Understanding VTSAX: Analyzing 5-Year Returns

Is your savings account earning pennies? It can be frustrating to work hard for your money only to watch it barely grow. You’ve likely heard about investing, but for many, it seems complicated and risky. What if there was a common-sense way to get started that didn’t require you to become a stock-picking expert?

Instead of trying to find one winning company, imagine you could simply own a tiny piece of them all. That’s the powerful idea behind the Vanguard Total Stock Market Index Fund (VTSAX). Think of it not as a single stock, but as a giant shopping cart that holds a tiny piece of nearly every major public company in the U.S.—over 4,000 of them. With a single investment, you instantly become a part-owner in a massive slice of the U.S. economy.

This all-in-one approach gives you an immediate safety net called diversification. Because your money is spread so widely, the poor performance of one company has a very small impact on your overall investment. It’s the investing version of not putting all your eggs in one basket, which is a common-sense way to manage risk.

People often look at the VTSAX 5-year return to get a simple performance snapshot—a report card on how that entire ‘shopping cart’ has done over a significant period. This guide breaks down what that return number really means and explains the market’s natural ups and downs to help you frame it for your own goals.

The “5-Year Return” Unpacked: What It Actually Means

When you look up the VTSAX 5-year return, you’ll see a simple percentage, perhaps something like 10% or 12% per year. It’s tempting to think of this like a savings account’s interest rate—a steady, predictable gain. However, the reality is that number is an average of five very different years, smoothing out a bumpy ride into one clean figure.

Think of the stock market’s performance as a rollercoaster, not an escalator. This up-and-down movement is called market volatility. In some years, the market might soar, giving your investment a huge boost. In other years, it might dip, causing your account value to temporarily drop. The average return simply tells you how high the rollercoaster finished after its five-year journey, despite the thrilling hills and scary drops along the way.

For example, a 10% average return over two years doesn’t mean you earned 10% each year. Your $1,000 investment might have jumped 25% to $1,250 in a great first year, but then dropped 5% to about $1,188 in a weaker second year. Even with a down year, you’re still ahead. This is how historical returns for VTSAX work in practice, with gains and losses building on each other over time.

Past performance is just history. It shows what was possible, but it offers no promises for what will happen next year. This is precisely why a fund like VTSAX is considered a long-term tool, designed to weather the market’s changes over many years.

How VTSAX Performance Compares to the S&P 500

When looking at investment performance, you’ll often hear another name mentioned: the S&P 500. This is an index fund that tracks a narrower slice of the market—the 500 largest and most influential U.S. companies. In contrast, VTSAX is a total market fund, holding those same 500 giants plus thousands of smaller and medium-sized companies. Think of the S&P 500 as a “greatest hits” album, while VTSAX is the entire discography.

This leads to a surprising fact: performance charts comparing VTSAX and the S&P 500 often show nearly identical lines. How can a fund with 500 stocks perform so similarly to one with thousands? It’s because the largest companies have a massive influence on the overall market. Since those top 500 companies make up the vast majority of the total market’s value, their performance heavily dictates the direction of VTSAX.

So what’s the advantage of holding everything? By owning the smaller companies, VTSAX gives you slightly broader diversification, ensuring you capture growth from every corner of the U.S. economy. Many believe this makes it a top contender for growth, as it ensures you’re invested in the next big company before it even makes it into the S&P 500. While this added diversity helps explain the fund’s long-term performance, another detail has a huge impact on your results: the fund’s cost.

The Hidden Power of a Low Expense Ratio

When deciding where to put your money, it’s easy to focus only on performance. But one of the most important factors for your long-term growth is the fund’s cost. Every fund charges a small annual fee to cover its operating expenses, called an expense ratio. Think of it as a tiny service charge for managing that giant basket of stocks for you. VTSAX is famous specifically because this fee is incredibly low.

A seemingly tiny percentage difference can have a huge effect on your money over time. The impact of the expense ratio becomes clear when comparing two scenarios on a hypothetical $10,000 investment:

A typical mutual fund (1% expense ratio): Costs you $100 per year.
VTSAX (around 0.04% expense ratio): Costs you just $4 per year.

