VTSAX vs. SPY: A Comprehensive Comparison
VTSAX and SPY are excellent choices for a core stock market investment.
However, there are a few differences that you must consider before you determine which is better for you.
VTSAX vs. SPY - Overview
SPY has a higher expense ratio than VTSAX
SPY holds around 500 companies, while VTSAX holds over 3,500
SPY holds primarily large-cap companies, while VTSAX holds all sizes
VTSAX has a $3,000 minimum investment
SPY vs. VTSAX - Expense Ratios
SPY - 0.09%
VTSAX - 0.04%
One significant factor in the debate between VTSAX and SPY is the difference in their expense ratios. At the end of the day, lower costs can add up to a significant boost in returns over time.
VTSAX boasts Vanguard’s renowned low-cost structure, with an expense ratio of just 0.04%. That means for every $10,000 held in the fund, just $4 goes to cover the annual fund operating costs.
Comparatively, SPY charges a slightly higher expense ratio of 0.09%. Though still relatively low by industry standards, it’s over double the cost of VTSAX, costing $9 yearly for every $10,000 invested.
Expense ratios might seem insignificant at first glance, but they impact your long-term returns. Over decades of investing, lower-cost alternatives like VTSAX could save investors thousands of dollars in lost returns.
SPY vs. VTSAX - Dividend Yields
SPY - 1.39%
VTSAX - 1.41%
Moving on to dividends, another crucial factor in total returns. VTSAX has an annual yield of about 1.41%, not high but decent considering its focus on total market exposure rather than high dividends.
Surprisingly, despite SPY’s focus on blue-chip stocks, its annual dividend yield isn’t massively different, sitting around 1.39%. Although individual dividends can vary year by year, the past decade has shown a consistently similar yield on these funds.
SPY vs. VTSAX - Dissecting Holdings
VTSAX has over 3,500 holdings, and SPY only has around 500. Therefore, VTSAX provides a lot more diversification.
SPY is designed to track the performance of the S&P 500, which consists of approximately 500 large-cap companies across a diverse range of sectors in the U.S. stock market.
VTSAX, in contrast, tracks the CRSP US Total Market Index, which includes large, mid, and small-cap equity diversified across growth and value styles. With thousands of holdings across all sectors and company sizes, VTSAX is much broader in its exposure compared to SPY.
This wider diversification could help to mitigate risk and achieve smoother returns, although it also means exposure to the volatility of smaller, potentially less stable companies.
SPY vs. VTSAX - Performance Comparison
Over time, SPY has generally outperformed VTSAX thanks to large-cap stocks performing extremely well.
Because market conditions vary so widely and factors such as the economy, interest rates, and political climate play major roles, it’s challenging to predict which fund will outperform in the future.
That said, generally, when the U.S. economy is on an upswing, the broad exposure of VTSAX often sees it capturing more of the market’s overall gains. However, during times of increased economic uncertainty, many investors prefer SPY, as it’s more heavily weighted with large-cap stocks known for their stability.
SPY vs. VTSAX - Deciding What’s Better For You
Both VTSAX and SPY have their advantages. If you’re looking for a lower expense ratio and greater diversification across the entire U.S. stock market, VTSAX would be the winning choice.
However, if you’re more interested in focusing on larger companies and want the ability to make intraday trades, as only ETFs like SPY can do, then SPY would come out on top.
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