VFIAX vs VOO: Which Vanguard Fund is Better for Your Portfolio? (2022)

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.

Neither fund will invest in new start-ups or Penny Stocks. If that type of investing interests you, check out our list of Best Upcoming IPOs to Buy!

VFIAX vs VOO – Overview

Index Fund

“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.

Best Vanguard Index Funds

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.

VFIAX Description

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.”

For full disclosure, I have a significant amount of my personal holdings invested in VFIAX.

VOO Description

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 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 Pros

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.

VFIAX Cons

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.

VOO Pros

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.