Author Topic: VTSAX vs VFIAX  (Read 38206 times)

Stache In Training

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VTSAX vs VFIAX
« on: November 13, 2013, 03:46:11 PM »
So I have invested in the 500 index fund, VFIAX, per MMM's blog post recommendation, and was ready to set up my auto-investments.  However, I just thought, 'wait, shouldn't I be more diversified with the total stock market index fund? VTSAX?'  So I looked, and saw that VTSAX does out perform (since inception) VFIAX, but VFIAX pays slightly more dividend percentage. 

So I'm sure there's probably already a thread on this, but I couldn't find one via the search function.  So just wondering on everyone's thoughts between the two? What are the reasons for choosing one over the other?

I know a lot of you may say, it depends on your personal situation.  But lets just look at it from an 'in general' view point, or at the end of 30 years from now, BLANK will be worth more than BLANK.

keepingmobens

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Re: VTSAX vs VFIAX
« Reply #1 on: November 13, 2013, 04:17:36 PM »
They are both very similar, the main difference is that VTSAX gives you exposure to small companies, although I think it's less than 8% of the overall holdings. I own both and was going to sell VFIAX and buy VTSAX to get the small cap exposure, but I would have had capitol gains tax on the sale, so I just keep them both and consider them both to be in the same asset class. If you own VFIAX and want to add small small cap stocks in a percentage different than the overall market percentage, you can always buy some NAESX separately.

the fixer

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Re: VTSAX vs VFIAX
« Reply #2 on: November 13, 2013, 04:36:19 PM »
I did the same, started investing in VFIAX and then changed my mind, started buying VTSAX instead. My tax-advantaged accounts have been switched over but I still own about $20k of VFIAX because selling it would cost me a bunch of capital gains. Last year my income was low enough that I was able to sell some of my holding and get the 0% capital gains tax.

I think VTSAX is better but not so much better as to be worth incurring the taxes to switch.

Stache In Training

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Re: VTSAX vs VFIAX
« Reply #3 on: November 13, 2013, 05:11:43 PM »
I did the same, started investing in VFIAX and then changed my mind, started buying VTSAX instead. My tax-advantaged accounts have been switched over but I still own about $20k of VFIAX because selling it would cost me a bunch of capital gains. Last year my income was low enough that I was able to sell some of my holding and get the 0% capital gains tax.

I think VTSAX is better but not so much better as to be worth incurring the taxes to switch.

That's kind of what I was thinking too.  I don't want the capital gains tax.  Maybe in the next crash, if they both drop, I'll switch it over, but still not sure about that either.  Wouldn't that technically wipe out the extra shares from DRIPing?

the fixer

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Re: VTSAX vs VFIAX
« Reply #4 on: November 13, 2013, 05:35:28 PM »
What I did when I partially switched was sold all shares of VFIAX I had that would incur a capital loss, then bought shares of VTSAX instead. This was in mid-2012 when the stock market had a slight dip, but since the S&P 500 just hit a new record high you don't have any of those right now. If the market does dip again, it would be a good time for you to do this.

If you want to start buying shares of VTSAX instead you should consider this tradeoff: you'll need to build up a $10k balance in VTSAX before you can qualify for admiral shares, in the mean time you'll either have a slightly higher ER or be missing out on investing in that less-than-10k money entirely.

Another tip for you: don't automatically reinvest your dividends in a taxable account. Each of those counts as a tiny buy at a specific price which you'll need to account for on your taxes some day when you sell. You will essentially have to tell the IRS "I sold 1.274 shares of VFIAX at $40.32, bought at $25.48; 1.424 shares of VFIAX at $40.32, bought at $23.43; etc." If you instead direct those dividends to an external account, you can lump them into larger monthly purchases of shares which reduces the number of "tax lots" you will one day need to manage.

jrhampt

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Re: VTSAX vs VFIAX
« Reply #5 on: November 13, 2013, 06:06:38 PM »
I think VTSAX is better but not so much better as to be worth incurring the taxes to switch.

Ditto.  I have VFIAX and thought about switching also but decided against.  The higher dividend is nice, too, if you're into that.

Abe

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Re: VTSAX vs VFIAX
« Reply #6 on: November 13, 2013, 06:26:52 PM »
I went with VTSAX because it is more diversified, including the smaller companies as mentioned above. Might as well go all out for diversification! In reality it doesn't seem to make much of a difference. Go to:
https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT#tab=1
and on the bottom graph, add VTSAX to compare.

There will have to be a major economic downshift (again) for either fund to lose substantial value. Unless we have complete economic collapse, they will almost certainly recover again.

Stache In Training

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Re: VTSAX vs VFIAX
« Reply #7 on: November 13, 2013, 07:58:32 PM »
Ahh, I did the comparison graph, and after 10 years, it would be 21,868 for VTSAX, and 20,508 for VFIAX.  So while that would not seem like much, if you were to add 2 zero's, that would become 2,186,800 and 2,050,800.  Over my lifetime, two zero's is not that far-fetched.  And 130,000 is 4-5 extra FIRE years just on the principal.

