VTSAX vs. VTI: Which Will Get You to FIRE Faster?

FIRE – financial independence, retire early – is becoming an increasingly popular personal goal. Though it’s been gaining momentum in recent years, the advent of the COVID-19 pandemic has perhaps turned it into an imperative for more people. Achieving at least the ability to withdraw from the job market is becoming a more valuable option in the face of a macro-level crisis.

But achieving FIRE status requires a combination of consistent savings and investing. And because you’ll need to earn more than the interest banks are paying, that means investing in the stock market to get much higher returns.

Even if you know nothing about investing, you can invest in the entire stock market through two top-rated funds, VTSAX and VTI.

Table of Contents
  1. VTSAX, VTI, and FIRE
  2. VTSAX vs. VTI at a Glance
  3. What is the VTSAX?
    1. VTSAX 10 Largest Holdings
    2. VTSAX Pros & Cons
  4. What is the VTI?
    1. VTI 10 Largest Holdings
    2. VTI Pros & Cons
  5. Mutual Fund vs. ETF
  6. Where to Invest in VTSAX or VTI
    1. Ally Invest
    2. M1 Finance
    3. E*Trade
  7. VTSAX vs. VTI: Which Will Get You to FIRE Faster?
  8. Final Thoughts

VTSAX, VTI, and FIRE

VTSAX and VTI are easy, convenient ways to benefit from stock market gains without the need to select individual stocks or even a collection of funds. The two funds represent Vanguard’s total stock market index funds, giving you exposure to the entire market through a single fund. They are some of Vanguard’s best and most popular funds.

You’ll need the kind of returns the stock market provides to reach FIRE status. Each fund has provided average annual returns above 8% since inception, which is more than 20 years in each case.

Let’s work an example to see how that return will fit into your FIRE strategy.

Let’s say you’re 25 years old and you want to achieve FIRE by age 45. That will give you 20 years to save and invest.

In crunching the numbers, you determine that you’ll need $50,000 per year after you quit your job to live comfortably. Based on the safe withdrawal rate of 4%, that translates into a portfolio of $1.25 million.

If your income is $100,000 per year, and you can bank 30% of it – $30,000 – investing at 8% for 20 years will produce a portfolio of $1.43 million. That’s about $180,000 more than you’ll need to produce the required $50,000 annual income of 4% per year.

What’s more, once you quit your job, your portfolio will continue earning 8%. That means while you’re withdrawing 4% to cover your living expenses, you’ll have the remaining 4% to reinvest for future growth. That’ll be important because it will enable your portfolio to keep pace with inflation.

To achieve FIRE, you’ll need to invest aggressively, and that will require a heavy position in stocks. Because they represent the total stock market of the US, either VTSAX or VTI is an excellent choice to get the job done.

VTSAX vs. VTI at a Glance

The table below provides a quick view of VTSAX and VTI (based on information through 9/30/2021). Other than the fund type, minimum investment requirement, and performance since inception, notice that the two are otherwise nearly identical.

The main difference between VTSAX and VTI is that VTSAX is a mutual fund and VTI is an exchange traded fund. VTSAX, as a mutual fund, has a minimum investment and you buy and sell shares just once a day. VTI, which is an ETF, has no minimum investment and is traded throughout the day. VTI has a lower expense ratio but they both follow the same underlying index.

Fund / Feature VTSAXVTI
Fund TypeMutual FundETF
Index or Active Management?IndexIndex
Minimum Investment$3,000Share price 
Expense Ratio0.04%0.03%
Number of Stocks Held4,0254,025
Fund Total Net Assets$1.3 trillion$1.3 trillion
Underlying IndexSpliced Total Stock Market IndexSpliced Total Stock Market Index
5-Year Performance16.87%16.87%
10-Year Performance16.60%16.60%
Performance Since Inception8.26% (since 11/13/2000)8.69% (since 5/04/2001)
Dividend Yield1.14%1.15%

What is the VTSAX?

The Vanguard Total Stock Market Index Fund (VTSAX) is an index-based mutual fund launched in 1992. It provides exposure to small-, mid-, and large-cap growth and value stocks, even though it’s officially categorized as a large blend fund. It’s a low-cost way for investors to gain exposure to the entire US stock market, which is invested almost exclusively in domestic stocks. 

