Question about VTI and International

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Question about VTI and International

Postby DaleM » Mon Jan 28, 2013 6:28 pm

I am considering using Vanguard's ETI as my primary (only?) vehicle for stock investments. It's diversification and extremely low cost are very attractive.

Question: Do I get an international exposure with VTI? If not, what would be a comparable international ETF to VTI (very broad based, including emerging markets, and very low cost).
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Re: Question about VTI and International

Postby dbr » Mon Jan 28, 2013 6:30 pm

VTI and VXUS are a good combination.
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Re: Question about VTI and International

Postby simplicity » Mon Jan 28, 2013 7:00 pm

VTI and VXUS will do the job
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Re: Question about VTI and International

Postby nisiprius » Mon Jan 28, 2013 7:43 pm

DaleM wrote:Question: Do I get an international exposure with VTI? If not, what would be a comparable international ETF to VTI (very broad based, including emerging markets, and very low cost).
It's really a good idea to get in the habit of finding some of this basic information for yourself.

http://www.vanguard.com, Go To Personal Investors' Site, type VTI into the search box, wait for the choices to drop down and click on Vanguard Total Stock Market ETF (VTI) (0970). Under Product Summary, what do you see?

Image

While you're there... why don't you look up how Vanguard classifies its risk potential, what they say that risk potential means (click on the brown text under the diagram), what its expense ratio is, and click around a few of the tabs and absorb some of the stuff. For example, what "style box" it's in.

OK, now, you've asked for a comparable international ETF, so try this: at the left side of the screen, click on "all our ETFs by fund name." Over at the left you get a chance to select filters, so click on "International" as the asset class.

Image

So, which of those ETFs are very broad based, include emerging markets, and are very low cost? We can take a stab at eliminating the EAFE (Europe, Australasia and Far East), Europe and Pacific ETFs as they obviously only include part of the world. You probably don't want real estate, and you probably don't want Emerging Markets all by itself unless you can't find a fund that includes it and need to add it as an outrigger.

That leaves you with four candidate funds: FTSE All-World Ex-US; FTSE All-World Ex-US Small Cap; Total International Stock; and Total World Stock. There are some minor but interesting puzzles choosing between them. You can go to their web pages with summary descriptions by click on the links. You should be able to figure out very quickly what the difference between Total International and Total World is. On the other hand, you should find it puzzling to choose between FTSE All-World Ex-US (VEU) and Total International Stock (VXUS). But you should at least be able to answer this question for yourself: does VEU include Emerging Markets? Does VXUS? Hint: after glancing at the Product Summary, try the Portfolio tab.

The reason I've put in the work writing all this down is that I really think you should take the time to try some of it out for yourself. Things you find out for yourself stick better than things someone else tells you.

And I leave you with this riddle. dbr has said, correctly, that "VTI and VXUS are a good combination." Here's the riddle: what's the difference between Total International Stock and Total World Stock?
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Re: Question about VTI and International

Postby DaleM » Tue Jan 29, 2013 1:36 pm

Everyone -- thanks for the very helpful advice, especially nisiprius with the Vanguard web site tutorial. I've relied on finance.yahoo.com for most of my info in the past (why? not sure.) and it doesn't have the drill down capabilities.

Since nisiprius gave me a little quiz, here are some answers:

1. What's the difference between Total World Stock (VT) and Total International Stock (VXUS)

Answer: VT includes USA, VXUS does not.

2. What's the difference between Vanguard FTSE All-World ex-US ETF (VEU) and Vanguard Total International Stock ETF (VXUS)? Does one contain emerging and other other not?

Answer: I don't know, except for minor percentage differences (expense ratio for both is the same at 0.18%), both contain emerging markets.

So, why should I pick VEU over VXUS (or vice versa)?

Thanks
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Re: Question about VTI and International

Postby nisiprius » Tue Jan 29, 2013 1:43 pm

I'm delighted that you did take the time to click around in the Vanguard website.
DaleM wrote:ESince nisiprius gave me a little quiz, here are some answers:

1. What's the difference between Total World Stock (VT) and Total International Stock (VXUS)

Answer: VT includes USA, VXUS does not.
Yes. Meaning that possibly for some investors, particularly those who want to hold the total world according to market capitalization, it could be the one single stock mutual fund they need. (Since I personally prefer a lower percentage of international I use separate funds, and even if you want to hold according to global market capitalization is not clear whether it offers much advantage over separate funds other than convenience).
2. What's the difference between Vanguard FTSE All-World ex-US ETF (VEU) and Vanguard Total International Stock ETF (VXUS)? Does one contain emerging and other other not?

Answer: I don't know, except for minor percentage differences (expense ratio for both is the same at 0.18%), both contain emerging markets.

So, why should I pick VEU over VXUS (or vice versa)?
VXUS, but it's sort of a trick question. VEU and VXUS are extremely similar. The existence of VEU is probably an historical accident, something cooked up quickly by Vanguard to plug a hole in their ETF lineup during a time when Total International's structure as a fund-of-funds didn't permit them to create an ETF version. VXUS has basically superseded VEU. The differences between the two are tiny but all of those differences seem to favor VXUS. Slightly lower expenses, and it's an all-cap fund (but actually has little midcaps and almost no small caps).

I think people make too much of the presence of midcaps and small-caps in VXUS, if you look at Morningstar's "style map" it's not as if there were really that much difference, but probably better to have them than not. If the theory is to hold the total market, you might as well hold the total market.

Investors that decide to go in for a "small-cap tilt" (I personally am not a sophisticated investor and I personally don't) would need to use another fund to get any significant exposure to small-caps, anyway; and that's probably what VSS is for.

Image
Last edited by nisiprius on Tue Jan 29, 2013 1:59 pm, edited 3 times in total.
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Re: Question about VTI and International

Postby pkcrafter » Tue Jan 29, 2013 1:48 pm

VEU does not have Canada or small caps, VXUS does.
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Re: Question about VTI and International

Postby FinancialDave » Tue Jan 29, 2013 2:37 pm

Here is something to ponder about the above answers.

When you use the Morningstar X-ray tool it indicates VTI has 1.01% exposure to Europe and .04% exposure to Latin America - but let's stop and think about the stocks that are in this index and how much exposure they already have outside the US.

11% of the VTI is held in the top 5 stocks:
Apple
Exxon
GE
Chevron
IBM

Now I did not take the time to review the financials on all these companies, but just knowing what I know about them leads me to venture a guess that probably somewhere around 1/3 of their total income comes from outside the US and in most cases is still being held overseas.

This is one of the reasons why I personally have never gotten too worked up about having a large portion of my investments in non-US countries. Maybe someone has found some research which indicates how much of the VTI earnings actually comes from outside the US -- my guess is maybe somewhere around 20%, which is plenty for me, especially given that there aren't too many currencies stronger than the US dollar to begin with.

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Re: Question about VTI and International

Postby nisiprius » Tue Jan 29, 2013 3:03 pm

pkcrafter wrote:VEU does not have Canada or small caps, VXUS does.
No, VEU does have Canada.
Image
You are thinking of Ye Olde Days, back when VFWIX and VEU were launched. And at that time it was the other way around. At that time, Vanguard Total International, VGTSX, was missing Canada and VFWIX had it.
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Re: Question about VTI and International

Postby pkcrafter » Tue Jan 29, 2013 7:16 pm

Right, thanks for catching that.


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