Vanguard is a company that manages mutual funds and provides financial services to retail investors. One of its most popular products, the Vanguard S&P 500 Index Fund, has returned an annualized total return of 8.6% since inception in 1992 (as at November 4th 2016). The fund charges 0.3% per year as management fee while their expense ratio for this index fund is just 0.04%. Let’s compare it with Fidelity’s Admiral Shares ETF access which has had a similar performance over the same time period at 9.2%.

The “vanguard total stock market index fund” is the best option for those looking to invest in a mutual fund. The “Vanguard S&P 500 Fund” is also a good option, but not as good as the vanguard total stock market index fund.

Which Vanguard S&P 500 Fund is Better?

VOO (Vanguard S&P 500 Index ETF) and VFIAX (Vanguard S&P 500 Index Fund Admiral Shares) are two of Vanguard’s most popular low-cost funds. Each of these Vanguard funds:

  • Is very tax-effective
  • Has a lower cost-to-income ratio than its competitors
  • Is undoubtedly a better investment than the majority of active funds with comparable investment goals.

Both of these Vanguard funds will be thoroughly examined in this essay. We’ll talk about them in particular.

  • Investing priority
  • Performance in comparison
  • Investment holdings & size
  • Turnover & tax impact in an investment portfolio

There are, however, distinctions between each of these funds. The most significant distinction is that one is a mutual fund and the other is an exchange-traded fund (ETF).

We’ll start by understanding the distinctions between ETFs and mutual funds since VOO is an ETF and VFIAX is a mutual fund.

The distinctions between mutual funds and exchange-traded funds (ETFs)

ETFs and mutual funds are investment vehicles which provide individual investors the means to invest modest amounts of money into a wide variety of different assets. These assets might be bonds & CDs, equities, commodities, or other assets that an individual investor might not have access to without an investment broker.

Individual U.S. equities are the single component of VOO and VFIAX’s pooled investments. In reality, the pool for both funds is confined to the 500 biggest U.S. corporations.

Consider some of the fundamental distinctions between an ETF and a mutual fund.


The most significant distinction between mutual funds and ETFs is liquidity.

A manager oversees the management of mutual funds. Individual investors buy mutual fund shares from a reputable mutual fund firm.

The net asset value of these shares is what it’s termed (NAV). The NAV is determined by the sum of the underlying investments. The NAV is determined once a day, when the stock market closes for the day.

The mutual fund management buys back shares when an investor redeems a mutual fund. The transaction, however, does not take place until the exchanges have closed. The NAV is recalculated after market hours, and mutual fund shares are redeemed at the new NAV value.

ETFs, like stocks, are exchanged on a stock market. This implies that ETFs may be purchased and traded at any time of day. The deal executes promptly since the other party is another investor.

During regular times, this may not be a significant concern. It does, however, important during periods of increased stock market volatility. Particularly when extreme stock market fluctuations compel markets to shut during trade hours owing to massive selling.

During the early days of the coronavirus epidemic, for example, the whole United States stock market closed in the middle of the trading day. This occurred on several instances.

ETF investors might sell their holdings more rapidly than mutual fund investors. As a result, most ETF investors had lower losses than their mutual fund counterparts.

Tax effectiveness

Index funds, whether ETFs or mutual funds, may save you a lot of money on taxes. ETFs, on the other hand, have an advantage over mutual funds.

When a shareholder redeems mutual fund shares, the management must have enough cash on hand to be able to redeem those shares. If a large number of investors desire to sell at the same time, the fund management may have to sell more equities to raise the funds. More capital gains are generated, which are passed on to the surviving stockholders.

When ETF investors sell their shares, however, another ETF investor purchases those shares. That implies a fund manager does not need to make capital gains in order to purchase ETF shares.

Trade execution differences

There are numerous distinctions between how ETF transactions and mutual fund trading operate. Here are three ways ETFs vary from mutual funds in terms of trading.

The purchase minimums for ETFs vary.

An ETF’s minimum purchase is one share. Most ETFs may be traded on any trading platform with minimum or no transaction costs since they trade like stocks. At the same transaction cost, an investor may purchase 1 share or 10,000 shares of the same ETF.

A minimum initial contribution is normally required for mutual funds. This is a dollar-based minimum investment.

When the minimum investment for new investors buying VFIAX at Vanguard is $3,000, for example. VFIAX shares may be purchased for less than $3,000 at Schwab. However, each performed trade would incur a $49 transaction charge, making this method of investing prohibitively expensive.

Purchasing fractional shares of a mutual fund is more convenient.