Even though it’s a mutual fund, it’s index-based and therefore not actively managed. The turnover rate within the fund is just 8%. As an index fund, it will perform no better and no worse than the general market, as it isn’t designed to attempt to outperform it. 

The expense ratio on the fund, at just 0.04%, is just a fraction of the 0.82% average expense ratio of similar funds. But despite the low expense ratio, Vanguard does charge a $20 annual account service fee for each brokerage account, whether it is a retirement account or a non-retirement account. 

The $20 fee also applies to each Vanguard mutual fund holding with a balance of less than $10,000 in an account. However, the fee does not apply if you sign up for account access on the website and choose electronic delivery of statements, confirmations, and Vanguard fund reports and prospectuses. If you have at least $50,000 in qualifying Vanguard assets, Vanguard will waive the fee entirely.

But due to the popularity of Vanguard funds, you can hold VTSAX – or virtually any other Vanguard fund – in a non-Vanguard brokerage account, thus avoiding the fee. (See Where to Invest in VTSAX or VTI below.)

The minimum investment is $3,000, but you can make additional investments in increments of just $1.

VTSAX 10 Largest Holdings

The ten largest holdings in the fund as of 9/30/2021 represent 23.9% of total net assets and are as follows:

  1.  Apple Inc. 
  2.  Microsoft Corp.
  3.  Alphabet Inc.
  4.  Amazon.com Inc.
  5.  Facebook Inc.
  6.  Tesla Inc.
  7.  NVIDIA Corp.
  8.  J.P. Morgan Chase and Co.
  9.  Berkshire Hathaway Inc.
  10.  Johnson & Johnson

VTSAX Pros & Cons

Pros:

  • VTSAX represents the entire market.
  • The fund has one of the lowest expense ratios in the industry, at just 0.04%.
  • One of the most popular funds in the industry, it’s commonly held in the portfolios of robo-advisors.
  • VTSAX eliminates the need to diversify into various market segments, since it includes them all.
  • Available through Vanguard, or through one of dozens of popular investment brokers.

Cons:

  • VTSAX will never outperform the stock market – it’s meant to track the market and nothing more.
  • Nearly a quarter of the fund is held in the stock of just 10 companies.
  • The minimum investment is $3,000.

Some fees may apply if you hold the fund within a Vanguard account and don’t qualify for the waivers. And since it’s a mutual fund, fees may apply if you purchase the fund through other investment brokers.

What is the VTI?

Vanguard Total Stock Market ETF (VTI) is also an index-based investment fund. But it’s virtually the exchange-traded fund version of VTSAX. As its near-identical twin, fund-wise, it’s essentially the same fund. Like VTSAX, VTI tracks the entire US stock market.

Perhaps the main difference is the minimum investment required from an investor standpoint. While the VTSAX requires a minimum investment of $3,000, you can begin investing in the VTI for as little as the price of one share. With that share currently priced at about $243, that will be the minimum investment required.

Still another difference, though it’s minor, is a slightly lower expense ratio. VTI has an expense ratio of 0.03%, compared with 0.04% for the VTSAX.

VTI 10 Largest Holdings

The ten largest holdings in the fund as of 9/30/2021 represent 23.9% of total net assets and are as follows:

  1.  Apple Inc. 
  2.  Microsoft Corp.
  3.  Alphabet Inc.
  4.  Amazon.com Inc.
  5.  Facebook Inc.
  6.  Tesla Inc.
  7.  NVIDIA Corp.
  8.  J.P. Morgan Chase and Co.
  9.  Berkshire Hathaway Inc.
  10.  Johnson & Johnson

VTI Pros & Cons

For a list of VTI pros and cons, feel free to scroll up to read the VTSAX pros and cons list. That’s because the two funds are so similar that the list is the same for both, so no need to duplicate.

Mutual Fund vs. ETF

The underlying difference between VTSAX and VTI is that one is a mutual fund, and the other is an ETF.

The real question becomes, then, what’s the difference between a mutual fund and an ETF?

