
Hello, I am the The Polite Investor, a polite Englishman that has been
living in the US for 10 years.

Although I have always been interested
in personal finance and investing, once my employer enrolled me in
their retirement plan, I thought it was time to
get serious and figure out how the American financial system works to
make sound investment choices. 

I started this site to document my financial
journey and offer my opinions to help others. Perhaps you might learn something from
my experiences and together we can all try to lead better financial
lives.

I believe the key to building wealth is disiplined saving
and investing coupled with a somewhat minimalist lifestyle. You don't
need stuff and you should have a healthy skepticism towards activities
your peers engage in: mortgages, expensive cars, expensive vacations.
You'll find a little bit of my personal philosophy peppered throughout
the site.



I hope you feel welcome here. Take what you find useful and leave the
rest. Pass on what you’ve learned to your friends. May you find the
financial success you deserve.

Want to say hello?  [Email me](mailto:hello@politeinvestor.com).


Antony Holmes

Polite Investor, CEO, CTO, employee #1, whatever

Whether you're just starting to invest or have been for decades, total stock market index funds are still some of the best options for diversifying your investment portfolio whilst being tax efficient.



Total market funds give you access to the entire US stock market in one fund. Today we’re going to take a deep dive into three low cost, index based funds to: VTSAX from Vanguard, FSKAX from Fidelity, and SWTSX from Schwab. The goal is to see if a passively managed fund is a better fit for you than one that’s actively managed. All the funds perform similarly, and largely track the same stocks, so really it boils down to which brokerage you prefer.

# What are Index Funds?

Index investors believe buying individual stocks introduces risks that you are not adequately compensated for taking, such as the company going bankrupt or a borrower defaulting. People who buy individual securities are faced with situations where the securities go down in value when the overall market is going up all the time. Index funds give you broad diversification so you do not have to hedge, pooled costs, daily liquidity, and professional management.

# What Is a Total Stock Market Index Fund?

A total stock market index fund is a mutual fund or an exchange-traded fund (ETF) that tracks the entire stock market across a country or region. You gain passive exposure to companies of all sizes, not just companies with a large market capitalization.

Total stock market index funds usually come with low fees, so investors keep more of their returns. Plus, they are an excellent option for new investors with minimal financial knowledge or experience with picking stocks. However, your growth will be limited to the overall stock market, and it won’t vary much by picking different funds.

# Why use index funds?

The data on active management vs. passive management is clear, too. Time and time again it has been shown that active management doesn't work well enough to overcome its additional costs, particularly over the long term and even more so in a taxable account. At the end of 10 years, an index fund will outperform more than 80% of its actively managed peers. By the time you get out to your 30-60 year investing horizon and consider all of the asset classes in your portfolio, an index fund portfolio is going to outperform 99% of similar actively managed portfolios. Warren Buffet famously even made a [bet](https://www.investopedia.com/articles/investing/030916buffetts-bet-hedge-funds-year-eight-brka-brkb.asp) to this effect and won.

So when you invest in index funds, you can expect higher returns over the long run than those who pick individual stocks or mutual funds.

An index fund portfolio is also generally more tax-efficient than an actively managed portfolio. The turnover is usually lower (index funds try to match buys and sells to minimize transactions), so there are fewer capital gains distributions. The only time these funds have turnover is when there is an Initial Public Offering (no capital gain distribution) or when a company gets de-listed from the exchange (again, no capital gain distribution). Theoretically, the turnover ought to be 0%. In actuality, it's about 4% for various technical reasons. That means the average stock is held for 25 years. Considering the average mutual fund turnover is 85%, holding their average stock for just a little over a year, 4% is basically 0%.

Capital gains are also minimized by the fact that you don't have to change funds every few years when a fund manager retires or loses their touch.

