Which Vanguard S&P 500 Index Fund is the Best?
I’m a big fan of passive index investing, where you basically pile all of your investments in to index funds and don’t try to time the market. For the amateur investor, it is hard to beat the performance of this strategy. Even the pros rarely consistently beat the indexes over time. Performance aside, passive index investing is the simplest, least stressful way to actually invest your money (no, digging a hole in your back yard and dumping in stacks of cash or letting it sit in a savings account earning negligible interest are not forms of “investing”).
If you invest in index funds, it is likely that you have an S&P 500 investment in your portfolio (the S&P 500 tracks 500 of the largest companies in the U.S.). And Vanguard’s are the cheapest (lowest expense ratio), making them a preferred option.
Even Warren Buffett, quite possibly the best investor of all time, is a fan of index investing. In a Berkshire Hathaway shareholder letter, he had this to say about where he would suggest the trustee of his estate put his money when he died,
10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund (I suggest Vanguard’s).
But… wait a minute!
Vanguard (the low cost leader in index funds) actually has three index funds that all invest in the same 500 companies. What is the difference between them? A friend just happened to ask me that question recently,
Vanguard has three S&P 500 index fund investments: VOO, VFIAX, and VFINX. What is the difference, and which should I buy?
I don’t give advice on what individual investments to pick, for a number of reasons. However, education is fair game.
Here’s a quick snapshot of each of the Vanguard S&P 500 funds (performance listed is annualized trailing from 1/1/24):
VOO (Vanguard S&P 500 ETF)
- Type of investment: Index ETF
- Expense ratio: 0.03%
- Minimum investment: n/a
- Performance over last 1 year: +26.33% annualized
- Performance over last 3 years: +9.97% annualized
- Performance over last 5 years: +15.66% annualized
- Performance over last 10 years: +12.00% annualized
VFINX (Vanguard 500 Index Fund, investor share class)
- Type of investment: Index Mutual Fund
- Expense ratio: 0.14%
- Minimum investment: closed to new investors
- Performance over last 1 year: +26.11% annualized
- Performance over last 3 years: +9.85% annualized
- Performance over last 5 years: +15.53% annualized
- Performance over last 10 years: +11.88% annualized
VFIAX (Vanguard 500 Index Fund, admiral share class)
- Type of investment: Index Mutual Fund
- Expense ratio: 0.04%
- Minimum investment: $3,000
- Performance over last 1 year: +26.24% annualized
- Performance over last 3 years: +9.96% annualized
- Performance over last 5 years: +15.65% annualized
- Performance over last 10 years: +11.99% annualized
VOO vs. VFIAX vs. VFINX: Type of Funds
The first difference you will notice is that VOO is an ETF, while VFIAX and VFINX are both index mutual funds. ETFs (short for exchange traded funds) and mutual funds differ in how they are traded and evaluated. ETF shares are traded (and evaluated) on the stock market throughout the trading day, while mutual fund share purchases/sales are executed after trading has closed for the day. Mutual fund share prices are determined by the net asset value (NAV) of all of the holdings. ETF market prices may be influenced by the NAV of the holdings, but are based on the actual buy/sell trading volume and not the value of the holdings.
This has a real-world impact on your cost. Investment brokers may charge you on the initial purchase or sale of a mutual fund (but not adding additional shares). With ETFs, you are potentially charged each time you buy or sell shares. This is a key distinction if your investment broker is anyone other than Vanguard (where you can buy/sell Vanguard ETFs and mutual funds with no purchase or selling fees).
VOO vs. VFIAX vs. VFINX: Investment Minimums
Vanguard Admiral funds have lower fees, but they also typically have a stricter requirement of maintaining a minimum total balance in that fund of at least $10,000 for most funds.
Note: VFINX has closed to new investors, and Vanguard dropped the minimum investment amount for VFIAX to $3,000 to make it more accessible to beginner investors.
VOO has no minimum investment amount.
VOO vs. VFIAX vs. VFINX: Expense Ratios
The next notable difference is in the expense ratios – what you actually pay for the management of the funds. You’ll notice VFINX has an expense ratio of 0.14% (very low by most standards), while VFIAX is less than a third of the expense ratio at 0.04%. The reason that VFIAX is lower than VFINX is that its shares are considered “Admiral” (a fancy name for preferred) shares. Vanguard has Admiral shares for many of its index funds. They are lower fee than their otherwise identical counterparts. VOO has the very slight edge on expense ratio fees (0.03% versus 0.04% for VFIAX).
