Vanguard ETFs vs Vanguard Mutual Funds: Key Differences Explained
Written by
Andrew Lisa
Edited by
Nupur Gambhir
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Vanguard was founded in 1975, but its oldest investment offering, Wellington Fund, launched in 1929. Although that wasn’t a particularly pleasant year for the stock market, what started with a single fund at the dawn of the Depression grew into an investment firm that manages 428 funds and serves more than 50 million investors.
Among them are billionaire hedge fund tycoons, partial-share retail investors on a budget and everyone in between. No matter who you are or how you invest, you can put your money to work in a Vanguard fund, either as an ETF or a mutual fund.
What Are Vanguard ETFs?
Vanguard offers more than 80 exchange-traded funds (ETFs) — baskets of stocks or bonds loosely related by commonalities like their index, sector, dividend payment or growth potential.
Most, but not all, Vanguard ETFs are passively managed index funds. All provide diversification with exposure to dozens, hundreds or even thousands of securities in a single investment. They’re also comparatively cheap. The average Vanguard fund has an expense ratio of 0.08%, or $8 per year for every $10,000 invested, compared to the industry standard of 0.44% — and that includes its more expensive mutual funds.
What Are Vanguard Mutual Funds?
The lion’s share of Vanguard’s offerings are mutual funds — the firm manages more than 250 of them. Like its ETFs, all are commission-free. These professionally managed funds focus on long-term growth and are geared toward automated, consistent investing.
Key Differences Between Vanguard ETFs and Vanguard Mutual Funds
Vanguard mutual funds and ETFs have much in common. However, they work differently and are designed for different investing budgets and styles.
| Features | ETFs | Mutual Funds |
|---|---|---|
| How they’re traded | Bought and sold as shares in real-time on the open market throughout the trading day, just like individual stocks. | Priced at the end of the trading day and traded on their NAV after the market closes. |
| Fees | No commission and low expense ratios. | No commission and expense ratios that are typically higher than ETFs, but lower than the industry standard. |
| Minimum investment | $1 | As little as $1,000 but most funds have $3,000 minimums. |
Advantages and Disadvantages of Vanguard ETFs
Millions of investors trust Vanguard ETFs, but they come with benefits and drawbacks.
Pros
- Trade anytime during market hours at market prices.
- No minimum investment is required.
- Popular with investors on a budget who want flexibility.
Cons
- Requires active monitoring by the investor.
- Vanguard ETF investors have five times fewer options than those who choose mutual funds.
Advantages and Disadvantages of Vanguard Mutual Funds
Like ETFs, Vanguard mutual funds have both positive and negative aspects.
Pros
- Easy to automate investments and withdrawals, a feature that makes mutual funds popular among retirees.
- Investors don’t have to monitor daily price changes.
- Professionally managed for long-term growth.
Cons
- Cost-prohibitive minimum investments, usually of $3,000.
- Trade only once per day after hours.
How to Decide Between Vanguard ETFs and Mutual Funds
Your investment strategy, style and preferences will determine whether Vanguard mutual funds or ETFs are right for you.
Choose Vanguard ETFs if:
- You want flexibility to trade at will.
- You’re comfortable managing your own investments.
- You aren’t able or willing to plunk down a four-figure sum.
Choose Vanguard mutual funds if:
- You prefer a hands-off approach with automated investing.
- You’re focused on long-term growth and don’t plan to trade often.
- You have enough money to meet a higher minimum investment requirement.
Popular Vanguard ETFs and Mutual Funds
Vanguard is one of the biggest investment management firms in the world. Here’s a look at some of its most popular offerings.
Top Vanguard ETFs
- Vanguard S&P 500 ETF (VOO)
- Vanguard Total Stock Market Index Fund ETF (VTI)
- Vanguard Total Bond Market Index Fund ETF (BND)
Top Vanguard Mutual Funds
- Vanguard 500 Index Fund Admiral Shares (VFIAX)
- Vanguard Total Stock Market Fund Admiral Shares (VTSAX)
Tax Implications of Vanguard ETFs vs Mutual Funds
ETFs are typically more tax-efficient because they’re structured with “in-kind” trading to trigger fewer taxable events than mutual funds. There is, however, more to the story.
- Both ETFs and mutual funds incur capital gains taxes when shares are sold.
- Both instruments distribute capital gains to investors at year’s end.
- Both can also distribute taxable dividends.
- Mutual funds typically distribute more taxable capital gains.
The following tips can help you minimize your tax burden when investing in Vanguard funds.
- Use tax-advantaged accounts like 401(k)s and IRAs when investing in mutual funds that generate capital gains distributions.
- Consider tax-managed mutual funds, which prioritize tax efficiency as a fund objective.
- Consider closing out losing ETF positions to harvest losses and offset gains. Hold winning positions for more than a year to receive more favorable long-term capital gains treatment from the IRS.
Vanguard is one of the biggest and most trusted names in the investment game. ETFs are flexible and accessible, trading like stocks on the open market — and you can get started with as little as $1. Mutual funds are professionally managed and offer easy automation. The tradeoff is higher fees and steep investment minimums.
The right one for you depends on your goals, budget and investing style.
FAQ
Here are the answers to some of the most frequently asked questions regarding Vanguard ETFs vs. mutual funds.- Which is better for beginners: Vanguard ETFs or mutual funds?
- If money is no object, mutual funds might be better for novices because professional managers do the heavy lifting. However, instead of starting with a $3,000 investment, beginners might be better served by purchasing ETF shares while they learn more about the market.
- Do Vanguard ETFs have lower fees than mutual funds?
- Vanguard ETFs generally have lower expense ratios than Vanguard mutual funds. Neither charge commissions.
- Are Vanguard ETFs more tax-efficient?
- ETFs are generally more tax-efficient than mutual funds, Vanguard or otherwise.
- What’s the minimum investment for Vanguard mutual funds?
- Most have a $3,000 minimum, but some are as low as $1,000.
- Do ETFs have higher risk than mutual funds?
- No — ETFs and mutual funds with the same holdings have the same investment risk. However, ETFs trade throughout the day, which can lead to more frequent trading for some investors.
- What’s the difference between VTSAX and VTI?
- VTSAX and VTI hold the same stocks, but VTSAX is a mutual fund with a $3,000 minimum and daily pricing, while VTI is an ETF with lower entry costs and intraday trading. Performance is nearly identical.
Daria Uhlig contributed to the reporting for this article.
Information is accurate as of June 20, 2025.
Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.
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