Of course! Converting your investment from a Vanguard mutual fund like VTSAX to its corresponding ETF, VTI, is a common move for many investors. While they track the same underlying index, there are differences in their structure and trading. Here is a very lengthy, step-by-step guide to help you navigate this process.
Ready to Make the Switch? Let's Get Started!
So, you've been invested in VTSAX, the Vanguard Total Stock Market Index Fund Admiral Shares, and now you're thinking about moving to VTI, the Vanguard Total Stock Market ETF. Maybe you're drawn to the intraday trading flexibility of ETFs, or perhaps you're simply curious about the slightly lower expense ratio. Whatever your reason, this guide will walk you through the process at Vanguard. Let's get this conversion done!
Step 1: Understand the Difference Between VTSAX and VTI
Before you even think about converting, it's crucial to understand what you're converting from and to. This isn't like switching from a tech fund to a bond fund; VTSAX and VTI are two different share classes of the same underlying fund. They track the CRSP US Total Market Index, which represents virtually the entire U.S. stock market.
VTSAX (Mutual Fund):
Minimum Investment: A significant $3,000 for initial purchase.
Trading: Trades once per day after the market closes at the Net Asset Value (NAV). You place an order, and it executes at the end-of-day price.
Automation: Excellent for automatic, recurring investments of a specific dollar amount. You can set it and forget it.
Fractional Shares: You can easily buy and sell fractional shares, so your entire investment amount is always fully invested.
VTI (ETF):
Minimum Investment: You can buy a single share, or even fractional shares at Vanguard, for a much lower cost than the mutual fund minimum.
Trading: Trades throughout the day on an exchange, just like a stock. This allows for real-time pricing and intraday trading flexibility.
Automation: Historically, automatic investing was more difficult with ETFs, but Vanguard has made strides in this area.
Fractional Shares: While ETFs trade as whole shares, many brokerages, including Vanguard, now allow for fractional share purchases, making it easier to invest a specific dollar amount.
In essence, the performance will be nearly identical, but the way you buy and sell them is different.
Step 2: Access Your Vanguard Account
This is where the rubber meets the road. You need to be logged into your Vanguard brokerage account to initiate the conversion.
Log in: Go to the official Vanguard website and log in to your account using your username and password.
Navigate to the 'Transact' section: Once logged in, look for the "Transact" or "Buy & sell" tab, which is typically found in the main navigation menu.
If you don't already have a Vanguard Brokerage Account, you'll need to open one first. This conversion can only be done within a Vanguard account.
Step 3: Locate the Conversion Tool
Vanguard has made this process incredibly straightforward for its own funds.
Find the conversion link: Within the "Buy & sell" section, look for an option that says "Convert Vanguard mutual funds to ETFs" or something similar. This is a dedicated tool for this specific type of transaction.
Click on the link: This will take you to a dedicated page designed for the conversion process.
This is a special, non-taxable conversion that Vanguard offers for its share classes. It's not the same as a normal "exchange" or "sell and buy" transaction, which could trigger a taxable event in a taxable brokerage account.
Step 4: Select the Mutual Fund and Initiate the Conversion
Now you'll tell Vanguard what you want to convert.
Choose VTSAX: On the conversion page, you will see a list of your eligible mutual fund holdings. Select VTSAX from the list.
Specify the shares: You will have the option to convert all of your shares or a specific dollar amount or number of shares.
Review the details: The platform will show you the details of the conversion, including the mutual fund shares to be converted and the estimated number of ETF shares you will receive.
Pro-Tip: If you have multiple "lots" of VTSAX with different cost bases, this conversion will typically carry over your cost basis information, which is a HUGE benefit in a taxable account. Always double-check this on the confirmation screen.
Step 5: Confirm and Complete the Transaction
This is the final step!
Read and agree: Review the terms and conditions, and any disclaimers provided by Vanguard. This will include information about the process and any potential impacts.
Confirm the conversion: Click the button to confirm and submit your conversion request.
Wait for processing: The conversion is not instantaneous. It typically takes one business day to process, as it is executed at the end-of-day price. You'll see a confirmation that your request has been submitted.
After the conversion is complete, you will see your VTSAX shares replaced with VTI shares in your account, with the cost basis carried over.
Step 6: Update Your Investment Strategy (Optional but Recommended)
Now that you hold VTI, you might want to adjust your future investment plans.
For automatic investments: If you had an automatic investment plan set up for VTSAX, you'll need to cancel it and set up a new one for VTI. While it used to be a hassle, Vanguard now allows for automatic investing in its ETFs.
For future purchases: Remember that when you buy VTI, you are placing a trade like a stock. You can use market orders or limit orders to control the price at which you buy.
Congratulations! You have successfully converted your VTSAX holdings to VTI.
10 Related FAQ Questions
Here are some quick answers to common questions about this conversion.
How to check my cost basis after the conversion? You should be able to view your cost basis for the new VTI shares in your account's "Cost Basis" or "Tax Center" section. Vanguard is known for carrying over this information during the conversion, which is crucial for tax purposes in a taxable account.
How to know if the conversion is a taxable event? For investors holding VTSAX in a Vanguard brokerage account, converting to VTI is generally a non-taxable event because it is a conversion between share classes of the same fund. This is a unique feature of Vanguard's fund structure.
How to convert from VTI back to VTSAX? The conversion is one-way, from mutual fund to ETF. You cannot convert VTI back to VTSAX. To do so, you would have to sell VTI and then purchase VTSAX, which would be a taxable event.
How to convert VTSAX if I hold it at another brokerage? If you hold VTSAX at a brokerage other than Vanguard (e.g., Fidelity, Schwab), you will typically need to sell your VTSAX shares and then purchase VTI. This would be considered a taxable event, so be mindful of potential capital gains.
How to know if I should convert from a mutual fund to an ETF? The decision depends on your investing style. If you prefer the flexibility of real-time trading and are comfortable with placing trades, VTI is a great choice. If you prefer the simplicity of automatic dollar-amount investing, VTSAX is still a solid option.
How to automate investments in VTI at Vanguard? Vanguard has improved its automatic investment features for ETFs. You can now set up recurring purchases of Vanguard ETFs for a specific dollar amount through your account settings.
How to check the expense ratio of VTSAX vs. VTI? You can find the expense ratios in the fund's prospectus or on the Vanguard website. As of now, VTI's expense ratio is slightly lower than VTSAX's, but the difference is minimal ( vs. ).
How to see the performance difference between VTSAX and VTI? Since they track the same index, their performance is nearly identical. Any minor differences are due to factors like expense ratios and trading mechanics. You can compare their historical performance on financial websites like Vanguard's or Morningstar's.
How to handle fractional shares during the conversion? Vanguard's system is designed to handle this seamlessly. If you had fractional shares of VTSAX, they will be converted into the equivalent value in VTI, which may result in a fractional share of VTI.
How to contact Vanguard for help with the conversion? If you encounter any issues or have questions during the process, you can contact Vanguard's customer service. Their phone number is readily available on their website and statements.
