Vanguard Index Fund Admiral Shares Question

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esmac
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Vanguard Index Fund Admiral Shares Question

Post by esmac » Sat Nov 10, 2018 11:25 am

Hello!

This is my first post.

Someone gives you $1,000,000 and you have to invest all of the money in either one of the two Vanguard index funds for twenty (20) years.

1. VFIAX Vanguard 500 Index Fund Admiral Shares https://investor.vanguard.com/mutual-fu ... file/VFIAX

2. VTSAX Vanguard Total Stock Market Fund Admiral Shares https://investor.vanguard.com/mutual-fu ... file/VTSAX

Which of the two funds would you pick and why?

Thanks
ES

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ps56k
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Re: Vanguard Index Fund Admiral Shares Question

Post by ps56k » Sat Nov 10, 2018 3:59 pm

Are you just curious -
or thinking about what to actually do with some large sum - or just any amount you may have .....

The problem with your Q&A - is that going totally into 100% stocks (either fund)
will potentially cause you some grief along the way..... Asset Allocation -

If you are asking and comparing the two funds against each other - as stock funds - that's kinda different Q&A -

averagedude
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Re: Vanguard Index Fund Admiral Shares Question

Post by averagedude » Sat Nov 10, 2018 4:01 pm

I would pick VTSAX because it has smaller companies in it. Im not an oddsmaker, but pulling a number out of my behind i would guess that VTSAX has a 70% chance of outperforming the 500 index over a 20 year period. The difference would be small either way.

alex_686
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Re: Vanguard Index Fund Admiral Shares Question

Post by alex_686 » Sat Nov 10, 2018 4:04 pm

I would chose the one that had the greatest likelihood of meeting my goals.

There is not a whole lot of difference between the 2. iirc S&P 500 makes up 80% to the total market index. I would lean towards total market because in theory the market basket is the most efficient.

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Steelersfan
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Re: Vanguard Index Fund Admiral Shares Question

Post by Steelersfan » Sat Nov 10, 2018 6:20 pm

How old are you?

What other assets do you hold?

If this is for funding a retirement, what other income streams will you have in retirement?

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JoMoney
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Re: Vanguard Index Fund Admiral Shares Question

Post by JoMoney » Sat Nov 10, 2018 7:24 pm

My equities are currently invested in S&P 500 index funds, I use VFIAX for the assets that are at Vanguard.
VTSAX is so close to being the same thing, it's hardly worthwhile making a big distinction between them. Really.

That being said, here's some of the reasons I prefer the S&P index:
I like S&P's methodology for their index, which while aiming at representing the market, isn't just buying everything being sold. There are some restrictions on things like liquidity, financial viability, seasoning of IPOs, and a few other things.
I like the history of the index fund and the pedigree of the index itself and availability of historical data.
I like that it was Vanguard's first index and it continues to track the same index (not that it made much difference when Vanguard changed which index the TSM fund tracks.)
I like that the S&P 500 is the benchmark du jour. It's widely reported on, easy to verify that my fund is tracking the index, no "tracking error regret".
There is more coverage and lots of data available from S&P on things like earnings and buybacks and from other analysts with regard to the components and the index as a whole and it's current valuation etc...
I like that it is specifically the fund and index that Warren Buffett has suggested for a long time, and used in his "long bet" and for his bequest in trust for his wife.
When I first started on an index only approach, the 500 fund had slightly lower expenses.
The S&P 500 is closer to the type/style of equities I would buy if I was screening and individual stock picking a portfolio (not exactly, but closer).

Either way, they are both low-cost indexes aimed at tracking the broad U.S. equities market.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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nisiprius
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Re: Vanguard Index Fund Admiral Shares Question

Post by nisiprius » Sat Nov 10, 2018 7:57 pm

I don't like your hypothetical. But given the choice, I'd choose Total Stock Market, for the same reason I exchanged my actual holdings in Vanguard 500 index for Total Stock Market back in, maybe 2003 or so.

I looked back at my reasons for choosing 500 Index in the first place. My reason was, as far as possible, not to try to pick the best stocks, but to completely avoid stock-picking by simply investing in the market as a whole. When it started in 1957, for an index calculated daily, it was necessary to limit the list to 500 because of the limited power of data processing equipment then. S&P chose 500 "leading companies in leading industries" that represented the stocks most investors were interested in. At the time, that was close enough to "the stock market" for all practical purposes.

In 1981, a researcher published a paper which appeared to show that small-cap stocks were superior to large-caps. The degree of truth in this is regularly debated in this forum, but,in any case it made small-caps respectable and created interest in them. It also created interest in indexes like the Wilshire 5000 which tried not to limit themselves, but to include all stocks traded in the major markets.

