VTSAX or VTWAX over the next 35 years?

[pkcrafter]

Bogleheads are such ironic beasts sometimes:
Bogleheads in general: past performance doesn't predict future returns!
VTSAX proponents: USA has outperformed international for a long time. See chart.
VTWAX proponent: you can't use past performance! Look at this chart of economies over the past centuries
VSTAX proponents: trust old advice, invest in US
VTWAX proponents: trust new advice, invest in slightly different stocks (still old advice)

We all love to parrot the past performance doesn't predict the future like it's something we all completely ignore but the reality is we invest in stocks exactly because in the past they have produced returns that exceed most other things reliably. There's no guarantee in 10 years grass clippings won't outperform stocks but I'm still gonna be 100% stocks/bonds and 0% grass.

+1, thus demonstrating how much behavior, speculation, and familiarity inters into investing decisions.

VTSAX or VTWAX over the next 35 years?

Yes.


Paul

[vineviz]

I hold more international in taxable to capture the foreign tax credit. You won’t get this if you have international stocks in deferred accounts but you will pay those foreign taxes nonetheless.

Investors only completely lose out on the benefits foreign tax credit for international investments in tax-free accounts (e.g. Roth IRA and Roth 401(k) plans).

In tax-deferred the foreign withholding tax may be partially offset through lower U.S. taxation upon withdrawal for many investors.

[longinvest]

VTSAX or VTWAX over the next 35 years?

VSMGX for the next 70 years.

VSMGX = Vanguard LifeStrategy Moderate Growth Fund, globally-diversified balanced index fund, 60/40 stocks/bonds.

[schooner]

“The tyranny of compounding frees.”

The fancier the strategy, the more it costs. Every basis point in extra fees is a basis point in alpha you’ll need to achieve just to keep pace.

Will international stocks over perform? No one knows. But it’s going to cost you to find out

[Gadget]

I think the real problem with the 2 fund portfolio is branding. It just doesn't sound as cool as the 3 fund portfolio.

How about the Lunar Portfolio. Adding equities via VTWAX is waxing. Adding bonds is waning. Wax/wane the portfolio to your desired risk tolerance.

[Jerry476]

I keep checking Morningstar and the WSJ to see if Taylor has been proven wrong yet. Nope, hasn’t happened. VITSAX it is.

[vineviz]

I keep checking Morningstar and the WSJ to see if Taylor has been proven wrong yet. Nope, hasn’t happened. VITSAX it is.

Wouldn’t you rather upgrade to VTWAX before it outperforms than after?

[leftcoaster]

I hold more international in taxable to capture the foreign tax credit. You won’t get this if you have international stocks in deferred accounts but you will pay those foreign taxes nonetheless.

Investors only completely lose out on the benefits foreign tax credit for international investments in tax-free accounts (e.g. Roth IRA and Roth 401(k) plans).

In tax-deferred the foreign withholding tax may be partially offset through lower U.S. taxation upon withdrawal for many investors.

That doesn't make sense. Under no circumstances can you get a foreign tax credit for taxes paid inside a deferred account. You are throwing money away.

Here is the relevant section of the wiki which is very clear on this point:

https://www.bogleheads.org/wiki/Tax-eff ... le_account

Step 3: Placing international stock funds in the taxable account
It is sometimes possible to get tax credit for foreign taxes paid from international stock funds, but this opportunity is lost in tax-advantaged accounts. If all else is equal, the existence of the credit may make it advantageous to prioritize these funds in the taxable account. Whether or not the foreign tax credit is sufficient depends on such factors as the the percentage of the fund's foreign source income component, the foreign tax rate, the percentage of the foreign dividends that are qualified, and the the US marginal tax bracket of the fundholder.

my emphasis

[vineviz]

I hold more international in taxable to capture the foreign tax credit. You won’t get this if you have international stocks in deferred accounts but you will pay those foreign taxes nonetheless.

Investors only completely lose out on the benefits foreign tax credit for international investments in tax-free accounts (e.g. Roth IRA and Roth 401(k) plans).

In tax-deferred the foreign withholding tax may be partially offset through lower U.S. taxation upon withdrawal for many investors.

That doesn't make sense. Under no circumstances can you get a foreign tax credit for taxes paid inside a deferred account. You are throwing money away.

Here is the relevant section of the wiki which is very clear on this point:

The wiki may not address this particular point.

In taxable account, the foreign tax credit allows the investor to recoup the foreign tax in order to avoid double taxation, which happens because of foreign taxation AND US taxation on the same gross dividend income.

