Best Vanguard Funds for Financial Independence (VTSAX, VTI, VOO, VFIAX)


Vanguard low-cost index funds are a
great way to grow your family’s wealth if you’re looking for an almost
hands-off approach to investing you can only invest in one thing to achieve
financial independence there are two Vanguard funds that I would recommend if
you’re new here at my name is Sung and my passion is to help families like
yours grow your wealth and achieve financial independence if these are
topics that interest you then stick around first off if you’ve never heard
of Vanguard before it’s a financial services company that is known for being
the pioneer of low-cost index fund investing and today it’s become one of
the largest mutual fund providers in the world with 5.3 trillion dollars in
assets the reason why you should invest with Vanguard as opposed to most other
financial services companies is that most other financial services companies
are owned by random shareholders from who knows where
Vanguard on the other hand is actually owned by the funds that it manages in
other words its customers are its owners so if you own a Vanguard fund then you
are a part owner of the company this means that the company’s profits go back
to you in the form of lower costs and fees for your investments and Vanguard’s
approach to low-cost investing has been so successful that other investment
companies have had to match or lower their fees because of how popular
Vanguard funds have become now I’ve mentioned low-cost index funds earlier
but what exactly are they and how are they different from mutual funds index
funds and mutual funds invest in basically the same things like stocks
bonds and other securities but there are three differences that I want to bring
to your attention that matter a lot they come down to how they are managed their
objective and their cost first broadly speaking index funds are passively
managed while mutual funds are actively managed in a mutual fund there is a
so-called expert stock picker or a team of analysts that picked the stocks that
will go into the fund this might lead you to believe that these experts and
professionals can get you awesome returns but history has shown that that
is really not the case if you compare the performance of most mutual funds
with the overall stock market performance you’ll notice that
most funds have not beaten the market consistently year after year
I’m not saying mutual funds can never beat the market some absolutely crush it
on any given year but the chances of you or anyone on Wall Street picking a fund
that consistently beats the market and for the long term is extremely low one
research paper by Standard & Poor’s the financial research company that’s behind
the S&P 500 found that during the 1-year period ending in ending in December 31st
2016 66 percent of large cap managers nearly 90 percent of mid cap managers
and 86 percent of small cap managers underperform they’re related market
indexes so market 1 mutual fund 0 here’s another paragraph during the 5
year period ending December 2016 88 percent of large cap managers nearly 90
percent of mid cap managers and 97% of small cap managers underperform their
respective benchmarks market two mutual funds 0 now looking at a 15 year period
ending in December 16 2016 92 percent of large cap 95 percent of mid cap and
93 percent of small camp managers trailed their respective benchmarks
market 3 mutual funds 0 I’ll link to this paper in the description below on
the flip side index funds track an index or simply put a group of stocks or bonds
that are widely considered to be a benchmark for a particular stock market
niche or the overall stock market now you may have heard about people talk
about the S&P 500 or the Dow Jones these are two of the most popular indicators
or indexes of how the stock market is performing the S&P 500 is a collection
of the 500 largest publicly traded companies in the US and the Dow Jones is
a collection of 30 large US companies I’m going to come back to the S&P 500
later down the line but just remember for now
it is one of the most popular indexes that give you a good gauge of the
overall US stock market index funds are passively managed because there’s no
person behind the counter that’s picking stocks for the fund in fact they are
almost completely automated because they’re just tracking an index if the
index makes a change in any way then the index fund will imitate that change it’s
simple as that if the indexes drops a company then the
index fund will also drop that same company to match the index the second
difference has to do with objective a mutual funds sole objective is to try to
outperform the market or some kind of related index as I mentioned before
these experts stock pickers or teams of analysts that’s what they’re hired to do
they’re trying to pick stocks that are going to try to beat the market or an
index that they’re benchmarked against the sole objective of an index fund is
to simply follow or track the index’s performance in other words basically
you’re kind of saying that if you can’t beat that market then you just join the
market and this leads to the third and probably the biggest difference between
an index fund and a mutual fund in general index funds cost you much much
less than mutual funds the cost of investing in these funds is measured by
something called the expense ratio the expense ratio basically measures how
much of the money you put into the fund is actually being used to manage the fund
obviously the lower the expense ratio the better it is
index funds generally have much much lower expense ratios than mutual funds
because index funds don’t have to pay out the salaries and the pay the cost of
supporting a managing team of stock pickers and a team of analysts the
ratios for the Vanguard index funds are about to go through our 0.04% which is
typical of low-cost index funds while the average mutual fund ratios is around
0.5 percent to 1 percent on average obviously there’s mutual funds that are
lower than that and mutual funds that cost more than that but even though
these ratio differences seem small they can end up being hundreds of thousands
dollars that could be money that you keep in your account or money that you
actually pay up and lose out in the long run if
you are interested in learning exactly how much those expense ratios matter I
post a link down below they’ll take you to a calculator on nerdwallet they’ll
help you determine based on the same criteria for a particular scenario and
just tweaking the expense ratios how much of a difference that will make so
the bottom line is this when deciding between an index fund or a mutual fund
index funds consistently outperform mutual funds over the long term secondly
index funds cost you less which means ultimately you get to keep more of your
money and see your wealth grow that much faster for instance if your index fund
expense ratio is 0.4% or 0.04 percent that means you’re paying basically four
dollars if you made an investment of $10,000 for a mutual fund if the expense
ratio was 0.75 percent and you made the exact same investment you spent 75
dollars to invest in that mutual fund if you invested in the index fund you saved
yourself $71 and have a very very high probability of seeing your money grow
with the market as opposed to paying someone 71 dollars just to keep up with
the market so the question you may be asking now is which index fund should
you invest in I want to highlight two index funds that are really really
popular and great ones to help you grow your wealth and that is the VTSAX and
the VFIAX the Vanguard fund VFIAX tracks the S&P 500 index while the VTSAX actually tracks the total US stock market which includes the 500 S&P 500
companies as well as an additional close to 3000 additional companies that make
up the entire US stock market they both provide great diversification by
spreading your risks across multiple companies like hundreds and thousands of
companies the VTSAX in particular takes it up a notch by basically giving your
stake and every publicly traded company on the US stock market which is great by
investing in these funds you are basically betting on the continual
growth and productivity of the US economy and I think that’s a pretty
solid bet considering you have more than 200 years of US economic history that
can back up that claim you’re also trusting
that over long-term market forces will do the stock picking for you because
market competition will eliminate those companies are the most inefficient and
unprofitable and keep only those that are the fittest and most productive
companies as they grow it’s kind of like a market cleansing mechanism that works
in your favor thanks to the open and free market now I want to jump over to
the Vanguard website and compare these two index funds and there’s two
additional ones that I want to compare and for reasons which I’ll
get into a second all right here we are on the Vanguard website and as I alluded
to earlier both funds have super low expense ratios of 0.04 percent if we go
further down you will see the 1 3 5 and 10-year performance comparisons again
very similar performances over the short and long term the differences has to do
with the fact that VTSAX contains small and medium companies outside of the top
500 that in some years they tend to do better than the larger companies and in
some years they tend to do tend to do worse now if we switch to the chart view
these two funds are basically on top of each other and this basically
illustrates my recommendation that you cannot go wrong with either one of these
funds now if we go back to the data view you’ll notice that I have VTI and VOO
to the right here these two are basically the same thing as VTSAX and VFIAX respectively but there are exchange-traded funds ETFs for short
they even have slightly lower expense ratios I don’t want to get into explain
the difference between index funds and ETFs in this video but the big takeaway
here is that if you don’t have a Vanguard investment account you might
not be able to buy into the VTSAX or the VFIAX or it might be expensive to
do so so your alternative alternative is to buy the ETFs which should be
available like any publicly traded stock you might have to pay for a trading fee
but that really depends on your brokerage and the terms of your account
the reason I mentioned about ETFs here is because of
something that I discovered where I don’t have a Vanguard account i bank
with bank America and Merrill edge is where we have our our investment
accounts and because we do we do that because there’s extra benefits that we
get from keeping our money with Merrill edge as we bank with Bank of America and
so one thing that we found out was that we cannot buy into the index funds VTSAX or VFIAX they don’t they are not available through Merrill edge but the
ETFs are available the VTI and the VOO and so I encourage you if you don’t have
a Vanguard account and you have your investment account with some other
company then you should look into seeing if you can get the exchange-traded funds
instead because you might not have the ability to buy into the index funds
themselves or it’s really expensive for you if you guys are interested I’ll
definitely create another video on the difference between index funds and ETFs
but for now if you liked this video please be sure to hit that like button
down below be sure to subscribe to my channel if you want to continue seeing
new videos that I upload and make sure to share this video with anyone who you
think might find it useful thanks for watching and I’ll see you next time

