Investing in mutual funds, index funds, and ETFs (exchange traded fund) is a fundamental part of long-term investing and any diversified portfolio. They are typically seen as safer investments when compared to individual stocks.
With so many funds out there to invest in, it can be difficult to narrow down the field to the best mutual funds. Two popular funds are VTSAS (Vanguard Total Stock Market Index Fund Admiral Shares) and SPY which aims to track the S&P 500. So when it comes to VTSAX vs SPY, which is better? Below is a comparison of the two to help you in your decision.
VTSAX vs SPY: Issuer
When it comes to VTSAX vs SPY from an issuer standpoint, you’re dealing with two very large firms. VTSAX is issued by Vanguard, the largest issuer of mutual funds in the world. They are also the second largest issuer of ETFs. Needless to say, you don’t get to be that large without knowing what you’re doing.
State Street Global Advisors is the creator of SPY (SPDR® S&P 500® ETF Trust), and has over 4.1 trillion in managed assets as of December 2021.
Either issue is a large player in the issuing of mutual funds and exchange-traded funds and neither is going anywhere, anytime soon.
VTSAX vs SPY: Underlying Index Followed
Many times, funds will attempt to track a certain index of the stock market. Some examples are the total stock market, Dow Jones Industrial Average, and the NASDAQ 100.
As mentioned early, SPY aimS to track the S&P500 market index. The S&P 500 aims to track the 500 leading publicly traded US companies. Market cap is the primary criterion for a company to be included in the S&P 500 index fund, but it is not the only criterion.
Investing in the top 500 companies in the U.S. will mean mostly large-cap stocks. However, there could be a few mid-cap and small cap investments as well.
VTSAX is not technically an index fund but, for the most part, acts like one. First issued in 1992, VTSAX includes large-cap, mid-cap, and small-cap companies alike. However, because of the inclusion of all capsizes, and the fund is not actively managed, it behaves more like an index fund tracking the entire stock market as a whole.
VTSAX vs SPY: Expense Ratios
Expense ratios can be a vital piece of information when deciding what fund to invest in. Even a small difference can become thousands of dollars over the course of investing in a fund for 10 or 20 years.
Essentially, with managed funds, there are expenses that go along with it. These expenses could be salaries to pay analysts or portfolio managers, management fees, rent for office space, and many others. Many funds will pass some or all of these expenses on to you, the investor. The amount that will be passed to you is shown as the expense ratio.
When looking at VTSAX vs SPY, there is a significant difference in their expense ratios. Even though VTSAX is technically a mutual fund, it’s not actively managed, so the fee associated with it reflects that. Coming in at a measly 0.04%, it’s one of the lowest fees out there for a mutual fund, which are typical in the 0.75% range.
SPY has an expense ratio of about .09%. While .09% may seem small, it’s more than double that of VTSAX. The amount you’ll pay in fees might seem small at only a .05% difference, but over years and decades, it will add up to more than you think.
VTSAX vs SPY: Minimum Initial Investments
Minimum initial investments (MII) will vary per fund and firm. The minimum initial investment only applies to the first time you invest in a fund. Many funds require anywhere from $100 – $5000 or more for your first investment. After that, you are free to invest any amount you wish on subsequent investments with the same fund.
Since VTSAX is a mutual fund, it will typically have higher costs per investor. These costs are why VTSAX has an initial minimum investment of $3,000. However, suppose you choose to invest with VTSAX after the initial 3k investment. In that case, you’ll be able to invest with as little as $1 for subsequent investments.
SPY has a similar MII in that it will only cost the current price of a share. Again, of writing this, SPY stands at about $412 per share.
In VTSAX vs SPY, SPY holds a significant advantage when it comes to initial investments.
VTSAX vs SPY: Net Assets and Holdings
Comparing VTSAX vs SPY, each fund’s top ten holdings are very similar, see below. While SPY is tracking the top 500 companies in the market, VTSAX holds far more stocks, with over 4000 different stocks held in the fund. With far more securities being held VTSAX has higher diversification and likely less volatility than SPY.
SPY Top 10 Holdings
VTSAX Top 10 Holdings:
VTSAX vs SPY: Compositions
When looking at their compositions, VTSAX vs SPY on the surface can look very similar, but there are differences worth noting. Most sectors are within a few percentage points of each other, but that could mean hundreds of millions of dollars.
When determining which fund you want to invest in, consider looking at what sectors you feel will do better during the timeframe you are looking to invest. For example, if you think consumer staples will be a strong sector, you would invest more in SPY.
VTSAX vs SPY: Overall Performance
Of course, what most investors will put at the top of their criteria when determining which fund to invest in will be performance! When looking at the performance of both VTSAX vs SPY, they both do an excellent job of having very similar returns to the indexes they aim to track.
Short term, SPY seems to have an advantage in overall performance. Though VTSAX closes the gap when you look over a longer 10-year span.
VTSAX vs SPY: Which is better?
Before investing in any stock, mutual-fund, or anything else, it’s always a good idea to do your research. Whether it will be a short-term investment or long-term investment, you can never have too much information.
When making any investment, it comes down to what you are comfortable with and your investment strategy. Some factors to consider with VTSAX vs SPY are the expense ratios, minimum initial investments, and overall performance.
VTSAX has lower fees, but also higher MII and lower overall returns. Weighing all these factors can help you make a decision.
VTSAX vs SPY: Final Thoughts
Investing in funds like VTSAX and SPY is a good idea. Both funds are backed by large asset managers in Vanguard and State Street Global Advisors. Either would make good additions to your investment portfolio.
In the battle of VTSAX vs SPY there are differences in several key categories such as expense ratio, MII, diversity, and overall performance. In addition to your investment objectives, each should be considered before making an investment.
Expense ratio and overall performance are likely the two most important and can almost be considered a wash in end. However, the length of your investment could determine which is better for you to invest with as VTSAX closes the gap on overall performance in the 10-year return right now. Having an expense ratio of half of SPYs could mean more money in your pocket in the end.
When buying and selling any investment fund, always remember that past performance is not always an indicator of future performance.
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Jeff is a fan of all things finance. When he’s not out there changing the world with his blog, you can find him on a run, a Mets game, playing video games, or just playing around with his kids.