Vanguard VTSMX [Complete Review]

Milan Kovacevic October 18, 2017

Vanguard Total Stock Market Index Fund (VTSMX) is one of the top performing mutual funds tracking US large cap stocks.  In the following review, we discuss some of the key aspects of VTSMX fund performance (share—not stock—price, expense ratio, dividends, holdings, and tax efficiency), along with other options individual investors should consider (VTSMX vs. VTSAX, VTSMX vs. VFINX, VTSMX vs. VTI).

How do we rate VTSMX Fund? 

If you’re looking for a VTSMX star rating, check out Morningstar.  What we provide to you are some pointers that will enable you to make informed decisions based on your investment needs, experience, and understanding of the market.   

If you are new to the world of investment and are looking for a way to participate in the US stock market, VTSMX may be worth a shot. We rate the fund triple green.


Why we rate it Triple Green 

VTSMX is a good investment choice because of the following reasons: 

  • The fund’s portfolio is diversified, holding almost every listed stock in the U.S market. It bears a broader combination of small-cap stocks that have performed quite well, considering its market capitalization.
  • It’s low cost, with an expense ratio of 0.15%. The fund cost decreased several times over the previous years.

  • VTSMX’s solid performance history rises above many other options in the market.

So if you are a beginner investor, this is not a bad mutual fund to put you money in. 

However, this does not mean you should buy VTSMX without considering your alternatives.  Keep reading this post to learn more about VTSMX and other options.

Despite VTSMX’s good history, there is always a downside risk.  During the bear market, between October 2007 and March 2009, VTSMX shares fell 55%.

Since VTSMX is a passive fund, it is fully invested.  No cash sitting on the sidelines.

Who should invest in VTSMX?

Index funds like VTSMX are a great option for individual investors that need a stock fund with investment opportunities across several capitalizations and sectors in the US market. VTSMX tracks the CRSP US Total Market Index that accounts for almost all of the liquid stocks in the New York Stock Exchange and NASDAQ.

A greater percentage of VTSMX Vanguard investments are held in technology companies (precisely, 17%). Financial service providers also occupy a significant proportion (15%) of the fund.

What should I know about CRSP US Total Market Index? 

The CRSP US Total Market Index accounts for an estimated 99.5% of all the common domestic stocks traded on the New York Stock Exchange and NASDAQ.

VTSMX fund has generated 13% and 7.6% returns in the last five and ten years respectively. This is slightly ahead of S&P 500. 

Unlike the S&P 500 that is regulated by a committee, CRSP relies on a unique mechanical index construction model. However, their performances are not quite different. VTSMX is a larger blend, comprising different small-cap, in addition to large-cap stocks.

Does VTSMX provide international exposure to investors?

Yes. Many of the fund’s largest holdings are multinational firms, so VTSMX has substantial indirect international exposure. 

What are the expenses (sales and distribution costs) of VTSMX?

VTSMX does not have any scary fees that usually turn off investors such front-end, back-end and 12b-1 fees. The fund’s expense ratio is 0.15%.


Based on Finstead’s research, the average expense ratio of a mutual fund is 1.09%.  

How much does it cost to own VTSMX Fund?  And what’s the minimum investment? 

Investor shares have an expense ratio of 0.15% and a minimum investment of $3,000.

What about VTSMX Admiral shares?  How much do they cost and what’s the minimum investment? 

The Admiral fund is known is VTSAX.

The Admiral Class Shares VTSAX have a 0.04% expense ratio.  The minimum investment is $10K.   

Can you show me how VTSMX has performed over the last 5 years?  What’s the share price today vs. 5 years ago?

Check out the chart below.  The share (not stock) price has more than doubled.   

Keep in mind the share price appreciation does not capture dividends, which can be also a significant component of your investment return.

How many up and down years did VTSMX have?

Since its inception in 1992, VTSMX fund has had 19 up years and 5 down years.


The fund has registered 17.9%, 13.0% and 7.5% returns over the past year, five years, and a decade respectively. Its performance in the bear market is average. Its low cost has given it a crucial competitive edge.

What are the risks of investing in VTSMX?

The main one is the stock market risk, which is the chance that stock prices overall will decline. 

Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

In addition, the fund’s target index may, at times, become focused in stocks of a particular market sector, so the fund has proportionately higher exposure to sector risks.

Also, an VTSMX investment is not a deposit of a bank and is not insured or guaranteed by FDIC. 

Are there cheaper Vanguard index funds than VTSMX?

Certainly.

The question, is, what does a cheaper fund get you? 

VTSMX vs. VTSAX? 

We already discussed this—VTSAX is cheaper by 0.1 percentage points.  Go with VTSAX if you have minimum $10K to invest.

VTSMX vs. VTI? 

VTI does not have a minimum balance requirement and it has an expense ratio of 0.04%. VTI is an ETF, so you may have to pay a trading commission if you invest outside of Vanguard or zero-dollar brokerages (e.g., Robinhood).


Mutual funds vs. ETFs—what’s the difference?

Mutual funds offer you a chance to engage in automatic investments, so you can acquire shares in desirable proportions.

In fact, you can even choose an option to automatically deduct from your bank account every month.

ETFs, on the other hand, are traded similar to stocks. Investors have the option of manual additions to their existing investments. But, the particular amount of shares is usually based on the current share price.

ETFs are generally considered more tax-effective.  And this could be good news for holders of taxable accounts.

