Why VTSAX?

The Vanguard Total Stock Market Fund, ticker symbol VTSAX, gets a lot of attention and love from authors and investors alike. But why VTSAX?

Is it the strong past performance?

Maybe it’s the low fees.

Do bloggers make money promoting it?

I’ll dig into what VTSAX actually is and how it’s performed while discussing what makes the “Vermont Saxophone” such a popular choice for do-it-yourself investors.

 

Why VTSAX?

 

why-vtsax

 

What is VTSAX?

 

VTSAX is a mutual fund, more specifically an index fund, comprised of over 3,600 publicly traded companies based in the United States. As index funds do, by definition, it is designed to track a benchmark. The chosen benchmark is the CRSP US Total Market Index.

It doesn’t follow the index perfectly, but stocks are added and dropped almost in parallel with the index.

The Center for Research in Security Prices (CRSP), an affiliate of the University of Chicago’s Booth School of Business, does have some inclusion and exclusion criteria to be considered “investible,” so the index (and thereby VTSAX) doesn’t actually hold every stock traded on the New York Stock Exchange (NYSE) or Nasdaq.

 

VTSAX-CRSP

 

There are around 6,000 securities exchanged on either the NYSE or Nasdaq, and the CRSP index, as of 12/31/2020, contained 3,622 stocks. VTSAX on that same date held 3,634 stocks. Notably, IPOs considered are either fast-tracked and added after 5 days or added after 20 days.

VTSAX has been invested in Tesla since 2010. If you’ve owned the fund since then, you’ve benefitted from the meteoric rise in the value of those initial shares because the index is cap-weighted. The stock that once trailed Steve Madden shoes, Jack in the Box, and movie theater chains in market capitalization is now one of your top ten holdings in the fund.

 

VTSAX-TESLA

 

The same is true of Apple, Microsoft, Starbucks, and pretty much any success story you can conjure up of a small cap that grew up into a dominant large cap stock.

Of course, a VTSAX investor has also owned the losers and the stocks that stagnate for years. Yes, a VTSAX investor held Enron, which famously dropped to zero, although it was booted from the indices before it flatlined completely. As mentioned above, a stock has to be considered “investible” to be included. If you’re interested in those criteria, I’ve got a 70-page pdf file for you to read.

 

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VTSAX Statistics

 

We’ve established that the fund own over 3,600 funds, representing nearly 100% of the investible stocks as determined by CRSP and in the neighborhood of 60% of all NYSE or Nasdaq listed U.S. companies. The index is managed by portfolio managers Gerard C. O’Reilly and Walter Nejman.

Looking at the top 10 companies, which currently constitute 22.3% of the total value of the fund, you’ll see a technology-heavy list of household names.

 

Why_VTSAX_2021

 

 

After technology, the next most heavily weighted sectors are consumer discretionary, industrials, health care, and financial, in that order.

 

VTSAX-sectors

 

The expense ratio is 0.04%, or 4 basis points, which means for every $100,000 invested, the fund will subtract a total of $40 from your balance each year. That’s quite low, but it’s no longer the lowest in the business, as we’ll cover a bit later.

To invest in VTSAX via Vanguard, you must invest a minimum of $3,000, and additional investments can be made in $1 increments.

It’s dividend yield, based on the trailing 12 months as of January, 2021, is 1.41% with 96.6% of those being qualified dividends, making it a very tax-efficient fund to own in a taxable brokerage account.

VTSAX is the world’s first trillion-dollar fund. Between it its other share classes, including the ETF share class, VTI, $1.1 Trillion is invested in the Vanguard Total Stock Market Fund.

 

VTSAX Performance

 

Celebrating its 20th birthday on November 13th, 2020, VTSAX has survived both the dot-com crash of the early 2000s and the Great Recession later that same decade. There was also that brief insult in 2020 as the pandemic wreaked havoc on life as we knew it.

The lifetime performance of the fund since its inception on 11/13/2000 to the end of 2020 is a compound annual growth rate of 7.82%.

