One interesting fact about a top broker like Vanguard is that almost all its offerings are excellent. A serious investor will spend so much time trying to choose the best among the funds they offer. It is that tricky!
Today, I will be saving you the time and stress of choosing between two great Vanguard funds – VOO and VTSAX. You can call it the ultimate battle of mutual funds vs. ETF.
As always, my goal is to help you understand how both funds work, why you should consider them, and how you should get into the picture.
Let’s get to it!
Key Takeaways
Not everyone will have the time to read the entire article. That is why I have identified the key points of this discussion below:
- VOO and VTSAX are two of the most popular index fund offerings from Vanguard.
- VTSAX is a total US stock market fund (also an index mutual fund), while VOO is an S&P 500 fund (also an ETF)
- VTSAX tracks no index, while VOO tracks the famous S&P 500.
- VTSAX offers coverage to over 4000 stocks, including large-cap and mid-cap stocks, while VOO focuses only on the top 500 U.S. stocks.
- You need a minimum of $3,000 and $270 to invest in VTSAX and VOO, respectively.
- Both funds are available on Vanguard or from any reputable broker offering them.
- The ultimate choice of index fund between the two depends on your personal finance plans and goals.
VOO vs. VTSAX – Introduction
I assume you are learning about VOO and VTSAX for the first time (even if you are not). So, let’s do a brief introduction.
The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is a mutual fund, while the Vanguard S&P 500 ETF (VOO) is an exchange-traded fund (ETF). Vanguard issued both, as you might have guessed from their names.
When it comes to the design of each fund, Vanguard expects VTSAX to match the US stock market as a whole, comprising the large-cap, mid-cap, and even small-cap equities. Therefore, this index fund is ideal for investors looking to run a simple and somewhat slow portfolio.
On the other hand, the VOO index fund is an ETF with a streamlined focus. Vanguard expects this particular index fund to cover only the S&P 500, i.e., the 500 largest companies in the United States. An investor looking for limited exposure to only the ‘big names’ in the American landscape will prefer VOO over VTSAX.
So, summarily, VTSAX is a total US stock market fund while VOO is an S&P 500 fund. We will touch on the indexes in a bit. Furthermore, VTSAX is an index mutual fund, while VOO is an ETF. The difference between both fund types can be summarized in trading. While ETFs are traded throughout the day just like stocks, index funds only trade once at the close of the day.
I must say here that you are on the right track, whichever you end up with.
VOO vs. VTSAX – Differences in Composition
We will examine the compositional differences of these funds under three subheadings – the indexes they track, the holdings, the stock composition, and their exposure.
Underlying Indexes
Let’s build on the basics we have known about these index funds by examining their indexes. The Vanguard S&P 500 (VOO), as the name suggests, tracks the S&P 500. Created by Standard and Poor, this famous U.S. stock market index aims to replicate the performance of the top 500 largest companies in the United States.
The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is a mutual fund; therefore, it has no underlying index and doesn’t track one. However, based on the securities it holds, we can say the fund aims to replicate the performance of the whole U.S. stock market.
Holdings
VOO focuses only on the biggest names in the U.S. stocks landscape, while VTSAX combines these with about 3,500 smaller U.S. companies that are not classified as part of the top 500. In essence, the portfolio of VOO is smaller than that of VTSAX – 500 stocks vs. over 4000 stocks.
VTSAX, as the larger index fund with more holdings, currently have over $1,302 billion assets under its management, while VOO only manages around $816 billion.
Stock Composition
In terms of market-cap composition, the VTSAX index fund offers more spread, with its minimal investments in micro-cap, small-cap, and mid-cap names. That said, its portfolio is still dominated by the large-caps and mega-caps stock – up to 75% of the entire portfolio. But, again, in comparison, you get large-cap stocks majorly with VOO – up to 85%.
When it comes to market capitalization, the median market cap of VOO is around $200 billion. It is the bigger of the two funds, with VTSAX coming in around $128 billion – about 35% lower.
I have summarized the capitalization of both funds below;
- VTSAX – 76% Large-Cap Stocks; 17.5% Mid-Cap Stocks, and 6.5% Small-Cap Stocks.
- VOO – 87.8% Large-Cap Stocks; 12% Mid-Cap Stocks, 0.2% Small-Cap Stocks.
Exposure
The type of stocks has done little in separating these two index funds. So, let’s move on to the industry exposure.
VOO is dominated by technology stocks at around 23%, followed by healthcare and financial services, respectively. The fund also favors consumer goods, with Consumer Cyclical and Consumer Defensive stocks coming in at fourth and fifth. The last of the top five are the Communication Services stocks.
