One of the biggest things personal finance bloggers and authors talk about it is VTSAX. What is the deal with VTSAX? Is it so great? Why does everyone mention it? Does it have an ETF? How can I make wealth from it?
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People Love VTSAX
Personally, I love VTSAX. I understand why so many people mention it. It is like the granddaddy of all Index funds. It is like the best thing since sliced bread.
The metaphors and comparisons can go on, but as an average person roaming the sites of these cool Personal Finance Gurus you wonder what the heck is everyone talking about.
I was teaching a personal finance class last night, and realized my students looked at me with a wide eye, puppy dog look in their face and were wondering, what is this guy talking about? Let’s get down to all these nuances of the curious case of VTSAX.
A History Lesson into Index Funds:
In 1974, John Bogle created a company called Vanguard. This company would become one of the biggest brokerage companies in the USA.
With this company, Bogle set out to create funds that are low-cost, low turnover, and gives the average person a chance to create wealth. He created the Index Fund.
The first Index Fund was VFINX, which tracked the S&P 500 Index of the 500 largest companies on the US Stock Market.
There had been plenty of mutual funds out there that were heavily managed. They created riches for the managers that worked on wall street, while leaving the investors on the side of the street being raped by the fees.
This was something that Bogle did not want to have. He wanted the investor to create wealth by investing in low-cost funds that don’t try to beat the index, but mirror it instead.
If you don’t believe me on this John Bogle theory thing, you can read his book. “The Little Book of Common Sense Investing.” He spends 200+ pages of telling you why Index funds are good. It is a quick read, and quite enjoyable.
VTSAX was created on Nov 13, 2000. It was not an ordinary index fund. This fund would track the entire US. Stock market. If you want diversification this would be the fund to get you there.
Right now, with a low cost annual management fee of 0.04%, it is costing you $4 for every $10,000 you have invested. That is cheap.
The cool thing about Index Funds is you do not need to pick stocks. You just pick them all by investing with VTSAX. The need for a stock broker is way overrated.
This fund also gives you exposure to the great companies like Amazon, Google, Apple, plus companies like Johnson and Johnson, Coke, and Proctor and Gamble. You literally own a piece of All American businesses.
VTSAX vs VFINX
Warren Buffet often talks about putting your money in a S& P500 index fund like VFINX. It is a great way to create a good portfolio with the 500 best companies in America.
The difference between VTSAX and VFINX is that VTSAX will get exposure to all the companies that are not in the S&P 500. There are great companies out there that are growing, but have not gotten into the S&P 500 like Tesla.
Giving the exposure of 3500 companies will give you more of diversification to the U.S. market.
These index funds are also broken up into ETFs like VOO and VTI. Which one would you choose?
Seriously, the US. Stock Market rose 11.9% from 1975-2015. The 40 year period had some the greatest years and some of the worst years for the US economy and it still went up 11.9%. Find me a Fund manager that can outperform that for 40 years plus.
According to Nerd Wallet, the stock market on average has gone up 10%. It will not always do that, but returns have been pretty good.
VTSAX in the last 10 years has a 13.73% annualized return. That is not too bad especially since the pandemic has put a slight damper on things.
Why invest in VTSAX?
- VTSAX historically beats 82% of managed funds
- VTSAX has an expense ratio of 0.04%, which is much cheaper than actively managed funds
- VTSAX is self-cleansing. Companies may go to $0, but you may have a company go to 100%, 200% or even 1000%. As new companies come into the market, old companies will be leaving. Out of the original 12 DJIA stocks, there is only one left.
Investing made Simple
With the help of several brilliant Personal Finance Gurus, like Jim Collins, lots of people have been jumping on the VTSAX train. He talks about it nonstop in his book “The Simple Path to Wealth.”
One thing is that it makes investing simple and easy. Why would you want it to be difficult?
Who has time to learn about the ins and outs of every company? I know my time is valuable.
The mountains of Taiwan are always calling, and Mrs. FE is always asking me to clean the house and do the laundry. Time is not always abundant.
VTSAX makes things easier. Just make it 80-100% of your portfolio to create a diverse portfolio of 3500 US stocks and throw in total market Bond for the 0-20% and you are set to roll.
As Steve Jobs would say “It's that easy!!”
Dividends are a plus
The cool thing is you even get dividends. VTSAX has a small dividend. It has a yield of 1.73%. It is not the highest thing, but it does produce a dividend because it holds plenty of dividend stocks.
There are plenty of people that swear that dividend growth investing is the best way to go. They have great arguments, but it takes research, time, and the willingness to wait for companies to grow those dividends quite slowly.
You also have to watch and find those deals looking at Price per earnings, payout ratios, debt, and the potential of growth.
Those take time of course. I commend those people that work so hard at dividend investing. To me, there are too many options. So I keep it simple with VTSAX.
VTSAX vs VTI
If you want to feel a bit more sophisticated or you do not have enough money to invest with VTSAX, you can try out their ETF. It is VTI. The expense ratio is 0.03%, and it buys and sells like a stock.
Vanguard has a minimum to start investing with VTSAX. That is $3000. After that, you can automatically invest whatever amount you want in it, and it will buy you fractional shares. More shares equals more money working for you.
An ETF is a way to get in a bit sooner. With the price of the ETF being around $160, I can buy one share and be invested into 3500 different companies.
Mutual Funds and ETFs are a bit different, but buying VTI is a great way to get exposure to 3500 U.S. companies.
If you are looking for an account to register with I have a few suggestions. I currently love Vanguard. Their interface and website are a bit dated, but it does the trick. They created the fund, and you can open up an IRA, Roth IRA, and a 401k with them plus a taxable account.
If you want to be a bit more techy, try M1 Finance. It will give you that Robo-advisor feel, which you can automatically invest into ETFs like VTI, and create what your portfolio looks like.
M1 Finance also buys fractional shares of VTI. You can set-up an easy portfolio with them, and automatically invest every month.
Fidelity equivalent to VTSAX
With other brokerages there comes other index funds that track similar indeces. Fidelity is another giant brokerage company that is very similar to Vanguard. They have an index fund just like VTSAX.
It is FSKAX. The expense ratio is 0.015%. The holdings are similar. Performance is quite the same as well. It is just a different Total Market Index fund that is with Fidelity.
Fidelity has also come out with some zero funds as well. I like to compare VTSAX vs FZROX. It helps with understanding what you think is the best for the price.
Vanguard and Fidelity are quite different in business models. Vanguard is owned by the clients of the brokerage and Fidelity is owned by the stock holders.
I enjoy Vanguard's model.
Make life Simple with VTSAX
People obsess about VTSAX because it is simple and easy. Life shouldn’t be too hard especially when you are trying to create more wealth in order to be financially independent and hopefully retire one day. Take a chance, make life easier and invest in VTSAX.
What are you investing in?
” Spend less than you make, stay out of debt, and invest the rest”
*afflitate disclaimer: this website contains endorsements or advertisements for products and services, when means when you click on a link that I recommend, I may receive a commission.
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.