VOO vs. VFIAX vs. VFINX: Performance Returns
Finally, how about performance? You’ll notice that there is virtually zero difference in performance between the three investments, over time. Below is a chart of the three over the past year. VOO overlaps VFIAX (and VFINX) and even the S&P 500 index with nearly identical performance over time (the last 5 years in the chart below).
In other words, investment performance differences between VFIAX, VFINX, and VOOO should not impact which fund you purchase.
VOO vs. VFIAX vs. VFINX: Where you Invest
Where you invest in these funds could make a difference. If you haven’t already invested in VFINX, it is not currently an option for you, as it is closed to new investors. If it is an option, VOO and VFIAX are better alternatives, due to the lower expense ratios. As for VOO vs VFIAX – if you invest outside of Vanguard at a brokerage that doesn’t have free ETF trading for VOO, then VFIAX will probably be the cheaper route over time. If you invest via Vanguard’s brokerage, VOO and VFIAX are nearly identical in appeal, if you can meet VFIAX’s $3,000 investment minimum.
There you have it.
What Vanguard S&P 500 index mutual fund or ETF do you invest in, and why?
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I believe your label is wrong for “Type of Investment” for VFIAX, its a mutual fund, not ETF.
Good info, was looking at Vanguard funds yesterday.
Typo. Corrected – thanks.
Hi G.E.
Great post. I do have a question… I have access to 30 free equity/ETF trades at my brokerage. MerrillEdge.
Would the VOO etc option be any different than VFIAX?
Other than VFIAX’s requirement to have a minimum balance of $10,000. I would think VOO with free trades at any broker would provide a means for folks to buy into this fund with smaller increments and be able to do dollar cost averaging over time.
What would your thoughts be on that?
Are mutual funds free to buy in to with Merrill? Guessing not. So there are some savings there. And no minimum initial purchase.
Most brokers do not offer free Vanguard ETF trading.
No any mutual funds require a $3,000 minimum and a commission/fee of $19.95. Unless its a Merrill Lynch managed fund which are free.
After that minimum orders $100, but unsure of the fee structure.
ETF seems to be the way to go.
that should state VOO ETF not etc :) damned auto correct!
I’m a huge fan of indexing for the vast majority of investors. I really like several of the vangaurd foriegn stock funds as well.
VEIEX for emerging and VDVIX for developed. Both are solid, low cost, low risk plays on the foriegn markets.
VEIEX looks quite nice right now, since so many emerging markets have taken a beating recently. The time to buy is when there is a crisis, not when all is well!
Long Term Brian
Excellent article again… keep up the great work
It’s crazy how easy Vanguard makes investing. Once you get by the minimum investment amount, their expense ratios and performance are hard to beat.
Equal weight index funds generally outperform market cap weighted index funds. RSP has a fairly low expense ratio of 0.4%, which it easily makes up in return. For any duration over a year RSP has outperformed VOO after expenses. This outperformance is logical because with an equal weight fund you are buying the same amount of each company, whereas in a ‘normal’ S&P 500 index fund you are buying more of the faster *grown* companies. This results in 18.1% of your investment being concentrated into the top 10 companies in the portfolio vs 2% for top 10 in an equal weight fund. Put another way: equal weight funds are a better diversification of your resources, and diversification is the point of index investing.
Scondor – I’ve looking at equal weighted as a possibly better option so thanks for your comment and refernce to RSP.
Looking at it against SPY, it’s currently down by about 2%. That’s good since it may very well catch up.
Seems to me – what’s your thoughts:
1) Once caught up, it stops “outperforming” the SPY, and just performs equal to it most of the time.
2) The performance doesn’t make up for the .35% higher fee, and .75% lower div.
Am I missing something?
Can anyone explain whats the difference between an ETF and lifecycle fund? I’m currently investing in Vanguard’s lifecycle 2050 fund. It has a .18% fee rate. This came highly recommend to me as a very passive form of investing.
I’m curious to know what an ETF discussed in the article is different from a lifecycle.
Unless you’re referring to something I’ve never heard of, lifecycle funds are target retirement funds made up of other Vanguard funds (international and domestic stocks and bonds, and eventually cash as retirement approaches) that automatically grow more conservative as you near retirement. Most regular Vanguard ETFs aren’t as diverse, just trying to mirror the S&P 500, the international bondmarket, etc. and never rebalance themselves.
