The following guide compares two popular Vanguard funds – VFIAX vs VOO.
VFIAX and VOO are comparable products, but there are notable differences between the two funds.
Regardless, both hold some very Undervalued Stocks that can reward investors over the long run.
VFIAX vs VOO – Overview
“An index mutual fund is said to provide broad market exposure, low operating expenses, and low portfolio turnover. These funds follow their benchmark index no matter the state of the markets.”
So, an index fund and a mutual fund are the same things? No. An index fund is always a mutual fund, but a mutual fund is not always an index fund.
Let’s take a revisit to high school geometry (that may be painful). It’s a corollary to how a square is always a rectangle, but a rectangle is not always a square.
A mutual fund is simply a pool of investors’ money to diversify across asset classes and companies. An index fund is a pool of money used to diversify across an index.
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VFIAX vs VOO – Full Comparison
Below you will find an in-depth comparison between VFIAX vs VOO.
Here is the VFIAX description from Vanguard’s website.
“As the industry’s first index fund for individual investors, the 500 Index Fund is a low-cost way to gain diversified exposure to the U.S. equity market.
The fund offers exposure to 500 of the largest U.S. companies, which span many different industries and account for about three-fourths of the U.S. stock market’s value.”
VOO is an ETF tracking the S&P 500, which is the 500 largest companies in the United States by market capitalization.
Market cap is simply the number of shares outstanding multiplied by the price per share. For example, a firm with 100 shares, trading at $10, would have a $1,000 market cap.
Vanguard notes the fund’s “goal is to closely track the index’s return, which is considered a gauge of overall U.S. stock returns”.
I would recommend this fund for long-term investors (15-20 year horizon) because the volatility will be higher than most funds.
VFIAX vs VOO: Custodial Provider
VFIAX is an S&P 500 index fund vehicle offered by Vanguard. VOO is an S&P 500 ETF offered by Vanguard.
Vanguard is my all-time favorite financial services company, alongside Fidelity and Charles Schwab.
These companies are referred to as “discount brokerages” because their fees are so low.
I love purchasing funds through discount brokerages because I receive the same investments for less.
Vanguard, Fidelity, and Schwab are the Walmart and Costco of finance.
VFIAX vs VOO – Minimum Investment
VFIAX has a $3,000 minimum investment, but there is no minimum investment requirement for VOO.
Thus, VOO is going to be a better choice for new investors, or someone without a lot of upfront capital to invest.
The $3,000 minimum with VFIAX can definitely act as a big barrier to entry.
VFIAX vs VOO – Fractional Shares
VFIAX allows fractional share purchases and automatic dividend reinvestments, but VOO does not.
For example, you can buy 0.23 shares of VFIAX, but VOO must be purchased in whole shares.
This complicates a dividend reinvesting strategy discussed below.
VFIAX vs VOO – Dividend Reinvestment
VFIAX and VOO both allow automatic contributions and withdrawals.
However, VOO does not allow automatic dividend reinvestments, while VFIAX does.
For example, say you received $30 in quarterly dividends. This is not enough money to purchase an entirely new share.
Well, that doesn’t matter for VFIAX; you can just reinvest those dividends in a partial share and walk away.
Always reinvesting your dividends is probably one of the best ways to secure long-term returns.
VFIAX has been growing in popularity as a staple fund for Vanguard in recent years. Here are a few of my favorite things about VFIAX:
- Automatic Dividend Reinvestment
- Partial Share Purchases
- John Bogle’s Favorite
First, as I mentioned above, I have a strong bias towards Vanguard because I love their founder, John Bogle.
Bogle is the inventor of the index fund, and he based his entire company around the mission of low-cost investing.
Low-cost investing means shareholders keep a larger portion of the investment returns.
VFIAX was John Bogle’s favorite investment product, and Warren Buffett loves it too!
Next, VFIAX allows fractional share purchases and automatic dividend reinvestment.
This is such an awesome way to grow your investment portfolio.
Here are a couple of downsides to investing in VFIAX:
- $3,000 minimum investment
- 0.04% Expense Ratio
As previously mentioned, VFIAX does have a $3,000 minimum investment, which is a massive roadblock to new investors.
I didn’t have two nickels to rub together when I started investing, much less $3,000.
Next, VFIAX has a 0.04% expense ratio, which is a little higher than VOO (0.03%).
One basis point is practically nothing. For example, it’s 40 cents in fees on $1,000, rather than 30 cents.
Nevertheless, I’d prefer to pay lower fees if the underlying holdings are comparable.
Again, as I mentioned earlier, there isn’t a huge difference in VFIAX vs VOO, but these are a few major pros.
- Intraday Trading
- 0.03% Expense Ratio
- More Liquidity and Trading Volume
- No Minimum Investment
Intraday trading means that a submitted order can be executed during normal stock market trading hours.
For example, if you want to buy or sell VOO at 10 am, you can. The same cannot be said for VFIAX, which only executes trades upon market closing.
This makes it easier for investors to know their entry and exit price for the fund. Now, intraday trading could be viewed as a negative, but I believe it’s generally positive.
Following that theme, because VOO has intraday trading, it also has more instant liquidity and trading volume. You can sell shares at a click and move that capital into another investment strategy instantly.
Additionally, VOO has a lower expense ratio than VFIAX, although it’s really not a huge deal. The difference is 0.01%, and that’s not going to make-or-break your retirement plan.
The biggest pro for VOO is the lower minimum investment. VFIAX requires a $3,000 minimum investment, so it’s not very beginner-friendly.
However, you can begin investing in the S&P 500 for the low cost of one share! This would be my recommendation for anyone looking to dip their toes into the investing waters.
Here are a couple of downsides to investing in VOO.
- Dividends and Partial Share Purchases
- 0.03% Expense Ratio
- Easier to Trade
The biggest downside to buying VOO is that it’s unlikely you will be able to reinvest your quarterly dividend payments, especially as a new investor.
You will not receive enough income to be able to afford an entirely new share; thus, the cash just sits in your money market account.
Finally, because VOO is an ETF, it’s easier to “panic-sell”. ETFs have a lower barrier to trade.
I wrote an article explaining the Best Investors Are Dead because they can’t trade beyond the grave.
Other Fund Comparisons
I have written many other investment fund comparison reviews. I highly recommend reading any of the following for more information.
- VOO vs SPY
- VOO vs QQQ
- VOO vs VTI
- VOO vs IVV
- VOO vs ARKK
- VOO vs VOOG
- VOO vs VYM
- VOO vs SWPPX
- VFIAX vs FXAIX
- VTSAX vs VFIAX
- SWPPX vs VTSAX
For more investing information, I suggest subscribing to the Wall Street Journal. They have tremendous information and reporting!
VFIAX vs VOO
VFIAX and VOO are both S&P 500 tracking index funds. The biggest differences are expense ratios, dividend reinvestments, and minimum investments.
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VFIAX vs VOO FAQ
What’s the difference between VFIAX and VOO?
VFIAX is an S&P 500 index fund offered by Vanguard, and VOO is an S&P 500 ETF offered by Vanguard.
Is VFIAX or VOO better?
VOO offers a lower expense ratio than VFIAX. The returns will be comparable.
What are the holdings of VFIAX and VOO?
VFIAX and VOO track the S&P 500.
How do I buy VFIAX or VOO?
You can buy VFIAX or VOO on any brokerage website. I prefer to use Vanguard.