International Allocation

[surlygent]

I know this has been discussed in other threads (but they were older and VXUS has more history now), but...

Assuming:
- Intl. allocation held 100% in taxable account (38% tax bracket)
- Intl. accounting for 45% of total AA
- A desire to tilt small
- Long-term buy/accumulate/hold (15+yrs)
- All held at Vanguard so no purchase fees

Which would you rather own and the reasoning for why:

1)
33.3% VEA (Vanguard MSCI EAFE ETF - .12)
33.3% VSS (FTSE All-World ex-US Small-Cap ETF - .28)
33.3% VWO (Vanguard Emerging Markets ETF - .20)

2)
50% VXUS (Vanguard Total International ETF - .21)
50% VSS (FTSE All-World ex-US Small-Cap ETF - .28)

[Sunny Sarkar]

#2

because you indicated a desire to tilt small (as in #2) but not to tilt emerging (as in #1)

[G-Money]

The two aren't really equivalent. A better comparison would be #1 vs 2/3 VXUS and 1/3 VSS. Or, #2 vs 35% VEA, 15% VWO, 50% VSS.

I prefer VXUS because it has mid and small caps that VEA and VWO don't. It also has Canada. It's also 1 fewer fund. Then just add VSS to taste. I'm not convinced Emerging is a separate asset class, so an Emerging tilt doesn't have much appeal to me.

[surlygent]

True VXUS does have ~25% em already. But looking long term, there is still a certain appeal in the potential with em... but not sure if its enough to add as its own allocation.

The other thing though is that option 2 has more than double exposure to US stocks (according to Morningstar x-ray, although still only 12% vs 5%), so if I am going for more of a 'true' ex-US, option 1 seems the way to go...

[abuss368]

Just one fund works- Total International Index Fund.

[DaveS]

If you want to know what I think you should do, it's option 2. That gives you a significant tilt to small which is a step up the risk scale which should reward you with a bigger long term return with greater volatility. Tilting to emerging markets is a sector bet. In other words that tilt does not relate to accepting a greater risk based on the fama/french factors. Dave

[G-Money]

The other thing though is that option 2 has more than double exposure to US stocks (according to Morningstar x-ray, although still only 12% vs 5%), so if I am going for more of a 'true' ex-US, option 1 seems the way to go...

Look closer. On the Morningstar instant x-ray, there's s map that says the VXUS/VSS combo has 12% US & Canada.But there's also a pie chart that shows 0% of that combo is in domestic stocks. Algebra tells me there is 12% Canada and 0% US in that combo. The Vanguard website confirms this; check the "Portfolio &Management page for each fund. So really the difference you're seeing is the allocation to our northern neighbor in the two portfolios.

If you like EM, that's fine. It wasn't in the OP, so I didn't take it into account. There's also some research that says faster growing economies does not necessarily correlate with faster growing equity markets. You're in good company regardless of whether you choose to overweight EM.

[jimkinny]

#2

If you accept French-Fama, then small is the way to go. VSS and VXUS both have EM, right? I have not read that EM may be a risk factor like size and value, so why overweight EM?

Just be aware that tilting to size and value increases risk.

jim

[Trev H]

I agree with some of the others...

I would go with #2.

With Total International you get - 23.8% EM, 43.8% Euro, 23.8% Pacific, 0.4% Mid East, 8.0% North America, 0.2% Other
With FTSE X US Small you get -----26.0% EM, 37.8% Euro, 20.2% Pacific, 0.2% Mid East, 15.8% North America

With a 50/50 split between the two you would have plenty of exposure to EM, and nice coveraget in the Mid Cap and Small Cap areas.

M* X-Ray looks like this...

14-13-13
15-14-12
08-06-04

I was not expecting this part - there is even a slight tilt to value which is more pronounced in the small area. A good thing if you ask me.

Another benefit of this vs any other combination of the 3 funds is simplicity. It is extremely simiple to hold two funds in equal weight when it comes to rebalancing.