That’s correct- a target retirement fund is what it is. Thanks for the feedback on the differences. Any additional thoughts would be great.
I invest in VFINX for my Roth because I just started and don’t have enough to invest in the admiral share class. I also like to contribute monthly so an ETF would not be a good value for me.
My strategy might change as I come across more money to invest, but for now I’ll keep it where it is.
The only bad thing is that I don’t have good options on my 401(k) at work. The best I can do is 0.32%, which is not bad, but I’d like it to be better.
Hi G.E.,
I have a Vanguard rollover IRA (401(K) of my previous employer) and I wanted to start investing in S&P 500 Index Funds. I wanted to make monthly contributions to my IRA and invest them directly.
Keeping this in mind, which one is better in my situation in terms of fees (I do have Vanguard account):
1. VOO OR
2. VFINX (Do not have enough money for VFIAX)
Thanks in advance.
In the same boat. I’m exchanging all of VFINX for VOO. The only difference I can tell is the expense ratio.
Actually Stephen, there is another difference of which was neglected to be mentioned. With VFINX and VFIAX you can purchase partial shares instead of having to have enough for one whole share before purchasing. VOO requires that you have the entire amount of one share before purchasing. I’m about to transfer over to VFIAX from VFINX, I’ve got $300 to go until I hit the $10K mark. The reason I’ve invested using VFINX from the beginning is due to the above stated fact. Every week I put in $1,000 and zero of that sits in the Vanguard Federal Money Market due to the partial stock purchase allowance made possible by VFINX.
FWIW, having read Bogle’s “Clash of Cultures: Investment vs. Speculation”, the Vanguard founder does not think highly of ETFs. Not that they can’t be used the same as an mutual fund for long term investment, but they are designed around the mindset of speculation / day trading / market timing, and have the incredibly high churn to indicate they are being used this way.
And, while this doesn’t reflect the Index ETF per se, ETFs in general have sliced up the market into so many commodities that they are clearly meant for people who think they can time the market and choose winners and losers. This is the exact kind of thing Bogle has argued against his whole career and why he “invented” low cost index mutual funds.
He thinks this even of Vanguard index ETF’s?
Sure, they can be used that way – just as credit cards can be used to dig yourself in debt. But if you are a responsible investor (or pay your balance in full each month), they can be incredibly advantageous.
For me the convenience of being able to see up automatic investing in my Roth is worth payijg the extra 0.12%. After all, if I had to do this manually each month I may be less likely to make the contribution at al. I love Vanguard.
According to national averages, I expect to live another 11 years. At 70, females are likely to live to 81. So, should I put some of my social security aside in an EFT or mutual fund to help with living
expenses that will no doubt increase. Note, I have no other income
except social security.
Wow. I like when psychics post comments.
I’ve chosen to invest in VTSAX (Vanguard Total Stock Market Index Fund, admiral share class) rather than VFIAX (Vanguard 500 Index Fund, admiral share class) with the goal of increasing diversification. Do you have any thoughts to throw either way at that? Great blog!
I to am intersted in VTSAX vs VFIAX
Personally, I am going to invest in the VFIAX because this mutual fund mimics the S&P 500 index and Vanguard purchases preferred shares of America’s largest and most successful blue chip companies. In my opinion, although the VTSAX does include exposure to small, mid and large cap equities, the mid and especially small cap companies can offer much more volatility of which a S&P index mutual fund will be free. Also, I like the Vanguard VFIAX because of the relative low cost and the fact that the minimum balance requirement is ten thousand dollars which is higher than their other two S&P 500 funds: VOO and VFINX; Admiral shares just sounds nice too.
Hi G.E.,
Came across your article there and found it very helpful. Clarified a few doubts for me. I’m 24 and reading a lot about investing at the moment, with the view to beginning quite soon. Problem is my situation is a bit different. I’m Irish and currently live and work in Malaysia. I’m sold on the idea of tracker or index funds. Especially one following the S&P500.
Anyway I need a legitimate offshore account as I want to start investing properly. Would you recommend anyone in particular? As all the offshore brokerages seem to only offer the ETF version of Vanguard. I wanted the VFIAX admiral which is an index/mutual fund. The ETF seems like I would incur more costs? Would there be any real difference in buying the ETF? Any help/info would be greatly appreciated!
