
The simplest way to get started investing is with low-cost index funds.
And my favorite kind of index fund is the total stock market index fund. By owning just one fund you achieve instant diversification across virtually all publicly traded companies.
There are many firms that offer total stock market index funds. But Vanguard literally invented the category.
Their total stock market index fund (VTSAX) is the gold standard against which I compare everything else.
Today we’re putting VTSAX up agains its close cousin, VTI.
The two are very similar, yet have some important differences. Which one is right for you is going to depend on how much you have to invest, how militant you are about costs, and how much you value convenience.
VTI vs. VTSAX: The Difference in a Nutshell
Here are two of the most important similarities between VTI and VTSAX:
- Both are offerings of the Vanguard Group
- They both track the CRSP US Total Market Index
But there are four key differences that we’ll explore. And three of the four are related to the two different fund types represented.
You see, VTSAX is a traditional mutual fund while VTI is and exchange traded fund (ETF).
A mutual fund is way for investors who don’t know each other to pool their resources to achieve diversification. Instead of buying stocks directly, you and other investors buy ownership shares of a fund, and the fund buys the stocks.
So you can think of a investing in a mutual fund like investing in a basket of assorted stocks.
Whereas investing in an ETF is more like…investing in a basket of assorted stocks.
Wait, so how exactly are the two different again?
Probably the most common answer is that ETF shares can be bought and sold during the day like stocks, but mutual fund transactions process at the end of the day after the market has closed. So you can day-trade ETF’s, but not mutual funds.
This is a true difference between the two, but not one that I care about. As an investor who plans on having money in the stock market for the rest of my life, I don’t sweat the day-to-day price fluctuations. And I’ve certainly never given a single thought to the hour-to-hour or minute-to-minute price fluctuations.
Here are the differences that I consider to be significant:
- Investment minimums
- Automatic investing
- The ability to trade fractional shares
Those are going to be three of the four differences between VTI and VTSAX that we’ll look at. The fourth difference is cost.
Let’s dive in.
Investment Minimums
This is an area where ETF’s often outshine mutual funds, and that’s certainly what happens in this case.
If you want to invest in VTSAX it’s going to require a minimum investment of $3,000. You can get started investing in VTI for as little as the price of one share. As I’m writing this, that price is right around $225.
That’s quite the difference.
Getting started in investing can be tough. I really hope that posts like Investing the Simple Way give you the information and the confidence you need to get started. But I recognize that there’s a lot to learn and that the responsibility of it all can be overwhelming.
That’s why I hate any barriers that stand between beginners making their first investment and I hate investment minimums.
VTI wins this round decisively.
Automatic Investments
When it comes to convenience, automation is king.
It is so much more convenient to figure out how much you want to invest each month, and to just set it and forget it.
This is where mutual funds tend to have the advantage. You can set up automatic investments with VTSAX, you can’t with VTI.
So if you don’t mind logging in to your account every time you get paid to transfer money from your bank and buy shares of VTI, this drawback of investing in ETF’s is no big deal. But if you wanted the ability to eliminate that chore from your routine, the mutual fund is the way to go.
VTSAX takes this round.
Buying Fractional Shares
This is another huge advantage that mutual funds generally have. I hear that some ETF’s let you buy a fraction of a share at a time, but VTI doesn’t.
So if you want to invest $200 a month into a Roth IRA, here’s what it would look like with VTSAX:
- Log in once and set up automatic investments for $200 a month.
That’s it. If VTSAX costs $100 a share this month, you’ll get two shares. If it costs $150 you’ll get 1.33 shares.
But here’s what it would look like to try to invest $200 a month in an ETF:
- The first month you don’t have enough, so you put the money in a savings account
- Next month, you have $400, so you log in and buy one share at $225 and leave $175 in savings
- The third month, you have $375 and the price has increased to $245 a share, you put $130 back in savings
You get the picture. Not being able to buy fractional shares is makes things ugly.
It’s a decisive win for VTSAX.
Costs Matter: Comparing the Expense Ratios
You might have wondered: Why do companies like Vanguard help people invest their money for free?
They don’t. They just don’t ever show you the bill.
Brokerage companies make money through various fees an expenses. These silently disappear from your balance, completely lost in the daily ups and downs of the market.
The main cost of investing in a fund is the expense ratio. In fact, this should be the only fee or expense your fund charges.*
As I wrote about in The Tyranny of Compounding Costs, These seemingly insignificant expense ratios can take a massive bite out of your wealth over time.
As an example, let’s consider what happens when make a one-time investment of $10,000 and let it grow for 40 years at a 5% rate of return and 1% expense ratio:

Amount Invested | Ending Balance | Lost to Fees |
---|---|---|
$10,000 | $47,096 | $23,304 |
The fact that you nearly 5x’ed your money is great. but without fees, you’d have more than 7x your initial invetment.
In this scenario, you actually end up paying nearly $10,000 in fees. That’s nearly as much as you invested, but not as much as the $23,304 I listed on the table. This is because the amount lost to fees includes both the amount you paid and the compounding potential that was lost.
You never see this money, it just silently vanishes from the intangible world of potential.
*Shockingly, VTSAX actually charges an annual $20 fee on “certain balances under $10,000.” I’m not sure what is meant by the phrase ‘certain.” Maybe that means you’re exempt if you set up automatic investments, but that’s just a guess. In any case, shame on you Vanguard. I spend so much time talking you up on this site.
VTI vs VTSAX on Expense Ratios
VTSAX has an expense ratio of 0.04%. VTI sits at 0.03%. Both are outstanding, but lower is always better and VTI wins this round.
But it’s a narrow win this time.
Let’s look at that same example of a one time $10,000 investment left alone for 40 years. Here it is at VTSAX’s 0.04% expense ratio:

Amount Invested | Ending Balance | Lost to Fees |
---|---|---|
$10,000 | $69,282 | $1,118 |
Ah, that’s certainly more like it. But of course, VTI does even better:

Amount Invested | Ending Balance | Lost to Fees |
---|---|---|
$10,000 | $69,560 | $840 |
Both are great, and both save you nearly $9,000 compared to a 1% expense ratio. But I definitely like the fact that you lose $278 fewer dollars to fees with VTI.
Final Thoughts
The battle between VTI and VTSAX largely comes down to preference. Do you need to get started on a small budget? Do you want to minimize fees? Or do you want convenience?
Personally, I value the convenience of mutual funds. I want the ability to automate my investments an to invest in fractional shares. So given the choice, I’ll go for the mutual fund.
But don’t stress out too much about the difference. Using my Outcome Report Card method, this is an A/A+ decision. Making the right choice is an A+ move and making the wrong choice is a solid A. Just pick one and shift gears later if you realize you chose poorly.
If you’re like me as an investor, a good total stock market fund is all you need in the beginning. But it won’t be all you need forever. At some point, you’ll need to graduate to the 201 investing class, asset allocation:
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