With mutual funds, investors are able to automatically re-invest dividends and capital gains, while ETFs lack such plans.

VTSMX vs. VFINX?

It depends whether you’d like to invest in a fund that follows the total stock index, or S&P 500.  

We’ve discussed the differences above and in our review of VFINX.  Both funds are comparable in performance and fees.  VFINX, however, tracks S&P 500 which covers about 80% of US stocks by market cap.

John Bogle, who started both VTSMX and VFINX, prefers Total Stock Market Index Fund.

VTSMX vs. VGTSX?

So you’re asking if you should buy apples or oranges.  VGTSX is an international equity ETF, while VTSMX is a domestic ETF.

We think you should buy both if you can.

The past few years have favored US Equity over International Equity. Does that mean that the future will also? Not necessarily.

We think that 20-40% of your equity should be in international.

Are there cheaper index funds outside of the Vanguard Group?

Yes. Fidelity crosses the mind if you’re looking for a solid index fund outside the Vanguard Group. Fidelity 500 Index (FUSEX) offers an annual fee of 0.09%.  The minimum investment requirement is just $2,500. 

FUSEX covers top 500 stocks in the US, and in many ways is more comparable to VFINX.  

Despite some disparities in annual expenses, however, switching from Vanguard (either VFINX or VTSMX) to Fidelity (FUSEX) would not make a significant difference.

What about Charles Schwab US large-cap funds that are comparable to VTSMX?

There are a couple of excellent Schwab index funds: Schwab S&P Index Fund (SWPPX) and Schwab US Large-Cap ETF (SCHX). 

To be perfectly candid, they are more comparable to VFINX than VTSMX.  

Charles Schwab charges 0.03% for SWPPX.  This expense ratio applies to all investors, whether they invest $100 or $100,000. Bear in mind that the standard industry practice is to charge less to clients who invested more with them.

SWPPX vs. VTSMX?  SWPPX vs. VFINX?  Which fund would you buy?

Don’t let a fraction of the cost tip the scale.  Go with SWPPX if you have a Schwab account; and VTSMX or VFINX if you have a Vanguard accounts.  

What is VTSMX turnover and does it have any impact?

VTSMX fund’s average annual turnover was 4% over the past decade. This is quite low.  

Lower turnover implies reduced trading costs and slim distributions of taxable capital gains.  

Does VTSMX pay a dividend?

Yes; it pays a quarterly dividend. The trailing 12-month dividend yield is 1.76%.  That means if you invested $5K in VTSMX, you’d get $88 in dividends.  

Does one have to pay taxes on VTSMX dividends?

The fund has a quarterly dividend and you have to pay taxes on these payments regardless of whether you took them in form of cash or re-invested them.

As far as taxes on fund appreciation, you should know that taxes are only payable on gains received from the shares that you sell.

What are the top holdings in VTSMX?

The following list shows the top holdings in VTSMX and weights of their assets:

Company

Symbol

% Assets







Apple Inc

AAPL

2.87%

Microsoft Corp

MSFT

1.94%

Amazon.com Inc

AMZN

1.44%

Exxon Mobil Corp

XOM

1.37%

Johnson & Johnson

JNJ

1.36%

Facebook Inc A

FB

1.34%

JPMorgan Chase & Co

JPM

1.26%

Berkshire Hathaway Inc B

BRK.B

1.25%

General Electric Co

GE

1.06%

AT&T Inc

T

1.02%

Any sections of the U.S stock market that have recorded better performance than VTSMX/ S&P 500 in the past?

If you look at the last 87 years of the US stock market (since 1930), you’ll notice that both small cap value and large cap value categories have done arguably better than Total Market Index (VTSMX, VTSAX or VTI). or S&P 500 funds. 

Over a shorter period of time, there is always a number of categories / funds that have performed better than S&P 500. 

How can I get information on some of the index funds that have performed better than Vanguard’s VTSMX? 

You can get some suggestions on what funds have outperformed VFINX through Finstead’s Idea tool.  The tool pops out a couple of fund suggestions (from both the same fund category and overall) that have historically had a higher return and lower volatility (i.e., risk).

For VFINX, the tool suggests American Century NT Mid Cap Value (ACDSX) and SEI Dynamic Asset Allocation A (SDLAX) as an overall fund and a same category fund (respectively) that have had a higher return and lower volatility over the last 5 years.  But be careful—do your diligence before investing in those funds!    

Who manages VTSMX?

Vanguard’s equity index funds, which includes VTSMX have been managed by Gerard O’Reilly since 1994. In April last year, the company added Walter Nejman as a co-manager. Both are experts with many years’ experience in index funds management.

O’Reilly and Nejman are backed by a team of more than 60 investment professionals. Among them are 20 portfolio managers and traders. According to Vanguard’s regulations, O’Reilly and Nejman are not allowed to invest in VTSMX.

Is there anything else that I should know about Vanguard?

Vanguard is among the leading retail investment companies that offer great products for individual investors. Vanguard’s main goal is to deliver low cost, diverse and tax-efficient investment options. Vanguard is notable for periodic mutual fund and ETF expense reductions.

How profitable is Vanguard?

Since Vanguard is privately owned, we don’t know how profitable it is. However, it has continued to expand its market share, currently valued at more than 20% of the U.S mutual funds market.

In case you have other questions, don’t hesitate to reach us via hi [at] finstead [dot] com. 

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