Which is best? VTSAX, VT, VTI, or VOO?

About half of the financial coaching inquiries I receive revolve around a similar idea. I want to invest, but don’t know what to invest in. Analysis paralysis of sorts.

That’s a reasonable enough inquiry. I have spent many years being formally educated by others and not one time did anyone answer this question. Not in high school personal finance or econ. Nursing school avoided anything financial like the plague. The business class in my third year of anesthesia school spoke to anesthesia specifics, but nothing like the personal finance aspect of The Financial Cocktail.

Teachers and professors set you up for a job and assume you will figure out the money aspect along the way. We could spend all day discussing who is responsible for personal finance literacy, but today isn’t that day. Today is about which fund to buy.

As you may have noticed, all 4 funds in the title are from Vanguard, a brokerage for boring, old rich people. No sponsor from Vanguard, but I use their brokerage services because its cost effective, simple, and has the funds I want. Vanguard caters to people who are following a proven track record to build wealth over time. No Dogecoin or GME traders here.

Also of note, this post is not about asset allocation, bonds, cash, or other investments, but rather equities.

Back to Basics

We can all agree that investing in a single stock is not a proven concept for long term success. If that company performs poorly, all is lost. Even the giants of today such as Apple, Google, and Amazon will one day become the Yahoo, Blockbuster, and Sears of tomorrow.

There is one exception to this single investment rule – investment funds.

Oversimplified

When a company decides to raise money for any number of reasons, they sell a portion of the company in the form of stock. Stocks, aka equity, are fractional ownership in said company. If I purchase 1 share of AAPL (the ticker symbol for Apple), I own 1/15,787,154,000th of the company. Not enough to sit next to Tim Cook, but it’s a start.

Index funds and mutual funds are baskets of stocks. This eliminates trying to pick good ones and allows the purchase of many at a given time. The name of the fund tells you what is in the basket. And here goes my attempt at relating this to anesthesia.

Let’s assume each drug is a publicly traded company offering stock. The Beta Blocker Index Fund holds just that, beta blockers. If I buy 1 share, I will own a small piece of every beta blocker. Some do well for the year and others may receive a black box warning for humans that puts them out of business. The idea is that over the long run, beta blockers in general will perform well.

The Cardiac Drug Index Fund is similar but carries a few more companies. It’s a more diverse basket. It contains beta blockers PLUS calcium channel blockers, inotropic drugs, diuretics, and many more. 1 share of this fund spreads out my investment even farther.

The fund isn’t necessarily more expensive to buy into. The fraction of each company is likely smaller because there are so many.

The largest and most diverse fund is the Total World Drug Index Fund. This fund contains every drug from every manufacturer that is publicly traded. This includes foreign and domestic drugs. The idea here is that you are invested in literally everything – Everything including the big dog drugs like atorvastatin, semaglutide, and apixaban in addition to the obscure startups staged to be the next household name.

Index Fund vs Mutual Fund

In an equally oversimplified manner, the Beta Blocker Index Fund adds up the market cap (value) of all of the beta blocker companies. Then divide the value of each company by the total to determine each company’s share of the market.

Assume the value of all beta blocker companies is $1M. The Metoprolol Corporation is worth $100,000. That means 10% of the fund would be The Metoprolol Company. Rare, worthless, fictitious drugs like XYZolol may only comprise 0.001% of the fund.

The beta blocker mutual fund is slightly different. The basket of drugs, beta blockers, is the same. A mutual fund generally contains similar proportions to an index (fund), but has the freedom to deviate slightly.

If a mutual fund manager feels Esmolol is going to perform well in the future, they may buy a bit more. If the fund manager feels The Metoprolol Company is fading in popularity and may not be the top performer, they may lower their holding to 8%.

Some mutual funds are more active than others, meaning they make trades more frequently. The marker of a mutual fund’s success is the comparison to the index.

ETF vs Mutal Fund

An  EFT, or exchange traded fund, is an index fund that trades like a stock. ETFs can be traded in real time at any point throughout the trading day. And because they trade like stocks, there are sophisticated order types to control buying and selling.

Mutual funds are a bit more hands off. It’s more like giving money to a fund manager to do the buying and selling on your behalf, typically at the end of the trading day. Mutual funds typically have a higher cost barrier to entry -- $1,000 to $5M depending on the fund. If automating investing is for you, mutual funds are the way to go.

For the sake of this discussion and the funds listed, there is little difference between the two.

Real World Application

Now that we have covered, “explaining funds to really smart people without sounding condescending in 60 seconds or less,” we can proceed with the comparisons. Note other brokerages have their own version of these funds. Just remove the “Vanguard” part and you should find something comparable.

