Absolutely nothing. Thank you for coming to my TED talk.
Okay, okay, yes, VTI and VTSAX are technically different things, but they serve the same purpose. They are both total market index funds, meaning they hold shares of all the stocks in the US stock market. The difference is that VTI trades as an Exchange Traded Fund, or ETF, and VTSAX is a mutual fund. So, I think the question we really want answered is: What’s the difference between an ETF and a mutual fund?
Timing
For the type of long term investing I practice, the only practical difference between an ETF and a mutual fund is when you can buy them. An ETF trades in the market throughout the day, just like an individual stock, which means you can place your buy order any time the market is open. Conversely, a mutual fund only trades once per day, at the market closing.
This difference in timing might matter to you if you are swing trading the daily fluctuations in the market, but not to me! I’m in it for the long term and a percentage point or two difference will come out in the wash after 20+ years of market appreciation.
Initial Investments
Another difference that comes into play particularly with VTSAX and most other mutual funds, but not all, is that there is a minimum investment amount. For VTSAX, that minimum amount is $3,000, though once you’ve invested that one-time amount of $3,000, you can invest in $1 increments from there.
With ETFs, because they are traded like stocks, you can invest as little as $1 to get started.
Expense Ratios
Depending on the type of mutual fund, some funds are actively managed, which means some fund manager is sitting behind a computer screen somewhere thinking they can predict the future and outsmart the market. And if you’re a big enough sucker to buy the baloney they are selling to you, that means you are more likely to lose more money and you are paying them for the privilege of losing it! As you’ve hopefully learned from me by now, nobody has ever been able to outsmart the stock market in the long run.
Keeping your money in index funds is the best way to ensure long term gains from your financial investments with the added benefit of low expense ratios. Because index funds, both mutual funds and ETFs are not actively managed funds, their expenses are very low. Which means more money stays where it belongs – in your brokerage account!
VTI vs. VTSAX
So, between VTI and VTSAX, which one is better for investing? Either one! They are basically identical for all practical purposes, and I have holdings in each. Pick the one that makes the most sense to you, because the only part that matters is that you invest!