What is the Average Return on VTSAX?

Thinking about investing can feel like standing at the foot of a mountain with no map. You hear about stocks, bonds, and cryptocurrencies, and it’s easy to feel lost and overwhelmed. But what if there was a way to get started that was as simple as buying one thing that gives you a tiny piece of almost every major company in the U.S.?

That single investment is known as VTSAX. While the name sounds complicated, the idea is refreshingly simple: instead of trying to pick individual winning stocks, it automatically buys you a small slice of the entire U.S. stock market. This means you own a piece of thousands of companies, from giants like Apple and Amazon to smaller businesses you’ve never heard of, all in one go.

This guide explores the historical performance of VTSAX and explains what that “average” number truly means for an investor. Understanding why long-term VTSAX returns are a helpful guide, but not a crystal ball, provides the foundation for one of investing’s most popular starting points.

What Exactly is VTSAX? Your ‘One-Click’ Basket of the Entire US Stock Market

Instead of trying to pick the single best company out of thousands—a difficult and risky task—imagine buying a pre-packaged basket that contains tiny pieces of all of them. This is the basic idea behind a mutual fund. It’s a way for a group of people to pool their money together to buy a wide variety of investments, spreading their risk.

VTSAX is a special, low-cost type of mutual fund called an index fund. Think of it like a shopping list for the stock market. But instead of trying to cleverly pick the “best” items, its only job is to automatically buy a little bit of every publicly traded company in the United States. It simply follows a recipe—in this case, an index that represents the total U.S. stock market.

This simple strategy provides instant diversification—the formal name for “not putting all your eggs in one basket.” By owning a tiny sliver of the entire market, from the biggest names to the smallest startups, the poor performance of a few companies is balanced out by the success of many others. You aren’t betting on a single player; you’re on the whole team’s side.

The Big Question: What is the Average Return on VTSAX?

So, if you own a tiny piece of the entire U.S. stock market, what kind of performance can you expect? Historically, VTSAX has delivered an average annual return of around 10% since its creation in 1992. When you compare that to the interest you might get from a typical savings account, the potential for long-term growth is significant.

However, it is crucial to understand what “average” means in this context. Think of it like the average temperature for a city over a whole year—it gives you a good idea of the climate, but it doesn’t mean every day will be exactly 72 degrees. Some days will be much hotter (positive returns), and some will be freezing cold (negative returns). The average return simply tells you the long-term “climate” of the investment, not the “weather” you’ll get tomorrow.

In reality, the market has its ups and downs. Some years your investment might grow by over 20%, and in other years it might fall. This fluctuation is a normal and expected part of investing. The true power of an investment like VTSAX isn’t measured in days or months, but over many years.

A Realistic Look at VTSAX Performance: The Good, The Bad, and The Average

To make this feel real, let’s look at the “weather” of VTSAX historical performance data. In some fantastic years, the market has soared. In one particularly strong year, the fund returned over 30%. If you had invested $10,000, your investment would have grown to more than $13,000 in just twelve months. These are the “hot summer days” that drive significant growth and show the powerful potential of being invested in the market.

However, investing also includes cold spells. During a major downturn, for instance, VTSAX lost about 37% in a single year. That same $10,000 investment would have dropped to around $6,300. Seeing your account balance fall is never easy, but these downturns are a normal part of the economic cycle. The simple line graph below shows how these dips are a feature of the journey, not a sign that the journey has ended.

This is the most important part: historically, the up years have been more frequent and powerful than the down years. While losses are real, the gains over the long term have more than made up for them, pushing the overall trend upwards. This jagged climb is a realistic look at VTSAX returns—not a smooth line, but a journey that rewards investors who have the patience to stick with it through all seasons.

Is VTSAX a Good Long-Term Investment for Your Goals?

That concept of “patience” is the key to understanding if VTSAX is right for your goals. The volatile “seasons” we just saw are precisely why this fund is designed for long-term goals—think retirement in 20 years or a college fund for a young child. A long timeline gives your investment the breathing room it needs to recover from market slumps and take full advantage of the good years. If you know you won’t need the money for at least a decade, you can more comfortably ride out the financial weather.