In a tax-deferred account, the foreign tax is withheld from the dividend income which lessens the dividend income amount and (therefore) the account balance. Because withdrawals from tax-deferred accounts are taxed at marginal US rates, the US tax bill is effectively reduced by the product of the foreign withholding and the marginal US tax rate. Essentially (even if not literally), the US investor is getting a deduction for the foreign tax instead of a credit. Obviously, for most investors a deduction is much less valuable than a credit (which is why it probably make sense to locate international investments in taxable accounts if possible). But for any investor with a marginal US tax rate greater than zero when they make tax-deferred withdrawals, it's not worth nothing.

In a tax-free account (like a Roth) there is no equivalent offsetting effect at withdrawal, because there is not income taxation on the withdrawal.

[lostdog]

I keep checking Morningstar and the WSJ to see if Taylor has been proven wrong yet. Nope, hasn’t happened. VITSAX it is.

Wouldn’t you rather upgrade to VTWAX before it outperforms than after?

When there is a decade of international out performance, he'll keep checking Morningstar, WSJ and Bogleheads asking if he should get back in, wringing his hands and maybe losing some sleep. Taylor or Jack won't be making up for the underperfornance of VTSAX.

[cj2018]

There will be no end to this discussion as Personal Investing/Finance is a very personal endeavor, and while us Bogelheads are usually very data-driven and logical, unfortunately when it comes to VTSAX and VTWAX, all bets are off and things get a bit wonky and inevitably political for the following reasons:

• VTSAX: camp Nationalists, such as member TomCat97 who believes in American Exceptionalism

• VTWAX: camp Globalists, such as member lostdog who believes American Exceptionalism is a fallacy and instead advocates for Globalization

My personal view is that no one can convince the other wrt this topic since it is inherently political. You just can't convince the opposition no matter what data you throw at each other - it's more of an ideology conflict.

While It's hard to argue against American Exceptionalism given its past performance, we should look forward to Globalization as the world becomes more interconnected.

Having said that though, I am a very rational person and understands that Capital Has No Nationality but still can't help when it comes to my own money and are subject to Home Bias (which i believe is acceptable if you are a US domicile investor).

[longinvest]

But it doesn't have to be all one (100% US) or all the other (100% global), as it doesn't have to be all one asset (100% stocks) or all another (100% bonds).

A good Bogleheads investment, for the next 35 to 70 years, would be Vanguard's LifeStrategy Moderate Growth Fund (VSMGX) which is globally diversified across stocks and bonds with some US home bias:

• 60% stocks: 36% US, 24% ex US (60/40 US/ex US)
• 40% bonds: 28% US, 12% ex US (70/30 US/ex US)

[ruralavalon]

Has anyone else noticed the irony in trying to compare Vanguard Total Stock Market Index Fund versus Vanguard Total World Stock Index Fund over the next 35 years?

We can't even compare them over the last 35 years, Vanguard Total World Stock Index Fund has only been in existence for 11 years since 2008

[columbia]

In my mind, the best argument for Total World over Total US is the tendency of markets to revert to the mean.

We've been living in the echoes of World War II for the last seventy years—a war that left America as the only industrialized country standing, allowing us to write the rules of the global economy. (I highly recommend The Battle of Bretton Woods by Benn Steil on how America wrote those rules).

If markets revert to the mean, we should reasonably expect the rest of the world to expand more rapidly than the US. Note that I am not making an argument that they will take parts of the pie away from the US—I am arguing the pie will grow, with most of that growth occurring ex-US.



Leaving aside predictions of the future, consider this: if you own Total World and the US markets outpace ex-US markets, you'll catch that upside since at the moment, VTWAX is about 50% US equities. If ex-US grows faster, you'll catch that upside too. Either way you win. The same isn't true of a strategy that overweights the US—you only win if the US equity market returns meet your needs.

The US percentage of the pie looks pretty steady since the 30s; I assume that’s why you posted that chart.

It would revert to what mean?

[stan1]

My personal view is that no one can convince the other wrt this topic since it is inherently political. You just can't convince the opposition no matter what data you throw at each other - it's more of an ideology conflict.

I think many of us have had this observation. The forum doesn't allow political debates so international investing has become a proxy war that the moderators allow. Me? There are Korean phones, Japanese and German cars, Dutch gas stations, and French malls all around me but the US government is willing and able to borrow a lot of money to help US domiciled companies be more competitive and profitable. For those two reasons in my early 50s I am 2/3 domestic equity and 1/3 international equity. If I was in my 80s answer might be different, and if I was in my 20s it definitely would be different.