20 thoughts on “Best Vanguard Funds for Financial Independence (VTSAX, VTI, VOO, VFIAX)

  • I did a similar video to this and I think the SEO was just right. It gets more and more views every day (still nothing though lol)

  • This was helpful, thanks for sharing. Are there any cost/benefits of investing in VTI as opposed to VTSAX other than being able to do so directly via Vanguard like you mentioned in the video?

  • Great job! I have been investing in VOO over the past few years in my Roth. I switched to VFIAX so I don't have to wait on my Roth brokerage balance to cover enough for one share of VOO. More of a convenience than anything.

  • thanks for the wild stuff its helpful, but can you make a video explaining the difference between etfs and index funds?

  • Great Job ! I'm also Merrill Edge, lol. The beginning of Oct I bought VGT, VTI, VYM, VDC, VNQ & SYPD. I was trading stocks in my IRA. I was up and then would always get emotional when the stocks would go down and lose my profits. That when I decided to get into Vanguard ETF's. So far I'm doing much better and so glad they pay dividends also. Every time one of them goes down in the red I buy more. I was hesitant at first to get back in because the market is at an all time high to buy. But right now I'm doing great. Thanks again for your input! Jeff

  • Love your videos, you make it very easy to understand about investing and the funds. So you have a video or can you make one about a hypothetical situation where the economy went to shit and you’re retired and living off your investments…what happens or will it ever. One to a pint your IRAs and other investments gets depleted or goes negative?

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