In any case, I switched to Total Stock, not in the belief that it would be detectably better in performance than the 500 Index, but simply because it was a better match to what I wanted to do. I wanted to get the returns of "the stock market," not try to beat the market by picking stocks. 500 Index was "close enough" to "the market," but Total Stock was closer.

Now, I don't like your restricting the choice to those two, unless they're the only ones in your 401(k) plan or something. I feel strongly that I do not want to be 100% in stocks or anything close to it. If I wanted to pick a single Vanguard index fund, limiting myself strictly to funds that are literally index funds, I'd choose Vanguard Balanced Index. If I were willing to compromise and pick a "fund of funds," then I'd choose one of the LifeStrategy funds, which in addition to giving me a balanced portfolio of both stocks and bonds, would also give me international diversification instead of limiting myself to investments in the United States.
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Pigeye Brewster
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Re: Vanguard Index Fund Admiral Shares Question

Post by Pigeye Brewster » Sat Nov 10, 2018 8:44 pm

Past returns are not a guarantee of future returns, BUT...

10 year average annual returns as of 10/31/2018:
VFIAX = 13.22%
VTSAX = 13.40%

5 year average annual returns as of 10/31/2018:
VFIAX = 11.30%
VTSAX = 10.78%

Not a large difference. Both VFIAX and VTSAX are excellent choices.

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Taylor Larimore
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Re: Vanguard Index Fund Admiral Shares Question

Post by Taylor Larimore » Sat Nov 10, 2018 8:58 pm

esmac wrote:
Sat Nov 10, 2018 11:25 am
Hello!

This is my first post.

Someone gives you $1,000,000 and you have to invest all of the money in either one of the two Vanguard index funds for twenty (20) years.

1. VFIAX Vanguard 500 Index Fund Admiral Shares https://investor.vanguard.com/mutual-fu ... file/VFIAX

2. VTSAX Vanguard Total Stock Market Fund Admiral Shares https://investor.vanguard.com/mutual-fu ... file/VTSAX

Which of the two funds would you pick and why?

Thanks
ES
ES:

Welcome to the Bogleheads Forum!

Jason Zweig, an author and long-time columnist for The Wall Street Journal wrote: "I think a total stock market index fund is not only the simplest, but the very best core investment for most people."

I picked Vanguard Total Stock Market Index Fund for the U.S. equity fund in The Three-Fund Portfolio.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Momus
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Re: Vanguard Index Fund Admiral Shares Question

Post by Momus » Sat Nov 10, 2018 9:52 pm

nisiprius wrote:
Sat Nov 10, 2018 7:57 pm
I don't like your hypothetical. But given the choice, I'd choose Total Stock Market, for the same reason I exchanged my actual holdings in Vanguard 500 index for Total Stock Market back in, maybe 2003 or so.

I looked back at my reasons for choosing 500 Index in the first place. My reason was, as far as possible, not to try to pick the best stocks, but to completely avoid stock-picking by simply investing in the market as a whole. When it started in 1957, for an index calculated daily, it was necessary to limit the list to 500 because of the limited power of data processing equipment then. S&P chose 500 "leading companies in leading industries" that represented the stocks most investors were interested in. At the time, that was close enough to "the stock market" for all practical purposes.

In 1981, a researcher published a paper which appeared to show that small-cap stocks were superior to large-caps. The degree of truth in this is regularly debated in this forum, but,in any case it made small-caps respectable and created interest in them. It also created interest in indexes like the Wilshire 5000 which tried not to limit themselves, but to include all stocks traded in the major markets.

In any case, I switched to Total Stock, not in the belief that it would be detectably better in performance than the 500 Index, but simply because it was a better match to what I wanted to do. I wanted to get the returns of "the stock market," not try to beat the market by picking stocks. 500 Index was "close enough" to "the market," but Total Stock was closer.

Now, I don't like your restricting the choice to those two, unless they're the only ones in your 401(k) plan or something. I feel strongly that I do not want to be 100% in stocks or anything close to it. If I wanted to pick a single Vanguard index fund, limiting myself strictly to funds that are literally index funds, I'd choose Vanguard Balanced Index. If I were willing to compromise and pick a "fund of funds," then I'd choose one of the LifeStrategy funds, which in addition to giving me a balanced portfolio of both stocks and bonds, would also give me international diversification instead of limiting myself to investments in the United States.
When you switched, did you pay large cap gain or you just stop contributing to s&p 500, keep the fund and direct new money to TSM? I assumed you didn't sell it all and incur a loss when you switched back then.