That’s an extra $96 that stays in your account, invested and working for you, every single year. Keeping costs down is one of the few things you can actually control as an investor. This commitment to low fees is why comparisons between similar funds like FSKAX and VTSAX often show similar results; both are built to deliver market returns at a minimal cost. It’s the same reason the VTSAX vs. VTI discussion is less about which one is “better” and more about which low-cost format you prefer. Ultimately, the less you pay, the more of your money’s growth you keep.

Why Market Ups and Downs Are Normal

It’s natural to feel a knot in your stomach when you hear news about the market falling. Seeing the value of your hard-earned money dip, even temporarily, can be scary. Yet, what if those downturns weren’t just something to endure, but were actually an opportunity in disguise?

Instead of trying to “time the market” by investing a lump sum at the perfect moment (which is nearly impossible), many investors simply contribute a fixed amount on a regular schedule—say, $100 every month. Think of it like grocery shopping. If the price of your favorite cereal drops, your $5 weekly budget for it suddenly buys you a bigger box. You’re getting more for your money.

This is where the magic happens for long-term investors. When the market dips, the price of the fund goes down temporarily. Your fixed monthly contribution automatically buys more “shares” of the fund than it would have when prices were high. You are essentially buying on sale without even having to think about it. This approach encourages focusing on consistency, not on panicked reactions to daily news.

Over time, this strategy of consistently buying through highs and lows smooths out your journey. It turns market volatility from a source of fear into a tool for building wealth.

The “Set It and Forget It” Power of Dividend Reinvestment

Beyond just buying more shares on your own, your investment can grow in another quiet, automatic way. Many of the companies inside VTSAX share a small portion of their profits with their owners. Since you own a piece of the fund, you get a piece of those profits. These small cash payments are called dividends—a little “thank you” bonus for being an investor.

You could take these dividend payments as cash, but a much more powerful option is automatically reinvesting them. With Vanguard, this is typically the default setting. The system takes that dividend money and immediately uses it to buy more shares of VTSAX for you, without you lifting a finger. It’s a “set it and forget it” feature that puts your earnings straight back to work.

This is where the real magic begins. Those newly purchased shares now start earning their own dividends, creating a snowball effect known as compound interest. Your money starts making money, and then that money starts making more money. This patient process is a core driver of long-term growth in total market funds, turning small, consistent actions into significant wealth over decades.

Is VTSAX a Good Investment for You? A 3-Question Checklist

The “set it and forget it” approach sounds simple, but it’s not the right tool for every financial job. Whether VTSAX is a good investment for you comes down to your own life and personality. To find out, answer three honest questions:

Is my financial goal more than 5 years away?
Am I okay with my investment value going up and down?
Do I want a simple, low-effort strategy?

These questions define the ideal VTSAX investor. The fund is built for long-term goals (like retirement or a down payment a decade from now), which gives your money time to recover from the market’s inevitable dips. Answering “yes” to the second question is crucial. If seeing your balance drop would cause you to panic and sell, the rollercoaster of the stock market might not be for you just yet.

If you found yourself nodding “yes” to all three questions, then a simple, diversified fund like VTSAX aligns perfectly with your goals. You’re looking for patient growth, can handle the bumps along the way, and want a strategy that works for you, not the other way around.

Your Long-Term Growth Plan: From Understanding to Action

Having explored the full picture behind the VTSAX 5-year return, you can see it’s not a risky gamble but a journey of thousands of companies through the natural ups and downs of the market. This understanding is your foundation for getting started.

Your first step isn’t about buying a specific fund today, but simply preparing for the journey. The most powerful action you can take is to open an account with a low-cost brokerage like Vanguard, Fidelity, or Charles Schwab. This one task is the key that unlocks the door to your financial future.

From now on, when you see market news, you won’t just see scary headlines; you’ll see bumps on a long road. Successful investing is a marathon, not a sprint. With a simple investment plan, you’re no longer trying to outsmart the market—you’re letting the market work for you, one year at a time.