5 Reasons Why Vanguard's VTSAX Index Fund Is Our Top F.I.R.E. Investment

Amon and I are all about passive investing as a pathway to financial freedom. Index funds, in particular, are among our favorites. For one, they’re incredibly passive investments; and two, with index funds, you don’t need to put in as much time, research or oversight compared to investing in individual stocks, or investing in real estate, startups or plenty of other investments that are out there!

One index fund in particular has long been a favorite of ours: Vanguard’s Total Stock Market Index Fund (ticker symbol: VTSAX). VTSAX has literally - and i’m using “literally” here in the way it is meant to be used - made us HUNDREDS OF THOUSANDS of dollars! So, I figured this awesome index fund was worthy of its own blog post laying out why it’s worked so well for us and how you might want to research it to see if it could work well for your FIRE journey also! Here’s my brief overview of VTSAX and 5 reasons why we love it so much!

VTSAX is a total stock market index fund. It’s designed to track the performance of the total stock market in the United States. Because of this, VTSAX is unique in that it spreads your investment out over the entire stock market - that’s over 3,000 tradable companies! Because it has such a wide breadth, it’s typically viewed as an investment that reduces your risk even more than other index funds that have a narrower focus.

A bit more about VTSAX. It’s sold by Vanguard, a powerhouse brokerage company that many of you will likely already be familiar with. But for those of you who aren’t, Vanguard is a pioneer of index funds and is a leader in the low-cost index fund space. Vanguard index funds, for instance, typically have an expense ratio that is 70% lower than the industry average! So by going with Vanguard you can generally see big savings!

The top holdings for VTSAX are: Apple, Microsoft, Amazon, Facebook and Johnson and Johnson. The fund has an expense ratio of 0.04% and requires a starting investment of at least $3,000. Over the last 10 years, VTSAX has provided an over 13% return, which is phenomenal! To put that into context, if you’d invested $10k in 2011, you’d have more than $34K in 2021!

What’s great about VTSAX is that it beats around 80% of actively managed mutual funds. For clarification, a mutual fund is an investment fund that trades in diversified holdings and is professionally (and actively!) managed. In other words, with actively managed mutual funds you are paying for an expert to manage the fund, buying and selling the stocks within the fund itself in order to try and “beat” the market. Because VTSAX doesn’t come with an active manager, it can afford to have a much lower expense ratio (which can often be as high as 2% for some actively managed mutual funds). So with VTSAX you’d actually be getting a higher return than most other funds, at a lower overall cost.

Now it’s time for my ode to VTSAX. Let's get into my 5 reasons for loving VTSAX as an investment:

1. VTSAX Invests In The Total Stock Market

Because VTSAX covers the entire stock market, it’s returns will mimic those of the stock market as a whole. As history has shown us, the stock market has ALWAYS gone up. Yes, there are always going to be dips and crashes, but the market has always recovered and has always continued to appreciate. Of course, it's important to note that no one can predict the market’s future. But, based on historical performance, I’ve always viewed VTSAX as a safer investment than the majority of other investments I could put my money into when it comes to investing in the stock market.

2. Diversification, Diversification, Diversification

Did I mention diversification? Owning VTSAX allows an investor to own almost all of the companies trading in the U.S. stock market. This is diversification at its finest. And, to be clear: Diversification is good!

Generally, having a diverse portfolio helps to reduce your amount of risk. Index funds track multiple different stocks, the logic being that stocks that do poorly will be balanced out by ones that do well. So the more stocks there are in the fund, the less significant any losses will be. Basically, VTSAX is the opposite of having all your eggs in one basket. Because VTSAX tracks the entire market, your risk is spread across more than 3,000 companies. You can’t get better diversification than that!

3. VTSAX Constantly Self-Cleanses

On the stock market, there are inevitably companies that fail and companies that succeed. Because VTSAX tracks the entire market, it too will reflect these failures and successes. The thing is though, as soon a company fails, it will drop off the stock market and, as result, will no longer be tracked by VTSAX. What this means is that, unless every single company on the stock market fails, VTSAX will ultimately progress.

4. VTSAX Will *NEVER* Go To Zero

Ok, I suppose we can never say never when it comes to stocks . . . BUT the chances of this happening are practically non-existent. The only way VTSAX could ever drop to zero is if EVERY SINGLE COMPANY on the stock market lost ALL value. That means no Nike, no Apple, no McDonalds, no Amazon . . . No need to clutch your Nike shoes and French fries! The likelihood of every single company on the stock market failing is “pretty much” guaranteed to never happen

5. VTSAX is SIMPLE

Investing in VTSAX is easy, straightforward, and requires very little effort to understand. With automated investing available for VTSAX, investors can contribute as much as they want (assuming they first establish the $3,000 minimum investment) and as often as they want. This simplicity makes it incredibly easy to grow your wealth.

At this point, Amon and I have a good deal of investments in VTSAX and we’re very happy with Vanguard. But, if you watch our YouTube channel, you know that we also have accounts with Fidelity and Schwab.

We love Vanguard, Schwab, and Fidelity because of many of the low-cost investment options they offer - including their total stock market index funds.

So Vanguard offers VTSAX, and Schwab and Fidelity have their own total stock market equivalents. Feel free to research them to see if they might bring value to your investment portfolio. Here they are:

• Fidelity ZERO Total Market Index Fund (FZROX). With FZROX, Fidelity offers a 0% expense ratio - meaning it's completely free! The caveat, however, is that only Fidelity customers can purchase this fund.

• Schwab Total Stock Market Index Fund (SWTSX). The Schwab fund is, again, essentially the same as the Vanguard fund, but has an even lower expense ratio, at 0.03%.

So I wanted to share my thoughts on VTSAX for those of you that are interested in learning more about index funds. Maybe a total stock market index fund could be a great investment for you to add to your portfolio. Maybe you have other plans for your investments. At a minimum, I always encourage you to do your research. But, don’t just stop after you’ve completed your research. The next step is . . . to take action!

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