When the “lost decade” is removed from the picture, the returns look rosier, with 1-year returns of nearly 21% and 3, 5, and 10-year returns in the 14% to 15% range.

 

VTSAX-returns

 

If you look at the year-by-year returns over the last 16 years, a time period that includes the Great Recession, you’ll see two years of negative returns with 2008 at -37% being the worst year by far. 13 of those 15 years, VTSAX gave positive returns of 0.4% to 33.5%.

 

VTSAX-returns-by-year

 

There is a strong correlation between the large-cap only S&P 500, but the inclusion of mid-cap, small-cap, and micro-cap stocks in VTSAX have given it a decent edge over the 20+ years it’s been around with a total return of 232% for VTSAX versus 189% for the S&P 500 index from November of 2000 to January of 2021.

 

vtsax-sp500

 

VTSAX in the Blogosphere

 

In The Simple Path to Wealth, JL Collins recommends a 100% VTSAX portfolio for his daughter and other young investors who are just getting started in their careers. The fund is also the largest holding in his own portfolio, at 76% of the total as of 2018.

Jeremy & Winnie of Go Curry Cracker had about 50% of their multimillion dollar portfolio in Vanguard’s Total Stock Market Index when last updated in 2020.

ChooseFI lists VTSAX as one of the most recommended funds among listeners and among their favorite funds. Listen in to a few episodes, and you’re bound to hear the ticker symbol before long.

Mr. Money Mustache touted VTI (the ETF share class of VTSAX) as the “one king index fund” that makes investing easy in one of his first blog posts back in May of 2011.

You can even buy VTSAX tee shirts.

What about me? Although I’ve donated a good chunk of my nicely-appreciated shares of VTSAX, it remains my largest holding by far, representing more than half of the money in our taxable brokerage account.

I haven’t written about the fund by itself before today, but I’ve frequently mentioned it in my writings on the three fund portfolio.

The trillion-dollar fund is clearly a favorite among investors, bloggers, and podcasters alike.

 

Alternatives to VTSAX

 

Are there other funds like VTSAX? You betcha.

Other companies offer total stock market index funds. Schwab has SWTSX, a $13 billion fund with an expense ratio one basis point cheaper than VTSAX at 0.03%. It follows the Dow Jones US Total Stock Market Index, which I consider to be not “substantially identical” and a good tax loss harvesting partner for VTSAX. I own it in my solo 401(k).

Fidelity has two total stock market funds. FSKAX has an expense ratio half that of Schwab’s fund, at only 0.015%, and tracks the same Dow Jones index, holding 3,532 holdings at the end of 2020.

Fidelity’s ZERO total market index fund, FZROX, costs nothing to own (a 0 expense ratio), follows a proprietary Fidelity index, and held just 2,442 holdings at the end of 2020, or about 2/3 that of the major total US stock market indices.

You can also buy exchange traded funds (ETFs) that track the total US stock market indices. VTI is the ETF version of VTSAX from Vanguard, and it has a slighly lower expense ratio of 0.03%.

An ETF offered by iShares tracks the Core S&P Total US Stock index, holds 3,597 stocks, and also has an expense ratio of 0.03%.

In short, ETFs differ from mutual funds in that they can be traded throughout the trading day, cost a slight premium above their current value (the bid/ask spread), and in most cases, are slightly more tax-efficient than mutual funds. Vanguard mutual funds are an exception to this rule, thanks to a patented fund structure that gives their mutual funds the same tax efficiency enjoyed by their ETFs.

Read more on the differences between mutual funds and ETFs here.

 

Why Choose Vanguard?

 

I will tell you this. It’s not because bloggers are compensated for recommending it. One way Vanguard keeps its costs low is by keeping a reasonable advertising budget. I have sent a lot of investors to Vanguard, and I haven’t received a dime for it or any other sort of compensation.

I recommend them for several reasons. One, they were the original low-cost brokerage. Founder Jack Bogle invented the index fund.

