Vanguard Total US + Int vs. Total World

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Vanguard Total US + Int vs. Total World

Postby LiamLC » Thu Jan 10, 2013 4:48 pm

What are the advantages of investing in Vangaurd US and International rather than Vanguard Total World? If total world encompasses US and International stocks, isn't it the same thing? I guess the only advantage would be that you can weight US and international stocks in a manner of your choosing, correct? I just feel inclined to buy total world because I don't understand why the US markets are so highly depended upon. I thought we didn't believe that past performance indicated future results or that we can predict what industry/country/company will do well in the future. I just feel like we shouldn't weigh the US more than any other country.

If someone could explain this to me I would greatly appreciate it and just in case you are wondering, I am currently reading The Boglehead's Guide to Investing and it is great! Very well written and easy to understand. Any suggestions on what to read next? I'm thinking either guide to retirement or a rick ferri book.
LiamLC
 
Posts: 98
Joined: Mon Sep 24, 2012 11:32 pm

Re: Vanguard Total US + Int vs. Total World

Postby wesleymouch » Thu Jan 10, 2013 4:51 pm

The costs of using the combo are lower. Plus if you feel that one market (US) is more overpriced then you can weight the cheaper market accordingly.
wesleymouch
 
Posts: 237
Joined: Wed Dec 05, 2012 3:24 pm

Re: Vanguard Total US + Int vs. Total World

Postby ryuns » Thu Jan 10, 2013 4:56 pm

Short answer is that yes, they're pretty similar. The quick reasons why more people don't use it are (a) the expenses are higher (and Bogleheads know that expenses and asset allocation are the things you can truly control in your portfolio) and (b) not everyone believes American investors should hold a US and int'l stocks in the proportions calculated by the world stock fund. What that proper ratio is is the subject of debates, but for many people it's somewhere in the neighbor of 20% to 40% of your total stock allocation should be in international, compared to about 60% as measured by market capitalization.

Here's more than you ever wanted to know on the subject: http://www.bogleheads.org/wiki/Domestic/International
(The Bogleheads wiki, by the way, is absolutely fantastic. It also includes some recommended reading material, as well as links to reviews on the books in question. http://www.bogleheads.org/wiki/Category ... nd_Authors )
An inconvenience is only an adventure wrongly considered; an adventure is an inconvenience rightly considered. -- GK Chesterton
User avatar
ryuns
 
Posts: 3318
Joined: Tue Aug 07, 2007 7:07 pm
Location: Sacramento, CA. Age: 30

Re: Vanguard Total US + Int vs. Total World

Postby JArthur » Thu Jan 10, 2013 4:58 pm

Lower costs as wesleymouch pointed out, but it means a little more work for you if you want to keep the international/domestic weight about the same.

I believe you are making a good decision to invest internationally. Here’s a link to a good research paper on why it pays off in the long term. http://www.retailinvestor.org/pdf/ForDiversify.pdf
JArthur
 
Posts: 52
Joined: Tue Nov 29, 2011 12:48 pm

Re: Vanguard Total US + Int vs. Total World

Postby LiamLC » Thu Jan 10, 2013 4:58 pm

wesleymouch wrote:The costs of using the combo are lower. Plus if you feel that one market (US) is more overpriced then you can weight the cheaper market accordingly.


Oh really? I thought the cost of one fund would be less than two :/ I guess I should have looked that up before posting. I personally don't have an opinion if the US is overpriced, I just don't want assume that it is the best. I want as neutral and diversified of a position as possible. Does anyone know if Vanguard Total World is weighted by market cap (I think that is the correct way to say it)? Because if so that seems like a good choice for me. I don't want a tilt towards the US.

EDIT:

JArthur wrote:Lower costs as wesleymouch pointed out, but it means a little more work for you if you want to keep the international/domestic weight about the same.

I believe you are making a good decision to invest internationally. Here’s a link to a good research paper on why it pays off in the long term. http://www.retailinvestor.org/pdf/ForDiversify.pdf


I'll do a little more work for a little higher return any day. How could I determine how to weigh it?
LiamLC
 
Posts: 98
Joined: Mon Sep 24, 2012 11:32 pm

Re: Vanguard Total US + Int vs. Total World

Postby wesleymouch » Thu Jan 10, 2013 5:08 pm

Just go to the Vanguard web site and look at the VT ETF at the holdings tab. It gives the break down of roughly 50% North America (includes Canada plus US) and roughly 50% for the rest of the world. You can weight like this or if you think that the US is more overvalued you can decrease the weight. Alternatively many people recommend roughly 1/3 of your equity exposure be International. Some say 40%. There is no right answer.
wesleymouch
 
Posts: 237
Joined: Wed Dec 05, 2012 3:24 pm

Re: Vanguard Total US + Int vs. Total World

Postby JArthur » Thu Jan 10, 2013 5:14 pm

I'll do a little more work for a little higher return any day. How could I determine how to weigh it?


From the Vanguard site: http://portfolios.morningstar.com/fund/summary?t=VT&region=USA&culture=en-us
Or from Morningstar: http://portfolios.morningstar.com/fund/summary?t=VT&region=USA&culture=en-us

Personally I wouldn't worry if you are off 1-2%, but if it bothers you just buy the Total World fund.
JArthur
 
Posts: 52
Joined: Tue Nov 29, 2011 12:48 pm

Re: Vanguard Total US + Int vs. Total World

Postby rj49 » Fri Jan 11, 2013 1:57 am

The combo buys many more individual stocks than VT, although the extra stocks might have less impact on returns as the country allocation. The same goes for the expenses argument, which will pale in comparison to having 55% or more in international. Another consideration would be the foreign tax credit, which would be available if the accounts are in taxable.

The advantage of VT is that it avoids rebalancing and shifting allocations based on what's happening, such as selling more international because "everyone knows Europe is doomed" or buying more international because you believe China will rule the world and the stock markets. This is an easier way to avoid market noise and have a simple, truly market portfolio, without US bias. People on here have spent years obsessing over the perfect international allocation, which of course never was an issue in the 1990's, when the US was dominant, so by just buying a total world fund you can worry about more important Boglehead matters, such as where to find yield, will bonds tank, and how much to tip in restaurants.

If you want to find encouragement for holding the Total World index, read Charles Ellis in "The Elements of Investing", who puts all his stocks in the Total World ETF, or this article by John Norstad about why to invest in total markets: http://www.norstad.org/finance/total.html
rj49
 
Posts: 272
Joined: Wed Feb 23, 2011 1:22 am


Return to Investing - Theory, News & General

Who is online

Users browsing this forum: Alex Frakt, bertilak, FNK, JohnnyFive, jsl11, MnD, Monkeyman, packer16, Rodc, staythecourse, swaption, Toons, vesalius and 78 guests