No, it doesn’t matter if S&P-500 is in Taxable and VTSAX is in Trad/Roth or vice-versa… the two funds are nearly identical from a performance perspective (see chart below), yet they are not “substantially identical” composition so they pass the IRS test for being clear of wash sales. Often what drives that choice is what’s available in one’s 401k (if they only offer an S&P-500 index and no TSM-like fund, then S&P-500 is in Trad/Roth and TSM is in Taxable; if the 401k offers both S&P-500 and TSM then you can make a choice).
TSM vs S&P-500, 10y look back ending 17-Apr-2025
iemily wrote: Tue Sep 09, 2025 9:22 pm
Since JL Collins was SO pro VTSAX, I want to put it in the “best” and most high-yield account, but frankly don’t know what that will be between roth/trad IRA & taxable.
You can’t know the future, so I don’t think it’s worth micro-optimizing between S&P-500 (VOO) and TSM (VTI). If you had a working crystal ball and you knew 60 years from now that VOO will have outperformed VTI 80% of that time period, then sure use VOO for the largest $ accounts (either Taxable or Trad+Roth), but I doubt your crystal ball works any better than mine (which doesn’t work at all! ).
The reason they’re so close in performance is that S&P-500 is 85% of the composition of VTI. VTI also includes mid/small cap stocks that are not present in the S&P-500 but that only makes up 15% of VTI, so mid/small would have to significantly outperform large to see a meaningful difference (and that difference would have to be sustained over many years of compounding to have been worth trying to optimize, if there was some magical way to know which would outperform).
At least for the last 10 years, they’re practically indistinguishable. The last decade has seen an incredible run-up in Large-Cap Growth (LCG) with companies like NVDIA, Google, Microsoft, Amazon, Meta, etc., but when I started investing in the 90s Small-Cap Value (SCV) was all the rage for “tilts/bets” because 30y back-tests “at that time” showed that it outperformed LCG. Nobody knows the future, but it’s very likely that large-caps will always be a super-majority weighting in VTI and mid/small will be a small minority, so it’s likely that TSM and S&P-500 will always be good for avoiding wash sales while maintaining similar (if not identical) performance.
Who knows if LCG will continue on it’s bull-streak for another 10y or if we’re in a bubble waiting to pop and SCV will suddenly be back in vogue? While it’s natural to want to maximize your earnings, be cautious to not over-optimize things based on noise (because there’s no real signal present). Desire to maximize can lead to greed/fear behavioral investing and that’s a sure-fire plan for disaster.
Bubbles do occur sometimes and eventually pop (real-estate debt of “The Great Financial Crisis” in 2008, dot-com crash in the early 2000s, “The Great Depression” in the early 1930s, and famously Tulip Mania from 1634-1637)… You’d think we’d learn from the past, but many investors (and traders in particular) are a greedy & fearful bunch.
P.S.
Mel Lindauer wrote: Tue Sep 09, 2025 11:37 pm
I just wanted to take the time to acknowledge the outstanding, helpful post above by bonesly.
Thanks Mel!
