Which International in Taxable?

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tomer755
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Joined: Wed Mar 08, 2017 8:47 am

Which International in Taxable?

Post by tomer755 » Mon May 22, 2017 12:18 pm

Hello all,

I was browsing this forum and came across a post by Rich Ferri in 2007 in which he suggested to invest in Vanguard FTSE All-World ex-US Index Fund (VFWAX) as opposed to Vanguard Total International Stock Index Fund (VTIAX) for your international allocation if you have to place it in a taxable account like I do (I have no room in tax-differed).

His reasoning was this:
Rick Ferri wrote:
Why not use Vanguard Total International Stock Index Fund
VGTSX
In a tax-exempt account it is "six of one, half dozen of the other." However, in a taxable account, the Vanguard FTSE All-World ex-US Index Fund is a fund of stocks and has pass through of foreign tax credits. The Vanguard Total International Stock Index fund does not because it is a fund-of-funds. Why not? Ask the IRS.

Rick Ferri
Is this still the case today? If I need international diversification in taxable account should I for-go the VTIAX and go for VFWAX for the tax benefits? Are they generally the same?

Thanks!

-Tomer

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Which International in Taxable?

Post by livesoft » Mon May 22, 2017 12:21 pm

It is not the case today (10 years later). VTIAX is fine in a taxable account. You can determine the benefits for yourself after reading this thread and using the linked spreadsheet:
viewtopic.php?t=208818
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triceratop
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Re: Which International in Taxable?

Post by triceratop » Mon May 22, 2017 12:51 pm

I would prefer VTIAX over VFWAX due to larger fund size -- an order of magnitude difference in assets -- so greater certainty of permanence (important for a taxable account) and ultimately lower fees. But this is unrelated to your question about taxes, and it probably doesn't matter anyway since due to TLHing you will end up with both.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

centrifuge41
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Joined: Mon May 17, 2010 9:04 am

Re: Which International in Taxable?

Post by centrifuge41 » Mon May 22, 2017 1:58 pm

Back then, FTSE All World was a 3rd generation fund, and Total Intl was a 2nd generation fund. They improved Total Intl, and leapfrogged it into a 4th Gen fund. It is a "better mousetrap" now. Check out this article for an explanation:

Article

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