Vanguard 500 Index Vs. Vanguard Total Stock Market Index Fund

VFINX and VTSMX invest in several stocks to balance risk.

VFINX and VTSMX invest in several stocks to balance risk.

Vanguard 500 Index Fund Investor Shares (VFINX) and Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) are mutual fund investment shares that are managed and sold by The Vanguard Group, a leading American investment firm. These funds are also traded as lower-priced Vanguard Admiral Shares under the names Vanguard 500 Index Fund Admiral Shares (VFIAX) and Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX). While Admiral shares cost less per share, Vanguard requires a higher total investment for purchasing these shares. Therefore, the Investor shares are more convenient for small and first-time investors.

Mutual Funds

Vanguard 500 Index Fund Investor Shares and Vanguard Total Stock Market Index Fund Investor Shares are mutual funds -- investment vehicles that pool funds from groups of investors and invest them in a selection of equities such as stocks, bonds or real estate. Each investor owns shares in the fund itself rather than shares in the equities that the fund purchases. VFINX and VTSMX are stock index mutual funds, which hold stocks chosen according to stock indexes that represent certain segments of the overall stock market.

Vanguard 500 Index Fund

The Vanguard 500 Index Fund invests in 500 of the largest companies in the United States, including Apple, Coca-Cola and Microsoft. Its asset class is Domestic Stock-General, and it is open in August 2012 to investors who invest a minimum of $3,000. Its average annual return for the year ending July 31, 2012, is 8.97 percent, and its three-year annual average return is 13.97 percent. Its average annual return for the past five years is 1.04 percent, and its annual return since it was first open to investors on August 31, 1976, averages 10.50 percent. On an increasing scale of 1 to 5, Vanguard rates the risk potential of this fund at 4.

Vanguard Total Stock Market Index Fund

Investor shares of the Vanguard Total Stock Market Index Fund cover a portfolio of 3,310 stocks, and they are available in August 2012 with a minimum investment of $3,000. The asset class of this fund is Domestic Stock-General, and Vanguard rates its risk at 4 on an increasing scale from 1 to 5. In the year ending July 31, 2012, this fund returned 7.32 percent to investors, and in the past three years its average annual return was 14.28 percent. Its five-year average annual return is 1.46 percent, and its average annual return since it opened on April 27, 1992, is 8.36 percent. The three stocks in which this fund invests the most of its capital are Apple, Exxon Mobil and Microsoft.

Comparison and Considerations

Both of these Vanguard funds have delivered similar performance in the past, and they represent investments in solid industrial, technological and service companies. The main difference between the funds is that the Vanguard 500 Index Fund limits itself to 500 large firms, whereas the Vanguard Total Stock Market Index Fund is a broader-based fund that also invests in smaller firms. Either fund is an alternative to investing in specific stocks for investors who do not have time or experience to pick stocks and would rather let professional fund investors choose stocks for them.

About the Author

John DeMerceau is an American expatriate entrepreneur, marketing analyst and Web developer. He now lives and works in southeast Asia, where he creates websites and branding/marketing reports for international clients. DeMerceau graduated from Columbia University with a Bachelor of Arts in history.

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