VFIAX vs. VOO: What Is the Best 500 Index Fund?

By Jamie Johnson, WCI Contributor

If you’re looking for a long-term investment, index funds are the way to go. You can invest in a wide variety of stocks using that strategy, so your investment is more diversified and your risk is lower. And index funds come with low fees and are relatively easy to start investing in. VFIAX and VOO are two popular index funds offered by Vanguard.

The two funds are similar in many ways, but there are some notable differences between them. Let’s look more closely at how VFIAX and VOO match up and which fund might be the most appealing to a physician or other high earner.

What Is VFIAX?

The Vanguard 500 Index Funds Admiral Shares (VFIAX) launched in August 1976, making it one of the oldest mutual funds. The fund tracks the S&P 500 index and attempts to replicate its returns. VFIAX is a large-blend index fund, so it’s fairly representative of the overall market in terms of its size and growth rate. Since the fund is highly diversified, it’s a safe long-term investment.

VFIAX comes with low fees and a low expense ratio, which makes it especially attractive to most investors. You’ll need a minimum investment of $3,000 to get started.

According to Vanguard (as of Mach 2023), the fund has $774.8 billion in total assets and $379.7 billion in share class assets. Here are the top 10 performing stocks in VFIAX:

Apple Inc.
Microsoft Corp.
Amazon.com Inc.
NVIDIA Corp.
Tesla Inc.
Berkshire Hathaway Inc. Class B
Alphabet Inc. Class A
Alphabet Inc. Class C
Exxon Mobil Corp.
UnitedHealth Group Inc.

VFIAX invests in a wide variety of sectors, but here are its top-performing markets (as of March 2023):

What Is VOO?

The Vanguard 500 Index Fund (VOO) is an ETF that seeks to track the performance of the S&P 500. Like VFIAX, it appeals to many investors because it’s a well-diversified fund made up of large-cap stocks. This variety helps lessen some of the risks of loss in the event of a market correction.

VOO has low fees, a low expense ratio, and no minimum investment. This makes it more accessible for newer investors who may not have an extra $3,000 to drop into VFIAX.

As of March 2023, VOO has $774.8 billion in total assets and $274.3 billion in net assets with 507 total holdings. You’ll notice that its top-10 performing stocks are identical to VFIAX:

Apple Inc.
Microsoft Corp.
Amazon.com Inc.
NVIDIA Corp.
Tesla Inc.
Berkshire Hathaway Inc. Class B
Alphabet Inc. Class A
Alphabet Inc. Class C
Exxon Mobil Corp.
UnitedHealth Group Inc.

VOO’s top-performing industries are the same as VFIAX.

VFIAX vs. VOO: What’s the Difference?

If you’re trying to decide whether to invest in VFIAX or VOO, you’ll notice there are many similarities between the two funds. That's because they are actually the same fund. They are simply two share classes of one fund. You can even convert from one to the other without a taxable event. Both funds obviously track the S&P 500 and attempt to mirror its performance. Both funds also have the same top-performing stocks, and they are invested in the same sectors.

[April 2023]

Type of Fund

The main difference between these two shares classes is that VFIAX is a mutual fund and VOO is an ETF. That means VOO provides pricing in real-time, so you can see it change throughout the day during trading hours.

In comparison, VFIAX is a mutual fund which means it isn’t priced until the trading day is over. So, when you place your trade during the day, you won’t know the final price. According to Vanguard, everyone who places a trade during the same day will receive the same price, regardless of the time of day.

Minimum Investment

Another difference between the two funds is that VFIAX comes with a minimum $3,000 investment. In comparison, you can invest in VOO for the price of one share, which is normally a few hundred bucks.

Fees

Another difference between the two funds is the fees—VFIAX comes with an expense ratio of 0.04%, while VOO’s expense ratio is 0.03%. Both fees are very low, but VOO’s fees will cost you less money over time. Over the long term, even a small fee can add up to quite a bit of money.

Automatic Investments and Withdrawals

Finally, since VFIAX is a mutual fund, it’s the only fund that allows you to set up automatic investments and withdrawals. Since VOO is an ETF, it doesn’t allow automatic investments and withdrawals.

This is really a matter of convenience. Let’s say you have $1,000 to invest each month. With VFIAX, you can set up an automatic monthly investment. But if you choose to invest in VOO, you’ll have to do the transfer manually.

VFIAX vs. VOO: Which Fund Should I Choose?

You really can’t go wrong by investing in either VFIAX or VOO since the investments are virtually identical (although you may wish to consider the more diversified Total Stock Market Fund, with tickers VTSAX or VTI). Both funds hold the same stocks, have the exact same dividend yield, come with low fees, and invest in the same sectors.

Your choice really comes down to whether you prefer an ETF or a traditional mutual fund. In many retirement accounts, you may only be offered the mutual fund version. In some retirement or brokerage accounts, you will find that the ETF version (VOO) can be traded commission-free but you must pay $50 every time you buy and sell the fund. In that case, you will want to use the ETF. The fund version (VFIAX) is easier to use if you prefer not to have to put in specific brokerage buy and sell orders and, thus, they are preferred by many who like to keep things simple.

If you don’t have $3,000 to invest, you’ll definitely want to get started with VOO. You can always wait until your balance reaches $3,000 and then convert your VOO shares into VFIAX shares.

More information here:

FSKAX vs. VTSAX: What Is the Best Total Stock Market Index Fund?

VTI vs. VTSAX

Really, the most important thing about investing is that you get started. Your goal should be to get as much time in the market as possible (as opposed to trying to time the market), so you’re not leaving money on the table. Index funds, whether it's VFIAX or VOO, are a great place to get started.

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VFIAX vs. VOO: What Is the Best 500 Index Fund? | White Coat Investor (2024)