When acquiring a certain dollar amount, most trading systems will enable you to acquire fractional shares of a mutual fund. Dollar-cost averaging is thus quite popular among mutual fund investors.

However, most ETFs may only be purchased in entire shares. M1 Finance looks to be the only exception. Investors may invest in fractional shares with M1 Finance.

Finally, mutual funds have a wider distribution than ETFs.

Your employment retirement plan is unlikely to include ETFs as an investing choice.

ETFs are unlikely to appear in a 401k or 403b plan since they involve the trading of whole shares. In reality, their tax efficiency isn’t very useful in tax-deferred accounts.

However, mutual funds will be present. Frequently, various versions of the same mutual fund exist. That’s because mutual funds come in a variety of share types.

Share classes exist in mutual funds.

There is no share class for ETFs.

Because a higher investment in a mutual fund represents less investment risk for the mutual fund management, mutual funds do. Mutual funds sometimes provide reduced cost ratios in exchange for less risk.

Vanguard’s Core-Plus Bond Fund, for example, is available in two share classes: Investor and Admiral. With a $3,000 minimum investment, you may start with the Investor share class (VCPIX), however the fee ratio is 0.30 percent. Admiral shares (VCPAX) offer a reduced cost ratio of 0.20 percent, but they need a $50,000 minimum commitment.

Admiral shares, which are the fund’s single share class, have a $3,000 minimum investment.

Aside from share class differences, there may be expenses in a mutual fund that aren’t found in ETFs.

Transaction fees may apply to mutual funds.

Because ETFs are exchanged like stocks, they don’t have transaction costs.

However, transaction costs for mutual funds are mostly determined by who issuing the fund and how you are purchasing it.

There are no transaction expenses when you purchase a Vanguard mutual fund if you have a Vanguard account. If you purchase the identical Vanguard fund in your Schwab trading account, though, you’ll almost certainly pay transaction costs.

This is only for no-load money. No-load funds, such as Vanguard, are mutual funds that do not charge a commission. Load funds are a kind of mutual fund. This implies they take a cut every time you buy anything.

  • Purchase the fund’s shares.
  • Sell the fund’s shares.
  • Or both

However, mutual funds have an edge over ETFs when it comes to dollar cost averaging.

Since both VOO and VFIAX have the same Investing priority, let’s take a look.

Investing priority

VOO and VFIAX are both low-cost whose investment objective is to track the Standard & Poor’s 500 Index. Both VOO and VFIAX purchase individual stocks in the proportions represented in the S&P 500 Index.

Both funds focus on replicating their benchmark index, not outperforming it. This leads us to wonder what exactly is the S&P 500 Index?

What is the S&P 500 Index?

The S&P 500 is one of the world’s oldest stock indices, and arguably one of the most famous. Created by Standard and Poor’s (now known as S&P Global) in 1957, the S&P 500 Index represents the 500 largest publicly traded U.S. companies.

In fact, John Bogle, Vanguard’s founder, created the indexing investment approach by creating the Vanguard S&P 500 Index fund as the world’s first index fund.

As of the quarter ending 3/31/2022, the S&P 500 Index had 505 U.S. companies representing approximately $40.3 trillion in market capitalization. This represents about three-fourths of the U.S. stock market.

VOO and VFIAX owned individual equities in 506 publicly listed U.S. firms as of March 31, 2022.

What role does this play in an investor’s portfolio?

It’s impossible to choose between VOO and VTSAX as the best index fund without considering the whole investing approach. Each of these low-cost index funds serves a different role in a portfolio.

VOO & VFIAX would appeal to investors who feels that they have enough exposure to small-cap stocks and international stocks in other holdings. That investor may choose VOO or VFIAX to focus on large-cap stocks while getting into some mid-cap companies at the lower end of the index.

Top Ten Assets

Let’s take a closer look at the Top Ten Assets in VOO and VFIAX.

Tech companies dominate the S&P 500’s Top Ten Assets. There are two exceptions:

  • Warren Buffett manages Berkshire Hathaway.
  • Another health-care firm is UnitedHealth Group.

The top 10 accounts for little more than 30% of VOO and VFIAX’s total net assets.

As of 04/13/22, the following companies represented about 30% of VOOs & VFIAX's assets under management: Apple, Microsoft, Alphabet, Amazon, Tesla, NVIDIA, Berkshire Hathaway, Meta Platforms, & UnitedHealth GroupTechnology companies dominate S&P 500 Top Ten Assets (4/13/22)

That leaves the remaining 70% allocated to about 490 or so remaining S&P 500 companies.