Second, there are no shareholders to please with profits. The company is owned by those who invest in the funds. That’s right — you and me, the client-owners.

While they are no longer the lowest cost purveyors of index funds, the differences are miniscule, and those who offer ever-so-slightly cheaper funds offer them up as loss leaders in hopes that you’ll invest in their more costly offerings.

Note that VTSAX can be purchased with no trading or transaction fees within any Vanguard account, but that won’t necessarily be the case when you purchase the fund from other brokerages. In recent years, many ETFs, including the VTSAX equivalent VTI, can be purchased without fees at many places, but the same is not true for many mutual funds. Before purchasing VTSAX over a similar alternative, investigate the possibility of trading fees when off the Vanguard platform.

Vanguard may not have the greatest customer service or the most user-friendly website, but I’ve always been able to do what I need to do. Vanguard has treated me well, and I plan to stick by the company and my beloved VTSAX.

 

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Do you own VTSAX or an equivalent or similar fund? Why or why not?

 

40 thoughts on “Why VTSAX?”

    • Is there any reason not to buy VTSAX in my E*TRADE brokerage account? (No fees from E*TRADE)

      I have accounts with Vanguard as well, but their website is the least intuitive of all finance websites. Would rather manage my $$ in E*TRADE whenever possible.

      Any downsides to not buying Vanguard products directly through Vanguard?

      Reply
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  2. I am somewhat new to financial blog reading but the obvious tilt to Vanguard is immediately obvious. Although Vanguard is obviously a great company, I figured there was some sort of compensation going on, but it appears not which is a little surprising.

    I recently revamped my portfolio and ultimately decided to go with Fidelity to get access to the zero funds. I fully understand they are a loss leader but they are a little cheaper. Fidelity also had available no commission trades with ishares ETFs. The ishares family of funds that I use (ITOT, IXUS, AGG, MUB,HDV, REET) seems to compare favorably with Vanguard or anyone else in terms of ER and performance. No regrets.

    Reply
    • The iShares ETF family is solid, no doubt.

      I’m not sure if I’m on the FZROX bandwagon, although I love the idea of no fees. Looking at the fund since inception as compared to VTSAX, it has slightly outperformed (46.28% to 44.24%), although the differences in tax-efficiency may make up for that difference. Too early to tell, but it definitely tracks very closely, despite holding only 2/3 the number of funds.

      Cheers!
      -PoF

      Reply
  3. Nice post about VTSAX and Vanguard.

    I do love vanguard. I have a taxable account and both Roth’s with them. I do want to grip a little about them:

    1) There’s no banking component (they did away with that)
    2) There’s no 1 click button to do a Roth conversion
    3) They don’t accept 401k rollovers into another 401k

    #’s 2 & 3 frustrate me the most about them. But everything you wrote was spot on.

    Regards,

    Psy-FI MD

    Reply
    • Vanguard’s certainly not perfect. Other brokerages have slicker websites that are more user-friendly.

      There is a Roth Conversion link (not a button), but if you’re doing the backdoor Roth, it’s a few steps to get it all done.

      bdr

      I opened my individual 401(k) at Etrade rather than Vanguard. The inability to rollover accounts to Vanguard’s i401(k) made it a no-go for me. Also, they didn’t have the admiral fund share class available back when I was looking into it, which is odd.

      Best,
      -PoF

      Reply
      • I just did this last week (and invested in VTSAX!), but the problem was getting to that page that has that link–it is not the one that you get automatically. For some reason this year I had to click around to get to it. It seemed a lot easier last year.

        Reply
        • It seems to be a little different each year.

          I think the first thing I do after logging in is clicking My Account -> Balance & holdings. So I think of that screen as the default, but I guess it’s not.

          It would sure be nice if the government would just do away with the artificial limit on Roth IRA contributions for high earners anyway. Let everyone make the $6,000 contribution with no pro rata rule or other silly rules. There’s a workaround as it its, and it just makes for more headaches and complexities for everyone.

