VOO = Vanguard S&P 500 ETF
VTSAX vs VOO chart
|Vanguard Total Stock Market Index Fund Admiral Shares
|Vanguard S&P 500 ETF
|Both are Vanguard offerings
|Index mutual fund
|Exchange-Traded Fund (ETF)
|Index Mutual Fund vs ETF difference
|Net asset value
|Both funds are large
|CRSP US Total Market Index
|Same weighting methodology
|# stocks held
|Holdings as of 11/30/2023
|Equity – US Stock Market
|Equity – Largest 500 companies
|Total market vs S&P 500
|Both index driven – active management not needed
|End of day
|Trade during the day like stocks
|ETF has a $1 minimum investment due to fractional shares
|Fund expense ratio
|Capital gain distributions annual tax cost
|0.50% last 10 year average
|0.50% last 10 year average
|Per the Prospectus as of 12/31/2022
|Compound annual growth rate for the 10 years ending 12/31/2023
|VOO is 0.56% better per year over the last 10 years
|U.S. equity coverage at a low cost
|Large cap U.S. equity coverage at a low cost
Both VTSAX and VOO are Vanguard products, and they both allow the investor to invest in US Stocks at a low cost.
Main Differences & Similarities
The significant differences are:
- VTSAX holds the entire U.S. Stock market and VOO holds the largest 500 companies
- The returns are different given the different investment makeup, with VTSAX and VOO having compound annual total returns averaging 11.43% and 11.99%, respectively, for the 10 years ended 12/31/23
- VTSAX is an index fund and VOO is an ETF
- VTSAX has a $3,000 minimum initial investment and VOO has a $1 minimum due to the ability to buy fractional shares
The primary similarities are:
- They are both passive investments that follow an index
- Both are market capitalization weighted, which means the larger companies get a larger percentage of the holdings
- Both choices have low fees, which is a hallmark of Vanguard funds
- The tax efficiency is almost identical if you hold this investment in a taxable account
Key Differences (explained in detail)
VTSAX holds the US Stock market and VOO holds the largest 500 companies
Both investments mimic an index, but the indexes are different between these two.
VTSAX has over 3,700 stock holdings, which represents the entire US stock market. This fund is a good choice for many investors who want to hold US equities. The fund is designed to mimic the CRSP US Total Market Index, which aims to carry all US stocks traded on the New York (NYSE) and Nasdaq stock exchanges.
VOO seeks to track the investment performance of the S&P 500 Index, which means it holds the same 500 companies and weighting as the index does. These would be the largest 500 US companies based on market capitalization. As you can see in the chart above, the fund actually has 505 holdings instead of 500, which is because a few companies have issued more than one class of stock.
VOO has outperformed VTSAX by 0.56% on average annually over the last 10 years ending December 31, 2023 (11.99% vs 11.43%). In other words, if you invested $10,000 on January 1, 2014, in you would have $31,034 and $29,511 in VOO and VTSAX, respectively, as of December 31, 2023.
Both VOO and VTSAX are very correlated, which means that they tend to go up and down in price in sequence most of the time. This is because their holdings are very similar, because both funds are market capitalization weighted.
When we look at the market exposure of each, courtesy of Portfolio Visualizer (just plug in VTSAX and VOO and your desired date range), we get the following breakdown by fund as of 12/31/23.
- VTSAX contains 82.6% large-cap stocks, 7.9% mid-cap stocks, 8.5% small-cap stocks, and 1% other for a total of 100%.
- VOO contains 100% large-cap stocks, because it contains the S&P 500
So, as you can see, 82.6% of VTSAX is in large cap stocks, which overlaps with VOO. Because the funds are over 80% the same, they perform very similarly. If you look at any chart comparing both, you will see how correlated they are.
With all that being said, if you have a 401K that limits your investment options, but one of these two are available, one is a pretty good proxy for the other. As mentioned earlier, the performance on average is about a half of percent difference over the last ten years.
VTSAX is more diversified because it holds the remaining 17.4% of its holdings in mid-cap and small-cap US equities.
Index Fund (VTSAX) vs ETF (VOO)
One difference between these two investment choices is in the investment structure. VTSAX in a Index Fund, and VOO is an ETF, or Exchange Traded Fund. As a result, the choice between VTSAX and VOO will be based partially on personal preference of investing via an Index fund or an ETF.
The main difference is that ETFs (Exchange Traded Mutual Funds) trade throughout the day (just like stocks) and Index funds (which are structured like traditional mutual funds), only trade at the closing market price at the end of the trading day. If you are a long term investor (not doing intra-day trading), this likely won’t make a big difference to you either way.
Minimum investment requirement
For investors just getting started, ETFs often have a much lower investment entry point than a traditional Mutual Fund. This holds true here as well. The minimum initial investment for VTSAX is $3,000. The ETF minimum for VOO would be the cost of one share (like a stock), and often even lower than that as many brokers allow for the purchase of fractional shares (less than one share increments). As of the writing of this article, VOO is trading at about $438 for one share, so you can see the ETF investment entry point is much lower. With fractional shares, you could invest in VOO for just one dollar.
