Vanguard Funds: VOO vs VFIAX Comparison Guide

If you’re looking for a low-cost S&P 500 index fund, the popular Vanguard funds, VOO and VFIAX, are likely to make your short list for consideration. While both funds track the S&P 500 index, VOO is an ETF and VFIAX is a mutual fund. 

In our comparison guide, we provide all the key details you need to know about VOO and VFIAX, including performance, expense ratios and the differences between ETFs and mutual funds, to determine which, if any, of these funds deserve a place in your portfolio.

Vanguard Funds: VOO vs VFIAX Basics 

VOO and VFIAX are both funds offered by Vanguard and they both seek to track the performance of the S&P 500, which is a market-cap-weighted index of the largest U.S. publicly traded companies. However, there are a few differences, including fees and the way they trade, that may make one a better choice over the other. 

What Is VOO? 

The Vanguard S&P 500 ETF (VOO) is an exchange-traded fund that is designed to track the performance of the S&P 500 index. This means that the ETF seeks to provide investors with low-cost exposure to a diverse range of the 500 largest publicly traded U.S. stocks, as measured by market capitalization. VOO has a very low expense ratio of 0.03%, which is one of the lowest in the industry. 

As an ETF, VOO can be bought and sold throughout the trading day on an exchange, just like a stock. This provides investors with flexibility in terms of trading and liquidity and allows them to manage their investments more easily than with traditional mutual funds. 

What Is VFIAX? 

The Vanguard 500 Index Fund (VFIAX) is the industry’s first index fund for individual investors, and it seeks to track the performance of the S&P 500 index. The fund also has a very low expense ratio of 0.04%, which is significantly lower than the average expense ratio for actively managed mutual funds. 

As a mutual fund, VFIAX is designed for long-term investors who are seeking exposure to the U.S. large cap equity market. VFIAX is one of Vanguard’s Admiral Shares funds, which offers its lowest expense ratios and requires a minimum investment of $3,000. 

VOO vs VFIAX: Side-by-Side Comparison 

Data as of January 25, 2024.

VOO vs VFIAX: Key Takeaways 

VOO and VFIAX are nearly identical in every way. For example, they have the same AUM because they are two share classes of the same fund. VOO’s expense ratio is also slightly lower at 0.03% while VFIAX is at 0.04%. The most important difference between the funds is with structure, as VOO is an ETF that can be traded intra-day like a stock, whereas VFIAX is a mutual fund that trades at the end of the day.

Investors should take note of unique feature of Vanguard ETFs that sets them apart from other ETFs. Most of Vanguard's ETFs were established as separate share classes of the company's mutual funds. In other words, in this case, holding VOO is no different than holding VFIAX with exception of one key difference: Investors can buy VOO during the day like stock, whereas investors aren't able to buy or sell VFIAX intra-day on an exchange.

VOO vs VFIAX: Performance 

Performance for VOO and VFIAX is nearly identical when comparing returns by net asset value (NAV). Thus, neither VOO nor VFIAX have an advantage over the other when comparing average returns over time.  

One caveat to note, however, is that VOO's ability to trade intra-day offers a potential advantage over its mutual fund counterpart. For example, an ETF’s market price is the price at which investors can buy or sell an ETF on an exchange. NAV represents the value of a share’s portion of the fund’s underlying assets at the end of the trading day. 

If an investor bought shares of VOO during a given trading day, and the share price closed higher that day, the ETF investor would realize a price gain before the close of the market. However, if an investor bought shares of VFIAX on that same day, they would buy at the mutual fund’s NAV, which reflects the price of the fund’s underlying holdings after the market’s close.

Investors should keep in mind that the price swing can move in the opposite direction during the trading day. Therefore, buying shares of an ETF like VOO may result in a decline in value before the trading day closes.

VOO vs VFIAX: The Differences 

The key difference between VOO and VFIAX is that VOO is an ETF and VFIAX is a mutual fund. This brings about a difference in that VOO can be traded intraday on an exchange, just like a stock, meaning investors may enter a position at different price points. However, mutual funds like VFIAX only trade once per day, after the markets close. 

The main differences between VOO and VFIAX are: 

• Investment structure: VOO is an exchange-traded fund, which means it trades like a stock on an exchange, whereas VFIAX is a mutual fund that is bought and sold through the fund company at the end of the trading day. 
• Minimum investment: VFIAX typically requires a higher minimum investment than VOO. For example, the minimum investment for VFIAX is $3,000, while there is no minimum investment for VOO. 
• Expense ratios: VVOO has an expense ratio of 0.03%, while VFIAX has an expense ratio of 0.04%. 
• Trading flexibility: VOO can be traded throughout the trading day, while VFIAX can only be bought or sold at the end of the trading day at the NAV price. 
• Tax implications: Since VOO is structured as spinoff share class of VFIAX, the tax implications are the same as VFIAX, which may be a potential drawback for ETF fans. For example, mutual funds like VFIAX may distribute capital gains to its shareholders at the end of the year, whether or not the investor has sold shares. Most ETFs would avoid this tax drawback, but VOO investors do not.

VOO vs VFIAX: The Similarities 

The main similarities between VOO and VFIAX are that they are both Vanguard funds and they both seek to track the performance of the S&P 500 index. 

The key similarities between VOO and VFIAX are: 

• Management: Both products are managed by Vanguard, a well-respected investment management company with a long track record of providing low-cost investment options.  
• Benchmark: Both investment products aim to track the performance of the S&P 500 index, which is a benchmark of the largest publicly traded companies in the U.S. 
• Holdings: Both products provide investors with exposure to a diversified portfolio of large cap U.S. stocks. 
• Low expenses: Both products generally offer low costs compared to actively managed funds, which can help investors keep more of their returns. 

VOO vs VFIAX: Who Should Invest 

Ultimately, both VOO and VFIAX can be good investment options for long-term investors seeking exposure to the U.S. large cap equity market. Investors who prefer to trade during the day to take advantage of price fluctuations may prefer an ETF like VOO, whereas a more passive buy-and-hold investor may prefer a mutual fund like VFIAX. 

Investors using a taxable brokerage account may prefer VOO because tax implications are another important factor to consider. The structure of ETFs like VOO generally makes them more tax efficient than mutual funds like VFIAX. ETFs are designed to minimize capital gains distributions, which can help to reduce the tax liability for investors. 

Bottom Line 

The VOO versus VFIAX comparison is essentially a comparison of ETFs versus index funds. VOO is an ETF, which means it trades intraday on an exchange, just like a stock, whereas VFIAX is a mutual fund that trades once per day after the market closes. Beyond this structural difference, these two Vanguard funds are similar in that they track the same index and have identical performance when measured by NAV. 

Investors should consider these factors, as well as their individual investment goals and preferences, when choosing between VOO and VFIAX.