Next is a brief summary of the funds in question, then a few tables to compare side by side.

VTSAX – Vanguard Total Stock Market Index Fund Admiral Shares

A mutual fund following the entire United States equity market. Founded in 2000, this fund was popularized by “The Simple Path to Wealth” by J.L. Collins. For many reasons explained in his book, Collins recommends leaning on this fund as the heavy lifter of your portfolio.

Heavy investments in tech companies have done this fund well over the past decade. Led by investments in Apple Inc. and Microsoft Corp, tech companies comprise approximately 23% of this fund.

VTI -- Vanguard Total Stock Market ETF

This is the ETF version of VTSAX. Basically, the same thing.

VT -- Vanguard Total World Stock ETF

This fund contains nearly 10,000 companies making it the most diverse basket of the discussion. The primary difference with VT, like the name states, is the worldwide exposure. Nearly 40% of this fund is comprised of foreign equities.

The same tech companies noted in VTSAX only comprise 15% of this fund.

On a given year, most companies break even, and market gains are carried on the back of a select few. And those few may not be included in a smaller basket of U.S. equities. Variety is the spice of life. The Vanguard mutual fund cousin is VTWAX.

VOO -- Vanguard S&P 500 ETF

The Standard and Poor’s 500 is what most refer to when they refer to “the market.” The benchmark of all benchmarks. This is by far the smallest basket comprised of 500 large United States equities.

Similar holdings to VTSAX, but even heavier in tech. Approximately 27% of this fund’s investments include Apple Inc., Microsoft Corp, Amazon.com Inc., NVIDIA Corp, Alphabet (aka Google), Tesla Inc., and Meta Platforms Inc. (formerly Facebook).

Throughout the 2010s, mo tech = mo better. The Vanguard mutual fund cousin is VFIAX.

Chart Time!

General Overview

 Now let’s look at more info including expense ratio. The dividend is nearly equal. The minimum doesn’t apply to most CRNAs.

And a side-by-side of fund performance over the past decade. Note VT as the distant 4th place finisher.

 Past performance is not an indicator of future results. That means, despite how good U.S. equities and FAANG stocks have been over the past decade, there is always time in the roaring 20s for foreign equities to turn it on.

Well, the data has been presented. Which is best?

Quite frankly, pick any of them. VTI is my heavy lifter, but the fund you most consistently invest in is the best.

Expense ratios are important, no doubt. When comparing 0.03%, 0.04%, and 0.07%, it doesn’t really matter. The John Bogle standard (founder of Vanguard) is an expense ratio <0.2% and all of these funds are well below that mark.

Expense Ratios

There are 4 accounts with different expense ratios. 0.03%, 0.07%, 1% (average mutual fund), 1.8% (fee I averaged at both financial advisors). I realize my fees would have decreased as my portfolio grew in size, but what the heck? Run it.

Let’s assume a $100,000 portfolio and a $20,000 annual investment. Let’s also assume an 8% annual return and a 30-year trajectory.

The highest and lowest expense ratios of the funds in question produce nearly identical results. Note the 1-1.8% common with financial advisors can be a real balloon popper. All the more reason to educate yourself. If an advisor is still for you, great. But like any intervention in anesthesia, understand the potential downsides.

As long as your expense ratio is fairly low (<0.2%), don’t stress about it.

Think about it this way…

An average earning CRNA making $200,000 annually invests 5% of their net income ($7,500 annually). Their partner invests just over 25% of their net income ($40,000 annually). And some weirdo CRNA who wants to retire early invests half of their net income ($75,000 annually).

Or maybe they work a bunch of overtime to save that money, whatever… All compound at 8% annually.

Yes, the graph is not to scale. Same idea.

The point of this illustration is not savings rate, but rather where the focus needs to be in order to produce results. The $75k annual investor will far outpace the $7,500 annual investor regardless of expense ratio or +/- 1% annual returns.

Eliminate analysis paralysis and commit the equities portion of your portfolio to VTSAX, VTI, VOO, or the equivalent. It doesn’t matter clinically as long as you are investing.

This is propofol at 2 mg/kg vs 2.1 mg/kg on induction. As long as you are using an appropriate medication and administering a reasonable dose, the effect will be equal.

Live on less than you make and invest for tomorrow. Keep it simple.

If you need assistance in selecting a fund, I’m here for you. There are plenty of other CRNAs that are here for you. It’s a great community that understands financial success is not a zero-sum game. And the profession is stronger when we all win, so have at it. I genuinely hope you all meet and exceed your personal finance goals.

Slay the day, share your favorite investment with a friend, and good luck!