          Best,
          -PoF

  4. I’m hoping Vanguard will improve the customer service and user experience issues people frequently complain about. Do you know whether Vanguard reps ever read the comments on FI blogs?

    Reply
    • I’m not sure they’re reading the posts, let alone the blogs.

      I do tag them occasionally on Twitter, but I don’t think they have much of a social media game, either.

      Vanguard, surprise me with a reply!
      -PoF

      Reply
  5. I have been an investor in Vanguard funds since residency (!) in the early 1990’s. Then, they were worlds apart in low cost offerings and index funds, but today not so much. While I still have a significant portion of our next egg at Vanguard, I now have more at both Fidelity and Schwab. I am able to get comparable index products (in funds and ETFs) with low fees and a better all around customer experience. VTSAX is a smaller holding for me than FSKAX.

    Reply
  6. During the large drop in the spring of 2020, I tax loss harvested a significant amount from VTSAX into VFINX (S&P500). Given the subsequent runup, it looks like I’ll be holding onto VFINX for good. Yes, first world problems… 🙂

    Thoughts on adding additional funds to broaden my VFINX better mirror VTSAX? Add midcap and small cap? Advice on percentages to add?

    Reply
  7. Great article. I tax loss harvested during February so I now have a lot of Vfinx. If we have another huge sell off I will go back. Oddly I have had no customer service problems with Vanguard.

    Reply
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  9. So I have a quick question. I’m confused as to why do many people recommend VTSAX when there are so many funds that beat it significantly.

    For example, PRNHX is a 60 year old fund with a lifetime return of 12.55%, as opposed to VTSAX 7.8%. And yes while VTSAX has a much smaller expense ratio (0.04 compared with 0.76 for PRNHX), starting at $0, and investing $1000/month into each fund, PRNHX will have a final value net expenses of 2.7 million, as opposed to VTSAX’s 1.3 million.

    Of course this doesn’t account for all people’s individual situations, but just based on an apples to apples comparison, I would pick PRNHX any day. But then there are many smart people in FIRE circles that plow millions into VTSAX.

    Am I missing something?

    Reply
    • I have PRNHX as well and another one AKREX as well that has done very good in tax deferred / tax exempt funds . as far as the core of my taxable investments , i like something guaranteed not to underperform the market

      Reply
    • You’re not comparing risk-adjusted returns. The New Horizons fund invests in higher-risk stocks.

      You’re also not looking at the same timeframe. If you look at performance from November, 2000, when VTSAX was launched, the returns are actually similar. PRNHX does a bit better during good times, and VTSAX handles market downturns better.

      If you had asked the question a year ago, VTSAX had returned175% lifetime, while PRNHX returned only 142% over the same dates. PRNHX has had a great year since then with its technology focus, and has taken a slight lead.

      I hope that helps.

      Best,
      -PoF

      Reply
  10. I love Vanguard and have outgrown VTSAX ( min $3,000) and have graduated to VITSX ( Institutional shares min $5,000,000) and on my way to the next step VSMPX ( $100,000,000) 😀. Above the $5,000,000 threshold you have access to your own manager which is very helpful.

    Reply
    • What are the advantages for institutional shares vs VTSAX? 0.03 vs 0.04 expense ratio? Anything else and/or disadvantages?

      With Flagship Select, are all the additional services, including having your own manager, tied into enrolling into the Personal Advisor Service program? Thanks!

      Reply
      • I did not enroll in to anything but have flagship select because of my balance . I haven’t done their personal services program but do have a person i can call to move money etc that i am acquainted with so it’s not some random person every time i calll

        0.03 % vs 0.04% on say 10 million is a 1000$/ a year . and yes i will still pick up a nickel or penny if i see one .

        Reply
        • Absolutely agree re: taking savings when available.

          It is unclear to me reading the website, but many of the advantages of Flagship Select appear to be attached to signing up for the advisory service. The fee is not inconsequential when your balances are in this range. $15K/year at $5 million and $25K/year at $10 million.

