VTI vs. VTSMX: An In-depth Comparative Analysis
This article will compare two Vanguard investment funds: VTI and VTSMX.
VTI and VTSMX Overview
VTSMX is a total stock market mutual fund
VTI is a total stock market ETF
VTSMX was closed to new investors in 2018
VTI and VTSMX are two investment fund offerings from Vanguard that offer wide exposure to the U.S. equities market, tracking performances of the CRSP US Total Market Index.
They both operate with similar investing objectives and holdings but utilize different structures.
VTI is structured as an ETF (Exchange-Traded Fund), while VTSMX is set up as an index mutual fund, which has implications for the availability, purchase, or sale of these funds.
Expense Ratio Analysis
Arguably, one of the most important considerations when selecting investment vehicles is the costs associated with them, chiefly represented by the expense ratio.
VTI holds a slight edge in this department, with an expense ratio of 0.03%, making it one of the cheapest ETFs in its class. Meanwhile, VTSMX has an expense ratio of 0.14%.
Dividend Yield Comparison
VTI and VTSMX have historically provided similar dividend yields thanks to their broad market exposure. VTI pays a dividend yield of around 1.71%, which is fairly average for a total stock market fund.
The past numbers for VTSMX are closed off due to the ceased acceptance of new investors, but VTI continues to offer appealing dividend yields, which vary based on market performance and varies annually.
Holdings Comparison
VTI and VTSMX share similar investment philosophies, both aiming to replicate the performance of the total U.S. stock market. Consequently, their holdings are almost identical.
They both have exposure to a broad range of small, mid, and large-cap equities across sectors. The top concentrations, however, are often in the technology, healthcare, and consumer discretionary sectors, featuring companies like Apple, Microsoft, Amazon, Facebook, and Johnson & Johnson.
Performances Analysis
While hard performance numbers can be deceiving due to the temporal nature of the market and economic conditions, examining VTI and VTSMX’s performances through varied market conditions could prove insightful.
Both VTI and VTSMX have boasted strong long-term performances that have historically matched or possibly outperformed the overall U.S. market index. How exactly they fare in certain market conditions depends widely on those conditions.
In a bullish market trend, as more investors buy into the market, the broad exposure of both VTI and VTSMX could lead to substantial capital gains. During bearish trends, owing to market contractions, investment value might decline. However, the diversified holdings spread across different sectors allow for better risk management compared to a single sector-focused fund.
Which Fund is Better for You?
The most suitable choice between VTI and VTSMX hinges largely on your individual needs, preferences, and investing approach. If you lean towards more flexible trading and slightly lower costs, VTI might be the optimum choice. Its ETF structure allows for intraday trading and packs a lower expense ratio.
VTSMX may appeal to investors who appreciate the conventional approach of mutual fund investing. However, this option is off the table for new investors at this point. Keep in mind that both the VTI and VTSMX are designed for investors who desire affordable and diversified exposure to the total U.S. stock market.
To conclude, emulating the performances of the total U.S. stock market with low fees and minimum investment effort makes VTI and VTSMX(or VTSAX) attractive choices.
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Frequently Asked Questions
Is VTSMX closed to new investors?
Yes, since 2018, VTSMX has been closed to new investors. Existing investors can still add to their positions, but new investors are encouraged to go for VTSAX, which has a lower expense ratio and identical investment exposure.