Here are the basics:

  1. Mutual funds are often, but not always, actively managed funds. Those are funds in which the fund manager will buy and sell securities in an attempt to outperform the market. ETFs are usually, but not always, index funds. Since index funds are tied to an underlying index, like the S&P 500, no trading is involved unless there’s a change in the composition of the index. This is referred to as passive investing.
  2. If a mutual fund is actively managed, it will generate more capital gains, resulting in higher income tax. Since ETFs are usually index based, they generate far fewer taxable capital gains.
  3. Mutual funds usually have a fixed minimum investment, and $3,000 is common. ETFs trade like stocks, which means they can be purchased for the cost of a single share. 
  4. Mutual fund shares are priced once, at the end of each day. Because they trade like stocks, ETF share prices change continuously.
  5. Mutual funds often have load fees, which are essentially sales commissions. They can run between 1% and 3% of the dollar amount of the purchase or sale. ETFs don’t have load fees. In addition, expense ratios on ETFs are typically lower than those of mutual funds, since they involve less active trading.

Not all the differences above apply to VTSAX and VTI. Since they’re both index-based funds, the investment style for each is passive, and the fund costs are nearly identical.

Where to Invest in VTSAX or VTI

You can invest in VTSAX or VTI through the most popular brokerage firms. But here are a few of our favorites here at Wallethacks:

Ally Invest

You can open an account with Ally Invest with no money at all and take advantage of commission-free trades in stocks, options, and ETFs. However, as is usually the case with brokers, there are fees charged on mutual funds, which will include VTSAX. 

Ally Invest has some serious advantages. Not only can you engage in self-directed trading and investing on the platform, but they also offer a robo-advisor to give you a professionally managed option. In addition, they also provide full-service online banking through their Ally Bank sibling. The bank also provides some of the most attractive auto financing deals in the industry.

Learn more about Ally Invest

M1 Finance

M1 Finance isn’t an investment broker – it’s a robo-advisor. But it’s one with a real difference. You can choose the investments you will hold in your portfolio – and you can create as many portfolios as you like – which will include either stock, ETFs, or a combination of both. You can hold up to 100 securities in each portfolio, which they refer to as “pies.” Since they accommodate ETFs, you can hold VTI. You can even create a portfolio comprised 100% of VTI. You can begin investing with as little as $100.

But here’s where M1 Finance gets good. Once you create your portfolio, they will manage it for you free of charge. That includes reinvesting dividends as well as periodic rebalancing. And don’t worry about transaction fees when you add stocks or ETFs to your portfolios – they don’t charge any!

For more information, check out our M1 Finance review, or for a comprehensive list of brokers where you can invest in either VTSAX, VTI, or both, check out our guide Best Brokerage Account Promotions and Bonuses for 2021.

Learn more about M1 Finance

E*Trade

E*Trade is another diversified investment brokerage that can engage in either self-directed investing or take advantage of managed portfolio options. Like most brokers today, they charge no fees on trades of stocks, options, or ETFs, though there are fees for mutual funds. E*TRADE is a fast-growing broker that’s particularly popular among active traders due to the wealth of investment tools and educational resources they offer.

VTSAX vs. VTI: Which Will Get You to FIRE Faster?

Which is the better fund to invest in if you aspire to achieve FIRE in the future?

The short answer: either or both! 

Even though one’s a mutual fund and the other is an ETF, they otherwise function identically. And with the returns nearly identical, either fund will get you to your FIRE goal in about the same amount of time.

If there is an advantage of one over the other, you can purchase VTI for the cost of a share, currently about $243. New investors may prefer that over VTSAX and its $3,000 minimum investment.

But even if you start with VTI, you can convert your investment over to VTSAX once you reach the minimum level of $3,000. But given that the performance of the two funds is so similar, that may not even be necessary.

Final Thoughts

If you’re serious about achieving FIRE in your life, you’ll need to invest heavily in the stock market. If you’re not sure exactly how to do that, investing in a fund like VTSAX or VTI is the preferred way. And since either of these two funds track the entire US stock market, you can choose one fund or both to cover the whole stock allocation of your portfolio.

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About Kevin Mercadante

Since 2009, Kevin Mercadante has been sharing his journey from a washed-up mortgage loan officer emerging from the Financial Meltdown as a contract/self-employed "slash worker" – accountant/blogger/freelance blog writer – on OutofYourRut.com. He offers career strategies, from dealing with under-employment to transitioning into self-employment, and provides "Alt-retirement strategies" for the vast majority who won’t retire to the beach as millionaires.

He also frequently discusses the big-picture trends that are putting the squeeze on the bottom 90%, offering workarounds and expense cutting tips to help readers carve out more money to save in their budgets – a.k.a., breaking the "savings barrier" and transitioning from debtor to saver.

Kevin has a B.S. in Accounting and Finance from Montclair State University.

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

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