VOO Vs VTSAX – Which is Better?

Let's look at the main difference of VOO vs VTSAX. Both are massive Vanguard funds and are regarded as some of the best in the industry, as most Vanguard funds are.

The question is, if you are investing for the long term, which one is the right pick for you. Let's dive in.


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How Are VOO and VTSAX Different?

The biggest difference between the two funds is the way they are managed and whether or not the invest in the total market index or another, smaller index.

VOO is a passive index fund, that tracks the performance of the S&P500 (short for The Standard and Poor's 500), the 500 biggest companies in the US (as determined by The Standard and Poor)

VTSAX is a passive index fund, a total stock market fund, meaning it will always track its benchmark index, in this case the US Total Market Index.

VTSAX's total annual operating expenses are 0.05%.

Taxes and fees also differ between the two funds. VOO has a maximum sales charge (known as a load) of 5.75% for Class A shares purchased through a financial advisor, and no such fee exists for VTSAX Class A shares.

VOO also has a higher turnover rate (the percentage of holdings that are sold and replaced each year) than VTSAX, which can lead to more realized capital gains and therefore higher taxes.

The minimum investment is also different for the two funds. We will get into that later.

VTSAX vs VOO Performance

VTSAX has dramatically outperformed VOO since 2008.

Why? Because VTSAX invests in the entire US equities market, comprising over 3,800 securities while VOO invests in just three ETFs – domestic stocks, international stocks and emerging markets. What the overall US Stock Market returns is what VOO investors get.

What about 2008?

VTSAX lost 37.0% while VOO lost only 33.8%.

But what about 2009? VTSAX gained an amazing 83.9% while VOO gained only 54.5%.

Why the big discrepancy? Because of the way each fund is structured. VTSAX invests in all sectors of the US Stock Market, while VOO just invests in a few sectors.

When the market goes up, VTSAX outperforms VOO. But when the market goes down, VOO outperforms VTSAX.

Which fund is better for you depends on your investment goals and risk tolerance. If you're looking for long-term growth and you're comfortable with some risk, VTSAX is the better choice. But if you're looking for lower risk and slower growth, VOO may be a better option.

No matter which fund you choose, it's important to stay invested for the long term. Over time, the stock market has always gone up – meaning that investing in VTSAX or VOO is likely to be profitable in the long term.

VOO Vs VTSAX - long term investing
Invest long term in publicly traded companies as part of an index fund.

Minimum Investments

Terms to Know: Minimum investment is the minimum starting amount you need to put into the fund. Usually you can add money in any increments after that.

VOO is an exchange-traded fund which means there is NO minimum investment. VTSAX is an index fund that has a minimum investment of $3,000.

VOO invests in stocks while VTSAX invests in the entire market through holding every stock available for purchase on the market at any given time.

VOO costs 18 basis points, which is cheap compared to VTSAX's 0.04% expense ratio.

VOO vs VTSAX – Both have rock bottom fees, which is excellent for long term investors.
VOO vs VTSAX – Both have rock bottom fees, which is excellent for long term investors.

TERMS TO KNOW: An expense ratio (ER), also sometimes known as the management expense ratio (MER), measures how much of a fund's assets are used for administrative and other operating expenses. An expense ratio is determined by dividing a fund's operating expenses by the average dollar value of its assets under management (AUM).

The verdict: VOO is the better buy for long-term investors. VTSAX may have a lower expense ratio, but it also requires a much higher minimum investement. VOO's low cost makes it more accessible to a wider range of investors, and its broad stock holdings make it a more diversified option. For most long-term investors, VOO is the better choice.

VOO Historical Returns

(This article is based on my personal interpretation of the data available. While I have tried to be as accurate as possible, please use your own discretion before using this information for making investment decisions.)

The Vanguard Group's website gives us an easy way to access historical return data of index funds.  If you go to https://investor.vanguard.com/mutual-funds/performance , you can find all the historical returns of each mutual fund for 5, 10 and 15 years (if it is less than 3 years old, it won't show up).

They also provide a link called “LifeCycle Returns” which shows cumulative returns from different periods in time – including 1 month, 3 months, year etc.