This long-term strategy hinges on a simple principle: time in the market, not trying to time the market. Rather than guessing the best day to buy or sell (a nearly impossible task), you simply let your money work over many years. It’s like planting a tree; you don’t panic and dig it up during winter. You trust that with enough time and seasons, it will grow strong. Staying invested allows your money to do the same.

For this reason, VTSAX is not a suitable place for money you might need soon. For an emergency fund or a down payment on a house you plan to buy in two years, that volatility poses a real risk. You wouldn’t want a sudden market downturn to force you to sell at a loss right when you need the cash. For money you can’t afford to risk in the short term, a high-yield savings account remains a much safer choice.

The Hidden ‘Fee’ You Need to Know: VTSAX’s Expense Ratio

For all the convenience of owning a slice of the entire market in one package, there is a small cost involved. This is known as the expense ratio, which is a tiny annual fee charged by the fund to cover its operating and management expenses. Think of it like a maintenance fee for the service of having your money professionally managed and diversified across thousands of companies. This fee is automatically deducted from the fund’s assets, so you’ll never see a bill for it.

A major reason the Vanguard Total Stock Market Index Fund (VTSAX) is so popular is that its expense ratio is famously low. As of late 2023, the fee is just 0.04%. While that number sounds small, the impact of the expense ratio on VTSAX returns over decades is huge. Lower fees mean more of your investment returns stay in your pocket, compounding and growing over time.

To put that percentage into perspective, a 0.04% expense ratio means you pay just $4 per year for every $10,000 you have invested. This incredibly low cost is a powerful tailwind for your investment’s growth.

VTSAX vs. Your Savings Account: A 10-Year Growth Comparison

Now let’s see how its growth potential stacks up against something familiar: a high-yield savings account. Imagine you put $10,000 into a savings account earning a strong 4% interest. After a decade, you’d have about $14,800. In contrast, if you invested that same $10,000 in VTSAX and it achieved a total return similar to its historical average (around 9%), you could have over $23,600. This dramatic difference isn’t magic; it’s the power of your money earning “growth on its growth” over time.

This higher potential growth comes with a crucial tradeoff: risk. A savings account balance only goes up, offering safety and predictability for short-term goals. VTSAX, on the other hand, invests in the stock market, meaning its value will fluctuate and can even lose money in some years. You are rewarded for taking on this long-term risk with a much higher potential for growth. This is the fundamental risk-reward principle of investing: to get higher returns, you must be willing to accept a bumpier ride.

Ultimately, a savings account and VTSAX are tools for different jobs. One is for stability and immediate access, while the other is for building significant wealth over many years.

VTSAX vs. S&P 500: What’s the Difference in What You Own?

You’ll often hear another popular type of index fund mentioned: one that tracks the S&P 500. The concept is simple. While VTSAX aims to own the entire U.S. stock market (over 3,000 companies of all sizes), an S&P 500 fund focuses only on the heavy hitters—about 500 of the largest and most established companies in the country. Think of it as investing in the A-list of American businesses.

To make it more concrete, imagine the U.S. economy as a giant pizza. VTSAX gives you a sliver of the entire pizza, including the big pepperoni slices and the tiny bits of spice. An S&P 500 fund gives you a sliver that only contains the big pepperoni slices. Since VTSAX includes all the smaller companies, it offers a little more diversification, but both funds give you a healthy serving of the market’s biggest players, like Apple, Amazon, and Microsoft.

Given this difference, you might expect their performance to vary wildly, but the opposite is true. Historically, the performance charts for VTSAX and S&P 500 funds look nearly identical. This is because the massive companies in the S&P 500 make up the vast majority of the total market’s value. Their success or failure has such an outsized impact that it drives the returns for both funds.

Key Principles for Investing in VTSAX

VTSAX is a straightforward tool for building long-term wealth, and understanding its core principles is key to using it effectively. Remember:

• Simplicity: VTSAX is a single fund that lets you own a piece of the entire US stock market.

• Volatility: Its historical average return is strong, but expect both good and bad years along the way.

• Purpose: Its low cost and long-term focus make it a powerful option for goals like retirement.

The real secret to using this knowledge isn’t about chasing returns, but about adopting a long-term mindset to calmly ride out market volatility. With this information, you can more confidently incorporate it into your financial planning.