A Guide To Investing In Vanguard's Total Market Index Funds

Vanguard Total Stock Market Index Funds are a type of investment fund that tracks the performance of a broad stock market index, such as the CRSP US Total Market Index. These funds aim to provide investors with exposure to the entire U.S. stock market, covering thousands of publicly traded companies across small-cap, mid-cap, and large-cap stocks, as well as growth and value stocks. Vanguard's funds are known for their low costs and have a long history of providing investors with a simple and diversified investment option. In this article, we will discuss how to invest in Vanguard Total Stock Market Index Funds, including the different funds available, their performance, and the benefits and drawbacks of investing in index funds.

Vanguard Total Stock Market Index Fund vs. Vanguard 500 Index Fund

The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) and the Vanguard 500 Index Fund Admiral Shares (VFIAX) are two of Vanguard's most popular products. While both funds can serve as core holdings in a stock portfolio, they pursue different investment strategies.

Vanguard Total Stock Market Index Fund (VTSAX)

The Vanguard Total Stock Market Index Fund is a mutual fund that provides investors with exposure to the entire U.S. stock market, consisting of thousands of publicly traded companies across small-cap, midcap, and large-cap stocks, as well as growth and value stocks traded on the Nasdaq and New York Stock Exchange (NYSE). As of November 27, 2023, the fund had assets totaling almost $1,271.37 billion invested in 3,827 different holdings. The fund's top holdings include Apple, Microsoft, Amazon.com, Facebook, and Johnson & Johnson. The expense ratio is 0.15%, with a minimum initial investment of $3,000. An admiral shares version is also available, offering a lower expense ratio of 0.04% with a $10,000 minimum investment.

Vanguard 500 Index Fund (VFIAX)

The Vanguard 500 Index Fund, on the other hand, provides exposure solely to the 500 largest U.S. firms that comprise the S&P 500 Index. This fund seeks to replicate the performance of its benchmark index by investing its total net assets in the stocks that make up the index. As of Dec. 30, 2021, the fund had $280 billion in total net assets and held 512 stocks. The expense ratio is 0.04%, with a minimum investment of $3,000.

Comparison

While the Vanguard Total Stock Market Index Fund provides broader diversification across the entire U.S. stock market, the Vanguard 500 Index Fund focuses specifically on the largest U.S. companies within the S&P 500. In terms of performance, the Vanguard Total Stock Market Index Fund is best suited for moderately to highly risk-tolerant investors seeking low-cost exposure to the U.S. stock market. It can function as a single domestic equity fund in a portfolio. On the other hand, the Vanguard 500 Index Fund is more suitable for investors with a long-term investment horizon who prefer the lower risk associated with large-cap equity stocks. This fund works well as a core equity holding in a diversified portfolio that also includes other types of equities for growth.

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)

The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is a mutual fund that offers investors exposure to the entire U.S. stock market, covering virtually all U.S. investable stocks. The fund is designed to track the performance of the CRSP US Total Market Index, which consists of thousands of publicly traded companies across small-cap, midcap, and large-cap, as well as growth and value stocks traded on the Nasdaq and New York Stock Exchange (NYSE).

VTSAX employs a representative sampling approach to approximate the entire index and its key characteristics. As of December 30, 2021, the fund held 4,149 stocks and had net assets of $300 billion. Technology, financial, industrial, healthcare, and consumer service companies make up its largest holdings.

How to Invest in VTSAX

VTSAX can be purchased directly through Vanguard or via a broker's mutual fund portal. The fund requires a minimum investment of $3,000 and has an extremely low expense ratio of 0.04%. There is also an ETF equivalent to VTSAX, the Vanguard Total Stock Market ETF (VTI).

Performance and Risk

VTSAX has returned 8.36% over the past year, 9.06% over three years, 10.15% over five years, and 10.47% over the past decade. The fund's risk is considered average when compared to other funds in the large-blend peer group. However, the level of return is above average for the trailing three-, five-, and 10-year periods relative to its peers.

Similar Funds

Similar funds to VTSAX include the Fidelity ZERO Total Market Index Fund (FZROX) offered by Fidelity, which is broadly similar, and the Vanguard Russell 2000 ETF (VTWO), which tracks the Russell 2000 Index and provides exposure to small-cap companies.