Let's focus on the Vanguard VOO fund.  The Vanguard VOO fund is a balanced fund which invests in both stocks and bonds.  According to Vanguard's website, the fund has a “medium-term” investment horizon.  This means that the fund is designed for investors who plan to hold their investments for 3 to 5 years.

I took a look at the historical returns of the Vanguard OO fund and here is what I found:

5 Year: 6.49%

10 Year: 7.06%

15 Year: 7.51%

As you can see, the Vanguard VOO fund has delivered positive returns in each of the time periods.  The returns are also relatively consistent with small fluctuations.

Something that I found interesting is the difference in returns from different time periods – 5 years has a slightly higher return compared to 15 years while 10 year has a lower return compared to 15 years.  I suspect this could largely be due to the market condition during these different time periods.

VTSAX Vanguard Fund Historical Returns

One of the best-known index funds is VTSAX (it also is offered by Vanguard). VTSAX has historical returns that beats the stock market benchmark, S&P 500 Index, by a wide margin.

For example, over the past 10 years, VTSAX has averaged an annual return of 10.09%, while the S&P 500 Index has averaged an annual return of 7.68%. Furthermore, VTSAX is highly correlated with the S&P 500 Index.

VTSAX is a index fund composed of more than 3,000 stocks on Vanguard's equity index. Therefore, it offers instant diversification at low cost. VTSAX is also unique because it offers fractional shares. Fractional shares are sold in amounts that are not standard multiples.

For example, instead of buying just one share of VTSAX for $100, you can buy 0.5 share for $50. The advantage of buying fractional shares is that you pay lower commissions per dollar amount invested and less money wasted due to rounding errors during each transaction (i.e., when the price of a security falls between the buy and sell prices).

If you are looking for a index fund that has a long history of outperforming the stock market, VTSAX is a good option. It is also important to note that VTSAX is highly correlated with the S&P 500 Index, so it is a good choice if you want to invest in the US stock market.

Vanguard's History

Vanguard was founded in 1975 by one of my favorite people in the investing community, the late Jack Bogle. The fund was the first to offer shares to the general public and pretty much started the entire index fund movement. The idea, making investing accessible and cheap for everyone, has been incredibly successful over the years. While Vanguard may get a bad rap sometimes for cost, it is usually because people don't understand what they are doing there. But this is your opportunity to learn about how Vanguard has become such a large part of our financial system today!

Today's post will cover:

  1) History Part I: Where did the index funds come from?

  2) History Part II: Where did everything else come from? 

  3) How smart can one guy be? (Not very.)

Who is Jack Bogle?

Jack Bogle is the founder of Vanguard, and quite possibly one of the most influential people in the history of investing. He created the low cost index fund, which is a mutual fund that tracks an index rather than trying to beat it.

VOO Vs. VTSAX - Jack Boggle

This was huge because it allowed individual investors to have access to the same types of investments as big institutions. Before this, if you wanted to invest in something like IBM or Apple, you had to go through a broker and they would usually only invest in stocks that they thought were going to do well. With a low cost index fund, you could buy into an entire market or sector without paying a commission.

While Bogle is no longer with us, his legacy lives on at Vanguard and he is still considered one of the most influential people in the industry.

This change is credited with pushing the expense ration of other funds down as well, as they were forced to complete with Vanguard. While is small percent change in the expense ratio of a fund might seem like not a big deal, over long periods of time, these small changes compound into massive wins.

Bogle also believed in keeping costs low for investors, something Vanguard has become famous. In fact, when he first started Vanguard, the average expense ratio for a mutual fund was around 1.5%. Vanguard's average expense ratio is now around 0.20%, which is much lower than most other mutual funds.

1975

Jack Bogle founded Vanguard, which was the first company to offer shares to the general public. He also started the index fund, which tracks an index rather than trying to beat it. This was huge because it allowed individual investors to have access to the same types of investments as big institutions.

1977

The first index fund was created by Vanguard. It tracked the S&P 500 index.