# What Is VTSAX?

VTSAX stands for the Vanguard Total Stock Market Index Fund Admiral Shares. Created in 1992, it’s a mutual fund that tracks the performance of the CRSP US Total Market Index. As of February 2022, the fund holds 4,070 stocks with total net assets of $1.3 trillion making it one of the largest funds in the world (because a lot of people like it). It performs consistently well, and it returned 14.24% over the last decade

The fund’s top 10 holdings account for more than 24.7% of its total net assets:

- Apple Inc.
- Microsoft Inc.
- Alphabet Inc.
- Amazon.com Inc.
- Tesla Inc.
- NVIDIA Corp.
- Berkshire Hathaway Inc.
- Meta Platforms Inc.
- UnitedHealth Group Inc.
- Johnson & Johnson

It is diversified portfolio, but some industries are more heavily represented than others as you can see from the above. For instance, the technology sector accounts for 27.7%, consumer discretionary accounts for 15.3%, and healthcare and industrials each make up a little less than 13%.

The minimum starting investment is $3,000, though it is also available as its ETF counterpart VTI with no minimum. The expense ratio is 0.04%.

# What Is FSKAX?

FSKAX stands for the Fidelity Total Market Index Fund, and it's basically Fidelity's equivalent of VTSAX. Fidelity Investments created the mutual fund in 2011 and it tracks the Dow Jones US Total Stock Market Index. It currently holds 3,968 stocks with assets totaling more than $71 billion. The fund has returned 14.21% over the last decade. Unlike VTSAX, there is no minimum initial investment, and its expense ratio is 0.015%.

You’ll notice that the fund’s top 10 performing stocks closely mirror VTSAX:

- Apple Inc.
- Microsoft Inc.
- Amazon.com Inc.
- Alphabet Inc. (Cl A)
- Tesla Inc.
- Alphabet Inc. (Cl C)
- Meta Platforms Inc.
- NVIDIA Corp.
- Berkshire Hathaway Inc.
- Johnson & Johnson

# What Is SWTSX?

SWTSX stands for the Schwab Total Stock Market Index Fund, and like Fidelity, it tracks the Dow Jones US Total Stock Market Index. It was created in 1999 and has assets totaling more than $16 billion. The fund has returned 14.17% over the last decade. Again, unlike VTSAX, there is no minimum initial investment, and its expense ratio is 0.03%.

# Which Should I Choose?

The following chart highlights some of the main differences between the funds as of April 2022.

<table>
<thead>
<tr>
<th></th>
<th>Vanguard</th>
<th>Fidelity</th>
<th>Schwab</th>
</tr>
</thead>
<tbody>
<tr>
<td>Symbol</td>
<td>VTSAX</td>
<td>FSKAX</td>
<td>SWTSX</td>
</tr>
<tr>
<td>Stocks</td>
<td>4,070</td>
<td>3,968</td>
<td>3,968</td>
</tr>
<tr>
<td>Net assets</td>
<td>$1.3 trillion</td>
<td>$71 billion</td>
<td>$17 billion</td>
</tr>
<tr>
<td>Expense ratio</td>
<td>0.04%</td>
<td>0.015%</td>
<td>0.03%</td>
</tr>
<tr>
<td>Dividend</td>
<td>1.33%</td>
<td>1.18%</td>
<td>1.31%</td>
</tr>
<tr>
<td>Minimum</td>
<td>$3,000</td>
<td>N/A</td>
<td>N/A</td>
</tr>
</tbody>
</table>

As you can see, they are nearly identical on the surface, their returns over the past 10 years and their risk assessment are very similar. Their top 10 holdings are virtually identical as well.

All the funds come with low expense ratios, which means you’ll pay minimal fees (though FSKAX is slightly cheaper). Both funds are managed with a passive investment strategy, which means they aren’t trying to copy an index but are trying to match their performance.

The most significant difference between the funds is that they track different indexes—FSKAX and SWTSX track the Dow Jones, whilst VTSAX tracks the CRSP Index.

<div class="conclusions">

- Bottom line: you really can’t lose no matter which of these funds you invest in. They are all stable, low-cost index funds from three of the oldest and best-known investment firms around.
- If you are investing in a taxable account, the Vanguard funds can be slightly more tax-efficient due to their unique ETF share classes and ability to “flush capital gains out of the portfolio”, but the effect of this is small.
- Whatever you choose, you're most likely going to come out ahead of comparable actively managed funds.

</div>

_Which fund do you prefer? Have you tried actively managed funds vs. total stock market index funds? Which has performed better in your portfolio?_

Tag

Brokerages

Total market funds