Let’s take a look at the Total Holdings, by sector, of the S&P 500. Each fund’s holdings is represented by a pie chart from its respective index. This should make it easier to visualize.

Total Holdings

The Total Holdings in the S&P 500 are dominated by Information Technology (28%), followed by: Health Care (13.6%) Consumer Discretionary (12%) Financials (11.1%), and Communication Services (9.4%). Industrials, consumer staples, energy, utilities, real estate, and materials round out the rest of the S&P 500.Breakdown of the S&P 500 companies, by sector

In the S&P 500, the tech sector reigns supreme (28% of holdings), followed by health care (13.6%), consumer discretionary goods (12%), and financials (11%).

Let’s take a look at the overall assets managed (AUM).

Comparison of AUM

Vanguard index funds are among the most well-known in the world. Whether you’re talking about mutual funds or ETFs, their cheap costs make them quite appealing to long-term investors.

VFIAX and VOO have a total net asset value of $841 billion since they are two variants of the same fund.

Let’s take a look at their performance, both in absolute terms, and compared to their benchmark, the S&P 500 Index.

Comparison of results

The goal for both VFIAX and VOO is to emulate the S&P 500 Index. That means their investment returns will always lag behind due to two factors: management expenses & taxes.

Ratios of expenses

Also known as management fees, Ratios of expenses are taken from the investment (in both cases, Vanguard) to cover the operating costs of the fund. Usually, Ratios of expenses are reflected by an adjustment to the end of day share price.

An advantage of an index fund over similar funds is that you do not have to pay an active fund manager, investment analysts, or other staff to manage the investments. So the fund managers can charge very low Ratios of expenses, which make index funds a good choice for many investors.

VFIAX has a 0.04 percent expenditure ratio, whereas VOO has a 0.03 percent expense ratio. Vanguard takes $4 (for VFIAX) or $3 (for VOO) each year for every $10,000 invested. For example, most financial advisers consider a fund to be inexpensive if its annual cost ratio is less than 1%.

Tax drag

Mutual funds and exchange-traded funds (ETFs) do engage in taxable events. Harvesting capital gains or getting dividends from the underlying firms are examples of taxable occurrences.

Because firms do not pay taxes on these events, it is difficult to see how taxes affect market returns. The investor is informed about these transactions.


It’s difficult to observe in most investing accounts. However, you’ll most likely see quarterly dividend transactions for each mutual fund or ETF in your investment portfolio every quarter.

Dividends paid on taxable investment accounts are taxed. If your fund has a low dividend yield, the dividends in your investment account will most likely be taxed at a low rate. This might be qualified dividends (which are taxed at capital gains rates), ordinary dividends (which are taxed at regular income tax rates), or a mix of both.

Distributions of capital gains

And at the end of the year, towards the end of December, you’ll see Distributions of capital gains in each of your funds. The amount of distributions depends on the amount of activity in your fund.

If your fund has a high turnover rate, you’ll probably have a lot of Distributions of capital gains. High turnover means an active fund manager is consistently buying and selling underlying securities within the fund. Those capital gains are required to be passed on to the fundholder (that is you).

Index funds, on the other hand, see very little turnover. Each of these indicators is recalculated every year. The funds are also rebalanced on a quarterly basis. As a result, there isn’t much buying and selling going on. And this has a significant impact on performance.

Let’s take a look at the Performance in comparison of each fund (minus management fees), compared to its underlying index.

VOO & VFIAX vs. S&P 500 Index

As of 03/31/2022, this is the breakdown of Vanguard S&P 500 funds’ annual investment performance over the past year, 3 years, 5 years, and over their history:

  • 15% after one year
  • 18.88% over three years
  • 15% over 5 years
  • 14.60 percent during the next ten years
  • 15.34 percent since inception (VOO)
  • 7.87 percent since start (VFIAX)

It’s worth noting that VFIAX existed for nearly ten years before VOO. The performance graph below demonstrates this.

Vanguard's S&P 500 ETF (VOO) tracks the S&P 500 Index, representing similar performance over the past year, 3 years, 5 years, 10 years, and since inception (2010).Annual performance of VOO, VFIAX and the S&P 500 Index (Vanguard website)

Where You Can Purchase VOO & VFIAX

VFIAX and VOO may be purchased via practically any online brokerage business or your financial adviser.

The “vanguard s&p 500 etf vs index fund” is a question that has been asked many times. The Vanguard S&P 500 ETF is the best option for investors who want to invest in stocks, but don’t know which one to choose.

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