Disclaimer: I am not an investment professional, and the post below should not be construed as investment advice. This article is for entertainment purposes only. Please consult an investment professional before purchasing any financial investment.
VTSAX and VFIAX are both funds within the Vanguard universe of index funds.
Like all of Vanugard’s funds–these are both ultra low cost–and low turnover funds, which makes them perfect for investors looking for broad stock market exposure.
I personally love both of these index funds–and am currently invested in VTSAX–with other investments in Fidelity’s version of the SP 500 index (which is very comparable to VFIAX).
I love broad based index funds like this because it takes zero brain cells to run the strategy. I don’t have to stress about picking the exact right companies–and then decide when to sell something.
Broad based index funds also have low turnover rates–which allow you to grow your investment in a tax-efficient manner.
I’m a huge fan of investments that are truly passive–and VTSAX and VFIAX are perfect fits for the “lazy portfolio” investors out there.
Without further ado, let’s jump into the specifics of each fund…
VFIAX Index Fund Overview
The VFIAX offering from Vanguard is an index that follows the SP 500–which are the 500 or so largest companies in the US.
Companies at the top of the SP 500 include names like Alphabet (Google), Meta (Facebook), Amazon and other recognizable names like Proctor and Gamble, Visa and Home Depot.
VFIAX is the first Vanguard fund–and it’s performance since inception back in the 70’s has helped make Vanguard a household name amongst investors.
According to Vanguard’s website–here are some facts about the fund:
While the companies in the SP 500 look a lot different today than they did way back in the 1970’s–the principle remains–investing in the top 500 largest American, publicly traded companies offers extremely broad exposure and the chance to ride the SP 500 with minimal fees.
How VTSAX is Different from VFIAX
VTSAX differs from VFIAX in that VTSAX maps to the entire stock market–which includes smaller companies that are not included in the SP 500.
VTSAX gets even broader exposure to the stock market by including small, medium and large cap growth and value stocks.
While VTSAX owns a piece of all SP 500 companies (and thus overlaps with VFIAX) it also owns smaller companies that are not in the SP 500.
Both index funds are similar in that they are both obviously managed by Vanguard–and they are both ultra low cost funds, with very low portfolio turnover.
For folks that are not familiar with turnover–it refers to the % of the portfolio a funds holdings that have changed over the past year.
VTSAX vs. VFIAX Performance
Let’s take a peak at side by side performance of each fund. Let’s first start with VTSAX.
Pretty amazing performance. VTSAX has returned roughly 4.5X return from 2011 to EOY 2021.
VFIAX has performed very similarly during the same timeframe.
From 2011 to EOY 2021–Vanguard 500 Index fund has slightly edged out VTSAX–landing at $46,104.25–edging out VTSAX which landed at $45,224.11 during that same time period.
It was an amazing time for the largest American companies over the last decade–as large cap tech companies dominated the SP500 with amazing growth rates and solid profits.
VTSAX vs. VFIAX Turnover Ratio
VFIAX has had a recent turnover ratio of 1.1%–which is incredibly low. The turnover ratio for VTSAX has recently been at 2.8%.
Compared to a typical, actively-managed mutual fund which has turnover ratios at 50% or above–the turnover rate of VFIAX and VTSAX are much less–which untimely will have a more favorable tax treatment as the fund value increases over time.
VFIAX vs. VTSAX: Future Considerations
While VFIAX has outperformed VTSAX in the last 10 years–it’s interesting to think about what might happen in the future.
In 1958, the average lifespan of a company in the SP 500 was 61 years. Today, it’s down to 18 years!
According to highly regarded consulting firm McKinsey predicts that by 2027, 75% of the companies quoted in the SP 500 will be gone.
That’s a ton of turnover!
Company size is shrinking all around us. Kylie Cosmetics, which was worth almost $1 Billion, was built on the back of an instagram account and a meager 12 employees.
30 years ago–generating $1B in business value with 12 employees is unimaginable.
So we have two trends converging–with the ideal size of the firm shrinking rapidly, and companies within the SP 500 predicted to turn over much more rapidly than in the past.
With these mega trends happening in the background–getting more broad exposure to small and emerging companies is something worth looking in to.
VTSAX vs. VFIAX vs. Single Stocks
Look, picking single stock is gnarly.
No matter how great your research and convictions are–finding the next Google in a vast sea of thousands of choices is nearly impossible–not to mention highly stressful.
Ask anyone that bought Peloton at the top how hard it is to get that approach right.
That’s why these Vanguard index funds exist.
Warren Buffet–famous investor and well known single stock picker–has talked openly about how most investors would be better off long term investing in a broad based, low cost index fund.
You might get lucky and nail it–but for most, index funds offer a passive, low stress way to invest.
Other Vanguard Funds To Consider
If these two funds aren’t your cup of tea–there are some other Vanguard funds for you to also consider.
For example, Vanguard Wellington or Wellsley fund are more balanced funds–and could be a good fit for investors that value income, or less exposure to volatility in their portfolio.
Folks that are into real estate should consider Vanguard’s REIT (Real estate investment trust) index, VGSLX.