I wonder how many of the readers here have been able to restrain themselves from becoming “traders” with their ETFs. Working thru Vanguard may avoid broker fees, but those who don’t go that route are opening themselves to becoming players with fees every time they make a change with very costly reults!
It depends on who you broker with and how many trades.
At Merrill Lynch, I get 30 free trades per month. After that, trades are $5. Its not that expensive at all. However the only trades I have done on any Vanguard ETFs are for their ETFs: VTI, VEU, BND, VNQ, and VNQI and only for buys. Not sold a thing as of yet.
If you are focused on building for longterm with index ETFs you shouldn’t be “trading” anyway. Just strategic buys when you have the money available and the price is right, and strategic rebalancing when necessary. So far, I’ve only added shares to my portfolio not sold any. Rebalancing for me meant to lessen my cash allocation and increase equities on certain positions to get to the allocation I desired.
Eye-opening article but people should remember that moving money from one “taxable” account to another will result in capital gains/dividend taxes. I have $100K in a taxable VFINX fund and moving the money to a cheaper option would NOT be cheaper at all.
VFINX and VFiax have the same price and growth rate, so why do the expense ratios matter?
Hello,
Thank you for your website, as it is very helpful to people who are just learning about etf and mutual funds.
I was wondering why would I invest in VFINX
Hello,
Thank you for your website, as it is very helpful to people who are just learning about etf and mutual funds.
I was wondering why would I invest in VFINX, which as an expense ratio of 0.17% as opposed to VOO where it is only 0.05%.
Thank you
Do any of them have minimum holding times where you would pay a penalty if you sold some, say before 90 days after purchase?
I have had my 401k invested in the Vanguard S&P 500 for a long time. My performance is nowhere near the numbers cited for these S&P 500 funds…it’s more like one-half of those numbers.
My question is, why?.
If you choose to be fully invested in US stocks through Vanguard than the best choice of complimentary fund to VFIAX is VEXAX.
VEXAX is extended market index fund which excludes the constituent stocks of the VFIAX and contain small-cap and mid-cap companies. These two funds gives you coverage of total stock market. VEXAX YTD is almost 2% higher than VFIAX.
Very interesting, and certainly worth looking into. Thanks for the info.
VEXAX is also a $10k minimum investment it appears.
I have a question for you. It does indeed look like VFIAX and VEXAX complement each other well. From your experience, would it be wise to do invest equally in those 2 or should it be more of a 60/40 or 70/30 split?
Thanks!
I thought people’s comments where very useful I had a lot of the same thoughts.Large cap equity mutual funds are best.Then if you like the others,buy etf’s to see what they do in three years then invest in there mutual funds.
What about the tax efficiency ideas when dealing with VOO vs VFIAX in a taxable account? What’s better?
Folks, how does one draw an income from these etf’s (like VOO) once you’ve invested your $100,000.00 for example?
This was my question also, esp with Vanguard offering no commissions. I know that in general rule, ETFs are “tax efficient.” Now, I’m not sure what that means practically with VOO, i.e. how much, if any, money would you save on taxes, but that’s why I’m leaning to VOO instead of VFINX. If you’re talking about VFIAX, then I think VOO is hands down better because of the lower expense ratio.
Hi
Q. What would be wiser to do, to put all 10K in VOO or split 5K VOO and 5K VFIAX? based on current stats from Vanguard both are identical in terms of expense ratio and return. Both are .04% ER and 8.4% Long term Return. Any thoughts? Thanks in advance.
Here how to decode this article: AVOID VFINX, why pay more in fees? VFIAX is the way to go because of partial share investment! If one doesn’t meet the current account balance of $3K for VFIAX then invest in VOO until such time as you reach $3K then switch over to VFIAX and engage with some kind of automatic investing plan (weekly, biweekly, monthly. quarterly etc.).
I glanced at a lot of noob related questions in the comments section. They may be answered in full and yet some after reading this series. https://jlcollinsnh.com/stock-series/ I recommend reading the series first. If you liked it re-read the articles a second time along with the comments. I learned an additional 70% more information after reading each and every comment for all of the articles. Don’t get hung up on the fact that the series is a few years old. The information is still relevant today as the advice is still sound even in our current investing landscape.
I added VXF vanguard Extended market to VOO vanguard S&P 500 to approximately invest in us stocks. What do you think?
Great article. Thanks.