[chris_c]

One more for VTWAX.

[visualguy]

My personal view is that no one can convince the other wrt this topic since it is inherently political. You just can't convince the opposition no matter what data you throw at each other - it's more of an ideology conflict.

While It's hard to argue against American Exceptionalism given its past performance, we should look forward to Globalization as the world becomes more interconnected.

Having said that though, I am a very rational person and understands that Capital Has No Nationality but still can't help when it comes to my own money and are subject to Home Bias (which i believe is acceptable if you are a US domicile investor).

I think you're missing something. Global economic success doesn't mean globally uniform economic systems and corporate governance. The US happens to have a system and corporate culture which operate in a way that is to the tremendous benefit of public market shareholders. This is not a universal thing. For example, European countries are a bit different, and China and India are very different. China has some very successful companies, but they are not in the business of sharing that with you for the most part.

[lostdog]

My personal view is that no one can convince the other wrt this topic since it is inherently political. You just can't convince the opposition no matter what data you throw at each other - it's more of an ideology conflict.

I think many of us have had this observation. The forum doesn't allow political debates so international investing has become a proxy war that the moderators allow. Me? There are Korean phones, Japanese and German cars, Dutch gas stations, and French malls all around me but the US government is willing and able to borrow a lot of money to help US domiciled companies be more competitive and profitable. For those two reasons in my early 50s I am 2/3 domestic equity and 1/3 international equity. If I was in my 80s answer might be different, and if I was in my 20s it definitely would be different.

I just know that I know absolutely nothing about the future and I don't invest based on past performance so I just "buy the haystack". I took Jack's advice.

[vineviz]

My personal view is that no one can convince the other wrt this topic since it is inherently political. You just can't convince the opposition no matter what data you throw at each other - it's more of an ideology conflict.

While It's hard to argue against American Exceptionalism given its past performance, we should look forward to Globalization as the world becomes more interconnected.

Having said that though, I am a very rational person and understands that Capital Has No Nationality but still can't help when it comes to my own money and are subject to Home Bias (which i believe is acceptable if you are a US domicile investor).

I think you're missing something. Global economic success doesn't mean globally uniform economic systems and corporate governance. The US happens to have a system and corporate culture which operate in a way that is to the tremendous benefit of public market shareholders. This is not a universal thing. For example, European countries are a bit different, and China and India are very different. China has some very successful companies, but they are not in the business of sharing that with you for the most part.

Here comes the “America’s got freedom!” brigade.

I wonder if there’s a third-party who evaluates claims like this? Oh wait: https://www.heritage.org/index/ranking

The US is ahead of Estonia, so I guess that’s something.

[visualguy]

My personal view is that no one can convince the other wrt this topic since it is inherently political. You just can't convince the opposition no matter what data you throw at each other - it's more of an ideology conflict.

While It's hard to argue against American Exceptionalism given its past performance, we should look forward to Globalization as the world becomes more interconnected.

Having said that though, I am a very rational person and understands that Capital Has No Nationality but still can't help when it comes to my own money and are subject to Home Bias (which i believe is acceptable if you are a US domicile investor).

I think you're missing something. Global economic success doesn't mean globally uniform economic systems and corporate governance. The US happens to have a system and corporate culture which operate in a way that is to the tremendous benefit of public market shareholders. This is not a universal thing. For example, European countries are a bit different, and China and India are very different. China has some very successful companies, but they are not in the business of sharing that with you for the most part.

Here comes the “America’s got freedom!” brigade.

I wonder if there’s a third-party who evaluates claims like this? Oh wait: https://www.heritage.org/index/ranking

The US is ahead of Estonia, so I guess that’s something.

Where did you see the word "freedom" in my post?

[oldzey]

Looks like VTSAX has the added benefit of sparking joy, as well as outperforming VTWAX:

[lostdog]

Looks like VTSAX has the added benefit of sparking joy, as well as outperforming VTWAX:

Sure it did, for 11 years....

[visualguy]

Sure it did, for 11 years....

You forgot to put a zero to the right of that number...

[lostdog]

Sure it did, for 11 years....

You forgot to put a zero to the right of that number...

That's good. Hopefully you're right about the future. Good luck.

[PackersFan12]

Bumping this to see if there are any other opinions.

[ruralavalon]

Bumping this to see if there are any other opinions.