Helo80
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Re: Vanguard Index Fund Admiral Shares Question

Post by Helo80 » Sat Nov 10, 2018 10:05 pm

Pigeye Brewster wrote:
Sat Nov 10, 2018 8:44 pm
Past returns are not a guarantee of future returns, BUT...

10 year average annual returns as of 10/31/2018:
VFIAX = 13.22%
VTSAX = 13.40%

5 year average annual returns as of 10/31/2018:
VFIAX = 11.30%
VTSAX = 10.78%

Not a large difference. Both VFIAX and VTSAX are excellent choices.


Since inception...
Vanguard S&P500 in 1976 - 11.17 %
Vanguard TSM in 1992 - 9.90%
Though, that's misleading as S&P500 pre-dated TSM by 16 years. I'm sure had they been introduced at the same time, returns would have been within 1% or likely 0.5% of each other.

I don't think that there's a slam dunk reason that either is superior to the other. With TSM, you're buying the whole market --- but you're also buying the whole market including all the winners AND losers. Though, there may be future trillion dollar companies outside of the S&P500. With S&P500, you're buying the "best" 500 companies of the market; aka, the cream of the crop.

At the end of the day, you cannot go wrong with either.

billfromct
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Re: Vanguard Index Fund Admiral Shares Question

Post by billfromct » Sat Nov 10, 2018 10:46 pm

In order to compare "apples to apples", you have to compare the Vanguard S&P 500 Index to the Vanguard Total Stock Market (TSM) Index for the same time frame.

The TSM Index (Investor shares) started in April 1992.

The Portfolio Visualizer allows you to compare mutual funds from January 1 of a particular year.

Based on the compound annual growth rate (CAGR) from January 1, 1993 through October 2018, the Vanguard S&P 500 Investor shares returned 9.38%/year while the Vanguard Total Stock Market Index Investor shares returned 9.39%/year over the same period.

Pretty close!

bill

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JoMoney
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Re: Vanguard Index Fund Admiral Shares Question

Post by JoMoney » Sat Nov 10, 2018 11:15 pm

There are lots of broad market U.S. indices to choose from.
There are minor differences between them. Trying to predict which one might have slightly higher performance at some future date is a fools errand, it's unknowable, and so noisy that picking a slightly different start or end date will give different results. Pick a low cost option that you think you can "stay the course" with.
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nix4me
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Re: Vanguard Index Fund Admiral Shares Question

Post by nix4me » Sat Nov 10, 2018 11:25 pm

I would pick VTSAX.

Then I would transfer the account to Fidelity and pick FZROX.

CurlyDave
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Re: Vanguard Index Fund Admiral Shares Question

Post by CurlyDave » Sun Nov 11, 2018 7:31 am

Put half in each and see what happens.

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dwickenh
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Re: Vanguard Index Fund Admiral Shares Question

Post by dwickenh » Sun Nov 11, 2018 9:06 am

CurlyDave wrote:
Sun Nov 11, 2018 7:31 am
Put half in each and see what happens.
I love compromise!! :sharebeer
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

delamer
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Re: Vanguard Index Fund Admiral Shares Question

Post by delamer » Mon Nov 12, 2018 10:11 am

Assuming I had no other money invested toward the same goal, I’d go with Total Stock Market because it holds a broader range of stock (mid- and small-capin addition to large cap).

Why did you start a new thread on the same topic?

PolarBearMarket
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Re: Vanguard Index Fund Admiral Shares Question

Post by PolarBearMarket » Mon Nov 12, 2018 10:13 am

VTSAX.

It simplifies your portfolio by providing broader diversification without requiring you to manage multiple equity funds.

Also, the majority of VTSAX market cap is S&P 500.

esmac
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Re: Vanguard Index Fund Admiral Shares Question

Post by esmac » Mon Nov 12, 2018 11:00 am

Steelersfan wrote:
Sat Nov 10, 2018 6:20 pm
How old are you?

What other assets do you hold?

If this is for funding a retirement, what other income streams will you have in retirement?
I am almost 46. I have around $120k in a Valic 403b plan, investing 15% of my income pretax $77k on my own per pay period with an employer match.

I finally have my personal finances in order so starting in 2019 I plan to invest heavily and save less cash with my income.

In my Vanguard Roth I only have $5.2k invested in VFORX Target Retirement 2040 Fund.

In 2019 before April I want to max the contribution, and convert from VFORX to probably VTSAX.

Any feedback, advice on where I am right and wrong is much appreciated. I have much to learn!

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ruralavalon
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Re: Vanguard Index Fund Admiral Shares Question

Post by ruralavalon » Mon Nov 12, 2018 12:17 pm

Welcome to the forum :) .

esmac wrote:
Sat Nov 10, 2018 11:25 am
Hello!