So yeah, I think I'm going to keep my VFIAX where it is and DRIP, but switch to funding VTSAX.

questionasker

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Re: VTSAX vs VFIAX
« Reply #8 on: June 21, 2014, 05:04:59 PM »
Just opened up VFIAX at $10k. But then the weekend hit, and I spent a little more time searching around, and I'm kind of regretting not going with VTSAX.

Should I facepalm and/or try to close out VFIAX in favor of opening VTSAX? Thanks for any thoughts.


Stache In Training

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Re: VTSAX vs VFIAX
« Reply #9 on: June 21, 2014, 10:50:40 PM »
well selling it and risking any capital gains taxes may cancel some of the longer gains from the switch.  So I am still doing what I said in the previous post.  Just keeping my original in VFIAX, and now investing in VTSAX.

The only way to know for sure, is if you could know what the sell price would be, the taxes, and then what the buy price would be in the new fund.... which if you knew, you'd be rich, because that would involve telling the future.  It's not going to hurt too much by having some money spread out in both of these funds.  They are both great funds.

Joel

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Re: VTSAX vs VFIAX
« Reply #10 on: June 21, 2014, 11:16:50 PM »
In order to imitate the total stock market index you can purchase 81% s&p 500, 13% mid cap, and 6% small cap. That's what I do in a retirement account that does not offer the total stock market index fund.

questionasker

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Re: VTSAX vs VFIAX
« Reply #11 on: June 22, 2014, 10:41:10 AM »
Thanks for taking the time to answer. Just to be clear, the account was just opened a couple of days ago (so recently that cash hasn't even been deducted from the funding account) Should I still worry about the capital gains taxes? Unless I'm mistaken, it's only gained like eight cents since purchase.

well selling it and risking any capital gains taxes may cancel some of the longer gains from the switch.  So I am still doing what I said in the previous post.  Just keeping my original in VFIAX, and now investing in VTSAX.

The only way to know for sure, is if you could know what the sell price would be, the taxes, and then what the buy price would be in the new fund.... which if you knew, you'd be rich, because that would involve telling the future.  It's not going to hurt too much by having some money spread out in both of these funds.  They are both great funds.

Joel

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Re: VTSAX vs VFIAX
« Reply #12 on: June 22, 2014, 10:54:40 AM »
Thanks for taking the time to answer. Just to be clear, the account was just opened a couple of days ago (so recently that cash hasn't even been deducted from the funding account) Should I still worry about the capital gains taxes? Unless I'm mistaken, it's only gained like eight cents since purchase.

well selling it and risking any capital gains taxes may cancel some of the longer gains from the switch.  So I am still doing what I said in the previous post.  Just keeping my original in VFIAX, and now investing in VTSAX.

The only way to know for sure, is if you could know what the sell price would be, the taxes, and then what the buy price would be in the new fund.... which if you knew, you'd be rich, because that would involve telling the future.  It's not going to hurt too much by having some money spread out in both of these funds.  They are both great funds.

In that case, it's probably easy enough to sell it and buy what you want!

questionasker

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Re: VTSAX vs VFIAX
« Reply #13 on: June 22, 2014, 10:56:33 AM »
Thanks, Joel. I really appreciate your help.

By the way, I like your idea of just buying 81/13/6 to imitate VTSAX. The only bummer about that idea for me, I think, is that if I bought mid- and small-cap through a separate fund to match this 81/13/6 balance, I couldn't keep it all in admiralty shares. (I assume the mid and small cap funds have large minimum buy-ins that would screw up the 81/13/6 ratio—unless I had a lot more cash to throw at VFIAX.)

In order to imitate the total stock market index you can purchase 81% s&p 500, 13% mid cap, and 6% small cap. That's what I do in a retirement account that does not offer the total stock market index fund.

kyleaaa

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Re: VTSAX vs VFIAX
« Reply #14 on: June 22, 2014, 01:22:39 PM »
If you're comparing the Vanguard 500 fund with the Vanguard Total Stock Market fund, then ceteris paribus, the Total Stock Market fund wins every time, hands down. In addition to the advantages mentioned above, it also tends to be slightly more tax-efficient.
« Last Edit: June 22, 2014, 01:24:29 PM by kyleaaa »

wtjbatman

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Re: VTSAX vs VFIAX
« Reply #15 on: June 22, 2014, 02:49:47 PM »
If you're comparing the Vanguard 500 fund with the Vanguard Total Stock Market fund, then ceteris paribus, the Total Stock Market fund wins every time, hands down. In addition to the advantages mentioned above, it also tends to be slightly more tax-efficient.

I had to look up ceteris paribus. "All other things being equal", huh? Cool phrase. I'm going to start using it in real life conversations.

"Well Bob, ceteris paribus, just order the bone-in wings."