Best of Luck !

Trev H

[livesoft]

I like #2 as well. Another thing to plan for is tax-loss harvesting. One might start with VXUS + VSS, but some positions will have to be TLH'd, so one might still end up with shares of VWO, SCZ, EWX, VEU, etc.

While we own VSS, VXUS came too late on the scene. Instead, we own VEU+VWO+VSS plus some other tidbits. We won't be tax-loss-harvesting any of these anytime soon. In a 401(k), FSGDX became available (it's a VXUS equivalent), so that fund in used for any rebalancing in a tax-efficient way.

[YDNAL]

Assuming:
- Intl. allocation held 100% in taxable account (38% tax bracket)
- Intl. accounting for 45% of total AA
- A desire to tilt small
- Long-term buy/accumulate/hold (15+yrs)
- All held at Vanguard so no purchase fees

Which would you rather own and the reasoning for why:

1)
33.3% VEA (Vanguard MSCI EAFE ETF - .12)
33.3% VSS (FTSE All-World ex-US Small-Cap ETF - .28)
33.3% VWO (Vanguard Emerging Markets ETF - .20)

Besides Mid-Small tilt, this also "tilts" Emerging Mkts in your large cap holdings. It equates to 22/11/33/33 Europe/Pacific/Emerging/Mid-Small.

2)
50% VXUS (Vanguard Total International ETF - .21)
50% VSS (FTSE All-World ex-US Small-Cap ETF - .28)

This is not 50/50 Large/Mid-Small since VXUS contains Mid-Small. If 50/50 is what you want, consider a different mix - like 60/40 VXUS/VSS.

17 16 16 = 49%
13 12 11
06 05 04

Now, since all International is in Taxable, and if you are a stickler to rebalance these allocations, use NEW contributions to avoid selling/buying between them while paying unnecessary taxes.

[surlygent]

Thanks all for the advice. Hearing everyones thoughts and looking more into the specifics of each holding, #2 seems to be the winner. I originally missed the fact that VSS also holds ~26% EM, so along with the ~24% in VXUS, I think I should be set with EM. And I do like the slight additional ease of 2 vs 3 funds.

[YDNAL]

Thanks all for the advice. Hearing everyones thoughts and looking more into the specifics of each holding, #2 seems to be the winner. I originally missed the fact that VSS also holds ~26% EM, so along with the ~24% in VXUS, I think I should be set with EM. And I do like the slight additional ease of 2 vs 3 funds.

Your reasoning seems off.

• VXUS is all inclusive by ALL CAP Market Weight. VSS is Mid-Small Cap by Market weight.
• IF you choose to hold VXUS, you should add VSS only to the extent that you want an overweight Mid-Small.
• Unless you want to overweight Emerging Mkts (large caps, by the way) as in option #1, EM plays no other role in any of this with regards to Market Weights.

[surlygent]

Thanks all for the advice. Hearing everyones thoughts and looking more into the specifics of each holding, #2 seems to be the winner. I originally missed the fact that VSS also holds ~26% EM, so along with the ~24% in VXUS, I think I should be set with EM. And I do like the slight additional ease of 2 vs 3 funds.

Your reasoning seems off.

• VXUS is all inclusive by ALL CAP Market Weight. VSS is Mid-Small Cap by Market weight.
• IF you choose to hold VXUS, you should add VSS only to the extent that you want an overweight Mid-Small.
• Unless you want to overweight Emerging Mkts (large caps, by the way) as in option #1, EM plays no other role in any of this with regards to Market Weights.

Thanks for the help clarifying, it is my goal to tilt/overweight mid-small, hence my desire to hold VSS, and I do want to include EM in the mix (which was why I had option #1 as VEA does not include EM and I missed that VSS does include EM as well.) although not with as much tilt as option #1 would have resulted in, now that I see that. So option #2 still seems about ideal for what I am after.