  11. The index doesn’t have to buy more tesla because it goes up, the shares increase in value automatically. If there were no subscriptions and redemptions, there would be hardly any transactions in the fund.

    Reply
    • and because it’s not selling all the time , it’s tax efficient and why it is pretty much all i own in the taxable equity market

      Reply
    • That’s an excellent point — post updated.

      Most of the transactions happen at the bottom end of the index — stocks that don’t have a large enough market cap, enough float shares drop off. IPOs, if investable, are added after 5 or 20 days.

      An exhaustive description of the CRSP methodologies for index inclusion can be found here.

      Cheers!
      -PoF

      Reply
  12. Thanks for all the work to bring us a great and informative article about VTSAX. It is definitely a good choice in my opinion if you want to minimize the time spent looking for investments, or want to only own one or two funds.

    VTSAX has a lot of supporters, but it is not the “only game in town”. There are other good funds with a history of equal and better returns that could be purchased without significant increases in risk (risk is a personal thing anyway). Glad to hear other readers have also discovered PRNHX. My approach has been to own the best of both worlds by buying both VTSAX and PRNHX.

    Reply
  13. I keep seeing VTSAX touted as one of the best, but I invested in TWCUX, the Ultra fund, over 30 yrs ago, and went 100% in until I rebalanced slowly 5 yrs from ret. I’ve done VERY well, i think, even w/the 1% expense. My 401k went over $1M at 25 yrs, & I ret after 30 yrs, and I’ve started 7% w/drawals, while still waiting to draw on my 100% TWCUX Roth & MD spouses 100% TWCUX Trad IRA which doesn’t have an RMD for 12 more yrs. What am I missing on comparing historical returns (albeit past perf is no guarntee of future…)?
    Returns 1 yr 3 yr 5 yr 10 yr
    TWCUX 47.7 24.4 25.6 17.9
    VTSAX 21 14.5 15.4 13.8

    Reply
  14. I also owned TWCUX as one of my kids 529 funds , I put in $10,000 at birth in 1996 and it dropped to $5,000 in 2000 did not sell and by the time he turned 18 and going to college it was worth $50,000. He had another 50,000$ in VTSAX . You can do better than VTSAX but at the expense of less tax efficiency if personal money , and while I have been lucky ( or good ) others have invested in funds which under performed the broad market. I think VTSAX is great as the core of your taxable investments ( tax efficient ) or for those who don’t want to spend much more time or effort than it takes to DCA over decades. I would rather match the market over the years than under perform while trying to beat the market. As mentioned above , I also own PRNHX, and AKREX. My VTSAX is now in VITSX ( institutional shares since I have over 10M in that fund and it has an even lower expense ratio )

    Reply
  15. My 401k only offers SWTSX Schwab Total Market Index and SWPPX Schwab S&P 500 Index. No VTSAX. What allocation of the schwab funds should I use? Does it mean this is a bad plan offering? Wasn’t understanding how SWTSX was rating poor when it came to taxes?

    Reply
    • Nothing wrong with that fund — I own it in my solo 401(k). I’m not sure what you’re saying about a poor rating — as an index fund, it will be relatively tax-efficient, and in an 401(k), tax-efficiency isn’t really an issue, anyway.

      Cheers!
      -PoF

      Reply
  16. My 401k only offers SWTSX Schwab Total Market Index and SWPPX Schwab S&P 500 Index. No VTSAX. What allocation of the schwab funds should I use? Does it mean this is a bad plan offering? Wasn’t understanding how SWTSX was rating poor when it came to taxes?

    Reply
    • whether schwab or vanguard or fidelity, any index should be tax efficient due to low turnover . all three of those companies are known for their low cost and safety as far as a company that might disappear i the middle of the the night goes . the total market is more diversified and gives you exposure to smaller companies with more potential return over time . If all you have is schwab I wouldn’t worry about that a bit . At least you have one of the three outstanding companies and kudos to your plan administrator !

      Reply

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