You are now planning to invest your money in the stock market, and you are now interested in both VTSMX and VTSAX. These two investment options seem to be very similar to each other, except for the amount of minimum investment and expense ratio. Is that so? As a matter of fact, VTSMX and VTSAX are actually two different “classes” of the same fund. Continue reading below for more details on the differences between VTSMX vs VTSAX!
The Vanguard Total Stock Market Index Fund was created in 1992, designed to provide exposure to the entire US equity market to investors. By “entire”, it means that the exposure includes small-, mid-, and large-cap growth and value stocks. Because of this reason, the fund is considered to have a relatively high risk (and high reward). However, the key attributes that make the fund popular are the broad diversification, low costs, and potential for tax efficiency. If you are looking for a low-cost way to get broad exposure to the US equity market and you can accept the volatility of stock market investing, the fund is suitable either as your only domestic stock fund or as a core equity holding.
VTSMX vs VTSAX are two different “classes” of the Vanguard Total Stock Market Index Fund. To invest in this fund, you can choose either the VTSMX or the VTSAX. You can say that the VTSMX is the lower class due to the lower minimum investment amount, whereas VTSAX is the higher class which has a lower expense ratio (ER) as a “reward” for people who have invested big amounts of money in the fund. If you have invested in VTSMX, you will have the option to switch to VTSAX once you have invested a sufficient amount of money in the fund. (Read also : VTSMX vs VFINX)
Fund Name and Number
VTSMX stands for “Vanguard Total Stock Market Index Fund Investor Shares”. It has a fund number of 0085. The asset class is Domestic Stock – General, and the category is large blend.
On the other hand, VTSAX stands for “Vanguard Total Stock Market Index Fund Admiral Shares”. The fund number is 0585. Of course, the asset class and category are similar, as these two options actually refer to the same fund. Think of it like a refrigerator; one person can access the fridge for 0.15% per year but they have to have $3,000 up front, or access the fridge for 0.04% per year but they have to have $10,000 up front.
As mentioned above, one of the big differences between VTSMX vsVTSAX is the minimum investment. The Investor Shares VTSMX has a lower minimum investment which is $3,000. In addition, the price of this fund is usually a little bit lower than the other fund. So, this fund is suitable for people who don’t want to invest too much money in the volatile stock market.
On the other hand, VTSAX has a higher minimum investment. The Admiral Shares VTSAX has a minimum investment of $10,000. The price is usually a little bit higher. This fund is suitable for those who are willing to take the risk of the volatile stock market for the potential of a higher reward.
The next important difference between VTSMX vs VTSAX is the expense ratio. Well, basically, both of them have lower expense ratios compared to other funds with similar holdings. However, VTSMX has an expense ratio of 0.15% as of April 2017, which is 85% lower than the average expense ratio of the funds with similar holdings. This is still considered as a low-cost fund.
On the other hand, VTSAX has an expense ratio of 0.04% as of April 2017, which is 96% lower than the average expense ratio. The difference is quite significant. The cost of this fund can be much lower, and, as the effect, you can get a considerably higher profit.
You can determine the performance of a fund with the help of the SEC yield rating. A stock market fund’s SEC yield is based on a formula from the Securities and Exchange Commission (SEC) which calculates the fund’s hypothetical annualized income as a percentage of the assets. For stocks, the income is based on the projected dividend yield of the fund’s holdings over a trailing period of 30 days. Although the fund’s actual income may differ greatly from the hypothetical income due to various factors, the SEC yield is still quite handy.
Although the SEC yield rating may change from time to time, VTSMX’s SEC yield is usually lower. This is because of the higher expense ratio. It has relatively higher costs compared to VTSAX, and the higher costs reduce the total income that you can get in the end.
On the other hand, the SEC yield rating of VTSAX is usually higher. This indicates that the fund tends to have a higher, better performance. The fund has a lower expense ratio, so the costs are lower. Hence, it can give you a higher profit in the end.
The dividend distributions of VTSMX and VTSAX are scheduled quarterly, a.k.a. every three months for four times in a year. Usually, the distributions are in March, June, September, and December. If there is any capital gain, it is distributed annually in the last month of the year. However, the distribution dates may vary from year to year. The reinvest date is one work day after the record date.
|- Fund number 0085||- Fund number 0585|
|- $3,000 minimum investment, slightly lower price||- $10,000 minimum investment, slightly higher price|
|- 0.15% expense ratio||- 0.04% expense ratio|
|- Lower potential reward||- Higher potential reward|
|- Suitable for people who don’t want to invest too much money in the volatile stock market||- Suitable for people willing to face the volatility to get a higher reward|
VTSMX and VTSAX are two “classes” of the same fund. Although they refer to the same fund, these two options have different minimum investment, expense ratio, and potential reward. The VTSMX has a lower minimum investment, which means that it is more accessible to a wider range of people. However, the costs are relatively higher, so the potential reward is lower. It is suitable if you don’t want to invest too much money in the volatile stock market. On the other hand, the VTSAX has a higher minimum investment, but the costs are lower. If you have enough money, and you are willing to face the volatility, this option is more recommended due to the higher potential reward.