minor in Economics at Chapman University.
- Over 200 articles, essays, and short stories published across the web.
Experience: Marjolein Dilven is a journalist and founder of Spark Nomad, a travel platform, and Radical FIRE, a personal finance platform. Marjolein has a finance and economics background with a master’s in Finance. She has quit her job to travel the world, documenting her travels on Spark Nomad to help people plan their travels. Marjolein Dilven has written for publications like MSN, Associated Press, CNBC, Town News syndicate, and more.