Author Topic: Practical differences between VTSAX and VTI?  (Read 5470 times)

RedmondStash

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Practical differences between VTSAX and VTI?
« on: June 14, 2016, 06:53:59 PM »
I'm on board with the whole index-fund thing and have recently moved our investments to Vanguard, split largely between VTSAX and VBTLX.

But then I find out about VTI, which is an ETF version of VTSAX: same fees, identical earning profiles and history. But you can place market and limit orders for VTI and trade it during the day, which you can't for VTSAX because it's a different kind of investment. VTI also doesn't have a minimum balance, while you need at least $10k to invest in VTSAX.

So why do I hear more about VTSAX than VTI? What other practical differences are there between index funds and ETFs based on index funds? Do ETFS have more tax ramifications or something?

Thanks.

tarheeldan

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Re: Practical differences between VTSAX and VTI?
« Reply #1 on: June 14, 2016, 06:59:06 PM »
You can buy partial shares of the mutual fund but only whole shares of the ETF. So the mutual fund version is nice for automatic transfer with investment.

MDM

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Re: Practical differences between VTSAX and VTI?
« Reply #2 on: June 14, 2016, 09:16:09 PM »

seattlecyclone

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Re: Practical differences between VTSAX and VTI?
« Reply #3 on: June 14, 2016, 11:07:09 PM »
I think you get the basic differences. With VTSAX you say "I want to buy $x worth of shares at the next closing price," and you can put in the order whenever you like. If you want to harvest losses and move your money into VFIAX to avoid wash sales, you can even say "trade all my VTSAX for VFIAX at the next closing price."

With VTI you have to log in during market trading hours and say "I want to buy N shares for no more than $y each" (if using a limit order), monitor your order to make sure it gets filled, adjust your limit price as needed, etc. If you want to exchange one fund for another you need to wait for the sell order to get filled and then repeat the process with the buy.

As you may have guessed from the way I phrased it I happen to prefer the mutual fund version for the simplicity, but to each their own.

RedmondStash

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Re: Practical differences between VTSAX and VTI?
« Reply #4 on: June 15, 2016, 09:32:31 AM »
Thanks, folks. That's quite helpful.

jim555

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Re: Practical differences between VTSAX and VTI?
« Reply #5 on: June 15, 2016, 10:25:50 AM »
The ETF has options available which might be useful.  No need to worry about "too frequent" trading restrictions.  Less cap gain distributions from ETFs usually.
« Last Edit: June 15, 2016, 11:03:02 AM by jim555 »

Brokefuturedoctor

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Re: Practical differences between VTSAX and VTI?
« Reply #6 on: June 15, 2016, 10:32:38 AM »
I think you get the basic differences. With VTSAX you say "I want to buy $x worth of shares at the next closing price," and you can put in the order whenever you like. If you want to harvest losses and move your money into VFIAX to avoid wash sales, you can even say "trade all my VTSAX for VFIAX at the next closing price."

Would this really avoid a wash? I know the wording is kind of hazy on what constitutes a stock or index that is basically the same as the one you just sold, but all of VFIAX would be contained in VTSAX. They are both Large Blend with the same top 10 holdings. Wouldn't that technically be a wash sale? I don't know much about this area, so please correct me if that is the wrong way of thinking.

seattlecyclone

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Re: Practical differences between VTSAX and VTI?
« Reply #7 on: June 15, 2016, 11:33:22 AM »
I think you get the basic differences. With VTSAX you say "I want to buy $x worth of shares at the next closing price," and you can put in the order whenever you like. If you want to harvest losses and move your money into VFIAX to avoid wash sales, you can even say "trade all my VTSAX for VFIAX at the next closing price."

Would this really avoid a wash? I know the wording is kind of hazy on what constitutes a stock or index that is basically the same as the one you just sold, but all of VFIAX would be contained in VTSAX. They are both Large Blend with the same top 10 holdings. Wouldn't that technically be a wash sale? I don't know much about this area, so please correct me if that is the wrong way of thinking.

The rules on wash sales aren't very specific. You have to avoid purchasing "substantially identical" securities. What does that mean exactly? How similar do two different mutual funds have to be before they become "substantially identical"? I don't think Congress or the IRS have issued clear enough guidance on that.

That said, VTSAX and VFIAX are different. VTSAX is the whole stock market, while VFIAX is just the biggest 500 companies, making up roughly 80% of VTSAX by market cap. Is that 20% difference enough to make them dissimilar enough to not be "substantially identical"? I personally have traded based on the assumption that this exchange does not trigger a wash sale; you'll have to decide for yourself whether you believe that to be the case.

JJsfr

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Re: Practical differences between VTSAX and VTI?
« Reply #8 on: June 15, 2016, 12:42:11 PM »
I think you get the basic differences. With VTSAX you say "I want to buy $x worth of shares at the next closing price," and you can put in the order whenever you like. If you want to harvest losses and move your money into VFIAX to avoid wash sales, you can even say "trade all my VTSAX for VFIAX at the next closing price."

Would this really avoid a wash? I know the wording is kind of hazy on what constitutes a stock or index that is basically the same as the one you just sold, but all of VFIAX would be contained in VTSAX. They are both Large Blend with the same top 10 holdings. Wouldn't that technically be a wash sale? I don't know much about this area, so please correct me if that is the wrong way of thinking.

The language is that "you cannot purchase substantially identical" funds, not "you must purchase substantially different funds" which is hugely different. VTSAX and VTI are substantially identical (like any other total stock market fund), but while VTSAX and VFIAX are not substantially different, they are not substantially identical.

Brokefuturedoctor

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Re: Practical differences between VTSAX and VTI?
« Reply #9 on: June 16, 2016, 11:07:18 AM »
Thanks for clearing up the language on that rule for me!