I doubt that anyone's opinions have changed on this issue. It's an eternal debate.

I don't know. I have no crystal ball, time machine or Ouija board.

Nobody knows, anyone claiming to know is fooling themselves.

Predictions of future events or conditions are not statements of fact, they are opinions.

[manlymatt83]

Bumping this to see if there are any other opinions.

I am 100% VTWAX and happier because I don’t have to think about where I put my money. Does that help?

[bogledogle87]

Bumping this to see if there are any other opinions.

It depends on whether or not you want to buy the entire haystack or speculate with a specific smaller haystack in pursuit of beating the market, or mitigating a specific risk.

Every index can be thought of a haystack to some degree. Some are broad an diversified, and some are very specific to size, sector, valuation, or location.

If you want to speculate that the most recent outperforming index will persist, you might consider US Technology in QQQ or VGT. You could also speculate on whether large or small, growth or value stocks will outperform - there are indexes for that too.

VTSAX falls into a middle ground because it is diversified in many ways, but is limited to a single country. It complicated the discussion because that single country has outperformed for a while and recently by a wide margin.

It is diversified enough to forgo the complete haystack in VTWAX in hopes of a persistent geography-based premium? Some say yes and others no - It’s an individual decision.

[whereskyle]

Bumping this to see if there are any other opinions.

My two favorite Vanguard funds.

I like 'em both, I buy 'em both most days, and I say go forth and buy 'em as you like. You are almost certain to do well with either (or both) fund(s). As always, it's hard to argue against the US due to its dynamic and advanced financial/capitalist economic system that has generated substantial returns even in times of relatively meager economic growth. (See the most recent bull market). Might not always be the case, but I think the US is about as safe a single-country bet as one can make. I wonder which country most investors would choose if they could only choose one. That said, I'm not willing to bear the full weight of the risk of long-term US underperformance, so I also buy VT.

I'm happy. The reason I'm happy is I don't think there is a wrong answer here. I hope most people recognize that as fiery and controversial as these debates get, both VTSAX and VTWAX are amazing funds and their holders are almost certain to do very well over the long haul regardless of which is chosen. Good for us!

[nanameg]

Bumping this to see if there are any other opinions.

My two favorite Vanguard funds.

I like 'em both, I buy 'em both most days, and I say go forth and buy 'em as you like. You are almost certain to do well with either (or both) fund(s). As always, it's hard to argue against the US due to its dynamic and advanced financial/capitalist economic system that has generated substantial returns even in times of relatively meager economic growth. (See the most recent bull market). Might not always be the case, but I think the US is about as safe a single-country bet as one can make. I wonder which country most investors would choose if they could only choose one. That said, I'm not willing to bear the full weight of the risk of long-term US underperformance, so I also buy VT.

I'm happy. The reason I'm happy is I don't think there is a wrong answer here. I hope most people recognize that as fiery and controversial as these debates get, both VTSAX and VTWAX are amazing funds and their holders are almost certain to do very well over the long haul regardless of which is chosen. Good for us!

In the interest of simplicity, if you’re willing to go “whole hog “with international ..that is buy global weight...does it make more sense to just buy total world?

[whereskyle]

Bumping this to see if there are any other opinions.

My two favorite Vanguard funds.

I like 'em both, I buy 'em both most days, and I say go forth and buy 'em as you like. You are almost certain to do well with either (or both) fund(s). As always, it's hard to argue against the US due to its dynamic and advanced financial/capitalist economic system that has generated substantial returns even in times of relatively meager economic growth. (See the most recent bull market). Might not always be the case, but I think the US is about as safe a single-country bet as one can make. I wonder which country most investors would choose if they could only choose one. That said, I'm not willing to bear the full weight of the risk of long-term US underperformance, so I also buy VT.

I'm happy. The reason I'm happy is I don't think there is a wrong answer here. I hope most people recognize that as fiery and controversial as these debates get, both VTSAX and VTWAX are amazing funds and their holders are almost certain to do very well over the long haul regardless of which is chosen. Good for us!

In the interest of simplicity, if you’re willing to go “whole hog “with international ..that is buy global weight...does it make more sense to just buy total world?

In my view, absolutely. No reason to add the need to rebalance among two separate funds as global weight shifts.

[remomnyc]

For my kids, I only purchase VT (ETF of VTWAX). For me, I choose VTI and VXUS in taxable for equity so I can tax loss harvest. After the March plummet, I tax loss harvested out of VXUS to IXUS.