Vanguard Total Stock Market ETF (VTI)

The Vanguard Total Stock Market ETF (VTI) is a fund that covers the entire universe of publicly traded stocks in the U.S. It consists of small, medium, and large companies across all sectors. The fund has been trading since 2001 and is backed by Vanguard, a company known for its low-cost investment approach.

The VTI has an extremely low expense ratio of 0.03%, meaning that for every $10,000 invested, you would pay $3 annually. This is a significant advantage for long-term investors, as costs are one of the most important factors in determining your total return. The fund also has a strong long-term performance track record, with a 5-year annualized return of 15.2%.

The VTI provides investors with a highly efficient, well-diversified, and accurate exposure to the entire U.S. stock market. It is a one-stop shop for all U.S. stocks, offering exposure to thousands of publicly traded companies across the market-cap spectrum. As of November 27, 2023, the fund had assets totaling almost $1,271.37 billion invested in 3,827 different holdings.

The VTI can be purchased directly from the Vanguard website or through most online brokers. It is a suitable investment for those looking for a low-cost, broadly diversified index fund to serve as a core holding in their portfolio.

Vanguard Total Stock Market Index Fund's performance

The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is a mutual fund that offers investors diversified exposure to small-cap, mid-cap, and large-cap stocks, as well as growth and value stocks traded on the Nasdaq and New York Stock Exchange (NYSE). As of December 30, 2021, VTSAX held 4,149 stocks and had net assets of $300 billion. The fund's top holdings include well-known companies such as Alphabet Inc. (Class A and Class C), Meta Platforms Inc. Class A, Berkshire Hathaway Inc. Class B, and JPMorgan Chase & Co.

In terms of performance, VTSAX has delivered solid returns over the years. As of 2024, it has a 5-year average return of 13.00% and has been up for 18 years and down for 5 years. The best 1-year total return was 33.52% (as of April 11, 2024), while the worst 3-year total return was 6.97%. The fund's performance in 2023 was 7.16%, and in 2022, it saw a negative return of -5.46%.

VTSAX's expense ratio is an attractive feature, currently at 0.04%, with a minimum investment requirement of $3,000. This low expense ratio is one of the key advantages of investing in Vanguard's index funds, as it helps keep costs low for investors.

When compared to the Vanguard 500 Index Fund, VTSAX has historically experienced slightly higher volatility and return. However, the Sharpe ratios for both funds are nearly identical, indicating similar risk-adjusted returns for investors.

Overall, the Vanguard Total Stock Market Index Fund is well-suited for investors seeking broad exposure to the U.S. stock market and those with a moderate to high-risk tolerance. It can serve as a single domestic equity fund in an investor's portfolio.

Vanguard Total Stock Market Index Fund's expense ratio

The Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) is a mutual fund that provides diversified exposure to small-cap, mid-cap, and large-cap stocks, as well as growth and value stocks traded on the Nasdaq and New York Stock Exchange (NYSE). As of December 30, 2021, VTSAX held 4,149 stocks and controlled net assets of $300 billion. The fund employs a representative sampling approach to approximate the entire index and charges an extremely low expense ratio of 0.04% with a minimum investment of $3,000.

The expense ratio of 0.04% for VTSAX is significantly lower than the average expense ratio for mutual funds and ETFs. According to data from 2022, the average stock index mutual fund charged 0.05%, while the average stock index ETF charged 0.16%. Keeping costs low is an important feature of Vanguard funds.

While the VTSAX expense ratio is very competitive, the fund's expense ratio is not quite as low as that of some competitors in the index fund space. For example, the Fidelity ZERO Large Cap Index mutual fund (FNILX) has an expense ratio of 0%, and the Vanguard S&P 500 ETF (VOO) has an expense ratio of 0.03%.

It is worth noting that the Vanguard Total Stock Market Index Fund has two classes: Admiral Shares and Investor Shares. The Investor Shares (VTSMX) are no longer open for new investment, but they differ from Admiral Shares only in the minimum required investment.

In summary, the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) offers a very low expense ratio of 0.04%, which is a key advantage of this fund. However, there are a few other index funds with even lower or no expense ratios, such as the Fidelity ZERO Large Cap Index fund.

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