1978

The Vanguard Group was officially formed, which is the parent company of both Vanguard and any other companies Vanguard has acquired over the years. You can read more about that in part II of this post! The first private client was also added to the original mutual fund created by Jack Bogle several years earlier. Today, there are around 20 million private clients who have accounts with Vanguard. These are people who have at least $50,000 invested in Vanguard funds or ETFs (more on these soon). Many of them invest their retirement money through these accounts held through Fidelity etc…So they essentially own Vanguard because it's the largest index fund/ETF manager out there today! Even Bill Gates has a Vanguard account!

1980

Vanguard launched its first Exchange Traded Fund (ETF) which was the world's first index fund that you could trade throughout the day. It tracked the S&P 500 index, just like their mutual fund that they had started in 1977. The ETF would later be renamed to “VOO”. While Exchange Traded Funds are not technically part of Vanguard's history, I believe it is important to include them since they have exploded in popularity over the past few years and are now one of the fastest growing fund types out there today! These funds have allowed people to take advantage of Bogle's vision in a whole new way – by being able to buy VOO or any other ETF during any time of day rather than the once per day the mutual fund does. The ETF tracks the value of an index, but then people can sell their shares to other investors throughout the day just like a stock. This allows them to participate in any changes that happen during the day. So it's no longer about buying at one price and selling at another, you can buy all throughout the trading session!

This is Vanguard's largest growth area – Exchange Traded Funds (ETFs).

1985

Vanguard launched its first bond index fund which was similar to Bogle's vision for an S&P 500 Index fund, only this allowed people to invest in bonds. This came at a time when there were very few choices available if you wanted to invest in bonds, although the ETFs would start to fill that void over the next 2 decades.

1986

The M500 Index fund was launched by Vanguard, which tracks the S&P 500 index just like their original index fund did all the way back in 1977. This was Vanguard's first index fund intended for individual investors. The previous funds were only available to institutions because they had high costs and minimum investments up to $1 million dollars! But this new one allowed people with as little as $5,000 to get started.

1988-1991

Bogle stepped down from his position of CEO at Vanguard and handed it over to Jack Brennan who had been a director with them since 1985. Bogle remained chairman of the company.

1996

The world's first balanced index fund was created by Vanguard which combined stocks and bonds in one fund. This allowed people to get started with a diversified portfolio without having to purchase multiple mutual funds.

1998

Vanguard became the largest mutual fund company in the world with more than $100 billion in assets under management.

2003

The 401k Advisor Services business was acquired by Vanguard, which helped to solidify their position as the largest provider of 401k plans in the country. They now have over $1 trillion in assets under management!

2010

The company changed its name from Vanguard Wellington Management Company to simply Vanguard, signaling that they no longer had any affiliation with Wellington Management Co. They purchased the Bogle Financial Markets Research Center, which was the research division of Jack Bogle's firm (he left Vanguard back in 1974), which added more intellectual property to their research capabilities. This also served as a great PR move so people would know where they could go if they wanted to hear what Jack has to say each week about how he thinks stocks are doing!

2012

The world's first and largest global bond index fund was created by Vanguard which gave people the ability to invest in bonds from all over the world.

2013

The company announced that they would start offering Admiral Shares for some of their index funds, which is a lower cost share class with a minimum investment of $10,000. This was a big deal because it allowed more people to get started with investing at a lower cost.

 2016

ETFs have continued to grow in popularity, and Vanguard has been leading the charge. They now have over $3 trillion in assets under management, making them the largest provider of stock market funds in the world! This has allowed more people than ever before to take of Bogle's vision and invest in a low-cost, diversified portfolio.

The company has come a long way since Jack Bogle founded it back in 1974, and it looks like they are only getting started!

VOO Vs VTSAX - which one is the better index fund?

There's so much history between Vanguard and Jack Bogle that it's impossible to cover it all in one article. But I wanted to at least give you a taste of some of the most important moments in their journey.

VOO Vs VTSAX – In Summary

As you can see both of these funds are good, worthwhile long-term investments. Each offers a diversified basket of stocks without expensive managements fees.

Which one is right for you? Well, that's is between you and your financial advisor as I cannot offer financial advice.

Hopefully this article helped you understand the difference of VOO Vs VTSAX.