This is my first post.

Someone gives you $1,000,000 and you have to invest all of the money in either one of the two Vanguard index funds for twenty (20) years.

1. VFIAX Vanguard 500 Index Fund Admiral Shares https://investor.vanguard.com/mutual-fu ... file/VFIAX

2. VTSAX Vanguard Total Stock Market Fund Admiral Shares https://investor.vanguard.com/mutual-fu ... file/VTSAX

Which of the two funds would you pick and why?

Thanks
ES
Of the two I would use (and do use) Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) because a little more diversified with stocks of smaller U.S. companies.

The two funds are very similar. A S&P 500 index fund covers 81% of the U.S. stock market, investing in stocks of selected large-cap and mid-cap U.S. companies. In the 26 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical.


esmac wrote:
Mon Nov 12, 2018 11:00 am
Steelersfan wrote:
Sat Nov 10, 2018 6:20 pm
How old are you?

What other assets do you hold?

If this is for funding a retirement, what other income streams will you have in retirement?
I am almost 46. I have around $120k in a Valic 403b plan, investing 15% of my income pretax $77k on my own per pay period with an employer match.

I finally have my personal finances in order so starting in 2019 I plan to invest heavily and save less cash with my income.

In my Vanguard Roth I only have $5.2k invested in VFORX Target Retirement 2040 Fund.

In 2019 before April I want to max the contribution, and convert from VFORX to probably VTSAX.

Any feedback, advice on where I am right and wrong is much appreciated. I have much to learn!
At age 45 it's important to be more diversified, so I also suggest a significant fixed income allocation such as Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) or another intermediate-term bond fund. I suggest around 30% of portfolio in fixed income investment.

What funds are you using in your 403b plan? What other funds are offered in the Valic 403b plan? Please give fund names, tickers and expense ratios.

I think its a very good idea to increase your contributions to investing.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

esmac
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Re: Vanguard Index Fund Admiral Shares Question

Post by esmac » Mon Nov 12, 2018 1:57 pm

Thanks for your help. I understand Valic is not a good investment vehicle to use for retirement, but there's not much that I know I can do about it.

My 403b 6.2% my contributions + employer contributions I think is now 10%:

stock index 40% (stock index 10) .34 exp ratio

mid cap index (mid cap index 4) 20% .34 exp ratio

small cap index (14) 20% .41 exp ratio

science and tech (17) 10% .99 exp ratio

foreign value (89) 10% .34 exp ratio

also have tax sheltered aggressive growth lifestyle fund (48) voluntary contributing 8.8% .99 exp ratio

I am very much a novice at investing. I bought Mr. Bogle's Common Sense investing book and hope to start reading it soon.

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Taylor Larimore
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"Little Book of Common Sense Investing"

Post by Taylor Larimore » Mon Nov 12, 2018 2:37 pm

esmac wrote: I bought Mr. Bogle's Common Sense investing book and hope to start reading it soon.
esmac:

I can think of no better way to learn successful investing than reading Jack's Bogle's, "Little Book of Common Sense Investing."

Read the book by Mr. Bogle, (who knows more than any of us about investing), THEN if you have questions, ask them here.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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ruralavalon
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Re: Vanguard Index Fund Admiral Shares Question

Post by ruralavalon » Mon Nov 12, 2018 5:33 pm

esmac wrote:
Mon Nov 12, 2018 1:57 pm
Thanks for your help. I understand Valic is not a good investment vehicle to use for retirement, but there's not much that I know I can do about it.

My 403b 6.2% my contributions + employer contributions I think is now 10%:

stock index 40% (stock index 10) .34 exp ratio

mid cap index (mid cap index 4) 20% .34 exp ratio

small cap index (14) 20% .41 exp ratio

science and tech (17) 10% .99 exp ratio

foreign value (89) 10% .34 exp ratio

also have tax sheltered aggressive growth lifestyle fund (48) voluntary contributing 8.8% .99 exp ratio

I am very much a novice at investing. I bought Mr. Bogle's Common Sense investing book and hope to start reading it soon.
That's a good choice for reading material on investing.

An expense ratio of 0.32% is fairly modest, not bad at all, for a U.S. stock index fund. I suggest contributing more to your 403b. The maximum employee contribution is currently $18.5k per year, starting in 2019 the maximum employee contribution will be $19k per year.

What is the index used by that stock index fund? What is the ticker symbol for that fund?

Are there any bond funds, or a stable value fund, offered in the Valic 403b plan? If so what are the fund names, tickers and expense ratios?

Are there other providers besides Valic available in your 403b plan?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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