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24 November 2015
VFINX vs. AWSHX
In my analysis, I will be comparing Vanguard 500 Index Fund (VFINX) against American Funds
Washington Mutual Fund (AWSHX). Through this process, I will let you know why I am recommending
the Vanguard 500 Index Fund to fund this child’s Harvard education. He will need about $500,000 to
fund his 4 years of college. This includes not only tuition but room and board, travel expenses, books and
personal expenses. To better understand why I have chosen VFINX, I will compare returns for various
time horizons, volatility of the fund, fees and expenses, tax consequences, and finally tenure of
investment managers.
Returns are usually the first thing people look at when comparing two funds and seem to be what
most people care about. Total returns to be specific includes dividend yields as well as the market price
increase. VFINX total returns are 1.15, 16.00, 13.24, 7.19 and 4.64 for 1, 3, 5, 10 and 15 year
respectively. AWSHX are -.61, 14.30, 12.77, 6.95, and 6.33 as the S&P 500 returns are 1.29, 16.18,
13.41, 7.31 and 4.76. As expected, VFINX is in-line with the benchmark. Morningstar ratings show
VFINX returns above average as AWSHX are at average. As you can see VFINX has outperformed
AWSHX in the past as total returns are higher.
Measuring a fund’s risk is another major component when deciding on a mutual fund. Standard
deviation is used the most often to measure total risk and volatility. It simply quantifies how much the
fund returns, varies around its mean, or average. It provides a precise measure of how varied a fund’s
returns have been over a particular time frame during both an upside and downside. This will help judge
the range of returns in the future. Higher deviation would have more varied returns. VFINX is 10.48 and
AWSHX is 10.14 for the 3 year return. This states that VFINX has more varied returns; higher the