Note that for VTSAX, $3,000 is the amount needed to invest initially. Subsequent investments in the fund (once $3,000 is invested) do not have a minimum requirement.
Automatic Investments – another difference
Index Funds have the benefit of allowing you to automatically invest. This is because the fund only exchanges shares at the end of the business day. Since this is the case, you can automatically invest a set dollar amount into the fund on a regular interval, just as you would do with a 401(K) with your employer. When Vanguard, in this case, receives your automatic investment, the money will go into the fund at the next available end of day price.
Since ETFs trade just like stocks throughout the day, you have to enter a trade to buy the security with either a market order or limit order, which requires manual (non-automated) effort.
Main Similarities (explained in detail)
Both follow an index
VTSAX follows the CRSP US Total Market Index and VOO follows the S&P 500 index.
Because of this, these funds are passively managed. This means that you don’t need investment managers to make strategic investment decisions over what holdings to buy and sell in the fund. Instead, index fund managers act more in an administrative capacity, as their primary responsibility is to make sure that the fund follows the index.
As a result, both investment choices have very low turnover, or buying and selling in the fund, as the composition of holdings does not change as often as it typically would with an actively managed fund. The turnover of both funds is currently approximately 2 to 3%, which is pretty low.
Both are market capitalization weighted
Both funds are market capitalization weighted, which is a common structure. What this means is that the hundreds or thousands of individual stocks held in the fund are not held in equal weight, but instead are help in proportion of their individual market value to the total market value of the index. The market value of a stock equals the total shares outstanding times the market share price.
So, a large company will have a larger percentage of the fund assets than a small company. This would be proportional to the overall market as well.
Low Expense Ratio
One of the reasons for the lower expense ratio of each fund is that these are both passive index investments as opposed to an actively managed investment. A passive investment that follows an index does not require the costs associated with active investment management.
As mentioned previously, you don’t need a fund manager to make decisions of what investments to buy and sell as the index determines that automatically. The fees are also kept low by Vanguard’s corporate structure, where the investors are the shareholders, which in theory keeps all costs lower as company profits are used to offset fees.
Vanguard is well known for lower costs on its investments. Both VTSAX and VOO are no different. The current expense ratio for VTSAX is 0.04% and VOO is 0.03%.
The difference is 0.01%, or one basis point. This difference is so small it is almost not even worth mentioning. Before investing, be sure to check the latest expense ratios (Vanguard links at the beginning of this article), as they can change over time.
Fees make a big difference in investment returns long term, as described in this Investopedia Article. In this case, however, the fees are so minuscule that the fees will not be an issue with either investment choice.
ETFs typically have the edge on Index Funds when it comes to tax efficiency. This would only be an issue in a taxable brokerage account. This is due to the structural difference in the traditional mutual fund rules vs the ETF rules.
When stocks are bought and sold within the index fund by the passive managers, this often results in net capital gains. Traditional mutual fund rules require that the those net capital gains get passed through to all of the fund investors in the form of capital gain distributions.
Short term net capital gain distributions will show up in Box 1a of form 1099-DIV as “Ordinary Dividends,” and net long term capital gains will show up on form 1099-DIV in box 2a as “Capital Gain Distributions.” Both of these amounts will need to get picked up on your tax return as additional taxable income.
ETFs also have share transactions similar to index funds, but because they are able to do “in kind” transactions with other major financial institutions to help perform this internal balancing, they are able to avoid many of the capital gains, which is a win for investors. You can read more about this at the Vanguard website.
What does all this mean? Interestingly, Vanguard has a unique way that it has structured it’s internal rebalancing process to keep net capital gain distributions as low as possible, for both traditional mutual funds, like VTSAX, and Exchange Traded mutual funds, such as VOO. This means your tax efficiency should be good for both choices.
Tax efficiency – the numbers
The tax efficiency between these two funds is effectively equal. The taxable return of VTSAX over 10 years ending 12/31/2022 is 0.5% lower than the pretax return (12.08% – 11.58% = 0.50%) which is the same as VOO (12.52% – 12.02% = 0.5%). What this means is that, on average, your return in a retirement account will be 0.5% better than the return on a taxable account, because with the taxable account you will pay taxes every year on the dividend and capital gain distributions mentioned above.
Executive Summary: Total Stock Market Fund VTSAX vs S&P 500 ETF VOO
- Both investments are low cost options offered by Vanguard
- Both follow a US stock market index
- Both are passively managed
- VOO has outperformed VTSAX by 0.56% on average over 10 years ending 12/31/2023.
- The funds have similar returns as their holdings overlap by over 80%
- VOO has a lower initial investment of $1 for brokers that allow fractional shares vs the $3,000 minimum to invest in VTSAX
- VTSAX is more diversified because it has a broader exposure that includes mid-cap and small-cap companies
- Both are a good option for long-term investors seeking a low cost diversified portfolio of US stocks for their investment portfolio
Disclaimer: Investing has the risk of loss. Be sure to understand all the risks before investing. Read the prospectus. Validate data from multiple sources before making any investment decisions. If you decide to use a financial planner for investment advice, be sure to use a Fee-Only Financial Advisor that is a Fiduciary, which legally obligates them to do what is in your best interest and not theirs!
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