Like VOO, the biggest equity sector in VTSAX’s portfolio is technology, with over 20% stake. Healthcare and financial services are next on the list – 16% and 14%, respectively. It is essential to mention the presence of REITs (5%), as this may be of particular interest to investors who want a piece of the real estate pipe. This fund doesn’t prioritize consumer goods.
VOO vs. VTSAX – Performance Comparison
Most investors decide on funds based on how they have performed over time. So, it’s only normal that we make a performance comparison of both index funds of interest here. So, let’s start with the annual returns.
Annual Returns
Both funds’ average annual returns (after taxes) have been impressive since inception. That said, it is impossible to compare these funds over the same period, considering VOO launched ten years after VTSAX – 2010 and 2000, respectively.
In the last ten years, the last ten years, VTSAX and VTOO have returned 15.78% and 16.00% in returns, respectively. Both funds’ 5-year and 3-year returns are 7.48% for VTSAX and 17.90% for VOO. The better performer in the past year is the VOO index fund, with 28.17% returns, edging VTSAX at 25.32%.
Overall, it is safe to say both funds are excellent performers, and investors can expect decent returns.
Portfolio Growth
Based on the returns discussed above, we can create a hypothetical situation to assess the portfolio growth of these funds.
Assuming you put $10,000 each on VOO and VTSAX, you would have $28,000 total value for VTSAX and $27,000 total value for VOO after ten years. That’s just a 2.8% difference, translating to around $1,000.
VOO vs. VTSAX – Fees and Tax Efficiency
Moving on, let’s take a look at the fees and tax efficiency of both funds. In the end, investors consider how cost-efficient a fund is before adding it to their portfolio.
Minimum Investment
There is a major difference between VTSAX and VOO regarding minimum investment.
The minimum initial investment when investing in VTSAX is $3,000. In contrast, with just $270 – the price of one share – you can begin your investment journey into VOO. The huge disparity in minimum investments may not be a problem for established investors, but new investors may struggle to raise so much money for starters.
Expense Ratio
Regarding expense ratios, both Vanguard funds are still some of the low-cost index funds out there. However, VTSAX is more expensive (with a higher expenses ratio) at 0.04% than VOO’s 0.03%. That is a difference of 0.01%. VTSAX costs less than other stock market funds.
Essentially, you pay $3 on every $10,000 you put into VOO and $4 on every $10,000 on VTSAX. The $1 difference can be big for large-scale investors, especially with other extra costs.
VOO vs. VTSAX – ESG Ratings and Impacts
The MSCI ESG ratings show the resilience level of a fund to long-term risks and opportunities, usually associated with environmental, socio-cultural, and government issues.
Both funds are fairly resilient, with 28% of VOO’s funds rated AAA or AA (ESG leaders), and 24% of VTSAX’s funds are rated similarly. ETF Database also puts the ESG score of VOO at 7.76/10.
VOO vs. VTSAX – Risk and Volatility
Overall, it is safe to say both funds of interest here are pretty stable. We can also be more specific by saying that VOO is slightly more stable than VTSAX. The annualized volatility of VTSAX is 13.69%, while that of VOO is 13.13%. If we switch to a monthly comparison, the difference doesn’t seem a lot – 3.95% for VOO and 3.79% for VTSAX. But it could be a big deal in the bigger annual picture.
Final Verdict
VTSAX and VOO are from Vanguard, a company regarded as one of the most reliable management companies today. The wide preference for Vanguard and its products stems from the investor-favored ownership structure and low expense ratios.
This article compares Vanguard’s popular funds – the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and the Vanguard S&P 500 ETF (VOO). It is essentially a comparison between two different types of index funds – the ETF and the mutual fund.
As an investor looking to choose the better index fund between both, you must consider factors like expense ratio, historical performance, market capitalization and exposure, and more.
Index Fund or Exchange-Traded Fund (ETF) – Which Should You Buy?
Despite one of these funds being a mutual fund and the other an ETF, there is nothing much to separate them in terms of their holdings. They are both US Stocks Large Blend index funds, indicating similar investment interests.
However, the most significant distinguishing factor between the VTSAX and VOO index fund includes the composition of both. While VTSAX includes stocks other than the top 500 companies in the U.S. stock market in its portfolio, VOO is limited to just the biggest 500 U.S. companies on the market.
It is also important to mention the major difference in investing in both funds. You need a minimum initial investment of $3,000 to go into VTSAX. If this is a problem, then you are better off with VOO, which requires just the equivalent of the price of a unit to get started.
Once you have decided on where to put your money, you can buy these index funds directly from Vanguard or any other trusted broker offering them.
If you find this article helpful, we have more on index funds and other aspects of investments in our collection. You can check them out here.
Good luck!