VTSAX & VTWAX

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Mario2222
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VTSAX & VTWAX

Post by Mario2222 »

Asking for a friend. One of my friends at work invested his Roth IRA in a 3 funds portfolio.
Vanguard total stock market VTSAX =70%
Vanguard total world stocks VTWAX=20%
Vanguard total bonds VTBLX=10%
He is 38 years old. Any thoughts?
rkhusky
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Re: VTSAX & VTWAX

Post by rkhusky »

Not bad. I might choose a higher amount of Total World and use Total Stock to tilt to US. Another option is some combo of Total Stock and Total International if you don’t want to use just Total World for stocks.
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Re: VTSAX & VTWAX

Post by nisiprius »

Mario2222 wrote: Fri Aug 28, 2020 8:48 pm Asking for a friend. One of my friends at work invested his Roth IRA in a 3 funds portfolio.
Vanguard total stock market VTSAX =70%
Vanguard total world stocks VTWAX=20%
Vanguard total bonds VTBLX=10%
He is 38 years old. Any thoughts?
Does he understand that 57% of the money in VTWAX is invested in US stocks?

That is, his 20% holding of VTWAX is almost equivalent to holding
57%-of-20% = 11.4% VTSAX and
43%-of-20% = 8.6% Vanguard Total International, VTIAX.

And thus, his stock exposure is 81.4% US, 8.6% international. There isn't necessarily anything wrong with it but I wonder if he thinks he has 70% US, 20% international when he really has 81.4% US, 8.6% international.

Vanguard's VTWAX page, "Portfolio & Management" tab

Image
Last edited by nisiprius on Fri Aug 28, 2020 8:59 pm, edited 1 time in total.
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000
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Re: VTSAX & VTWAX

Post by 000 »

I don't see the point holding both VTSAX & VTWAX as VTWAX is 50%+ US stocks, has a higher ER, and doesn't get a foreign tax credit.
Ferdinand2014
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Re: VTSAX & VTWAX

Post by Ferdinand2014 »

VTWAX is essentially 57% VTSAX. Maybe that’s your friends intention? The funds are good funds. I personally would just do VTWAX or VTSAX plus or minus VTIAX and VBTLX for better control of allocation desire.
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Re: VTSAX & VTWAX

Post by arcticpineapplecorp. »

you don't mention if he has a 401k? If he does, he could put the bonds in there and keep the stocks in the Roth IRA. better bang for the buck. But the percentages matter (i.e., if his 401k is larger than his Roth, he would make it a blend of stock and bond but still keep all stock for the Roth). Look at the overall thing (401k AND Roth) not just one or the other and make sure the allocation of bonds is the right amount OVERALL and placed appropriately (which is better in 401k than in Roth).

https://www.bogleheads.org/wiki/Tax-eff ... _placement
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Doctor Rhythm
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Re: VTSAX & VTWAX

Post by Doctor Rhythm »

Mario2222 wrote: Fri Aug 28, 2020 8:48 pm Vanguard total world stocks VTWAX=20%
Are you sure the fund in question is VTWAX, or could it be VFWAX? Latter (all world except US) makes more sense.
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Re: VTSAX & VTWAX

Post by Actin »

I don't like VTWAX for the same reason I don't like target date funds. You're paying more, albeit a negligible amount in the grand scheme, for less control of the same thing.
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Re: VTSAX & VTWAX

Post by Northern Flicker »

Mario2222 wrote: Fri Aug 28, 2020 8:48 pm Asking for a friend. One of my friends at work invested his Roth IRA in a 3 funds portfolio.
Vanguard total stock market VTSAX =70%
Vanguard total world stocks VTWAX=20%
Vanguard total bonds VTBLX=10%
He is 38 years old. Any thoughts?
With less than 10% in non-US equities, it isn't enough to matter. If international equity diversification is desired, then the following would be more reasonable:

vtsax 68%
vtmgx 18%
vemax 4%
vbtlx 10%

-or-

vtsax 68%
vtiax 22%
vbtlx 10%

Vanguard would recommend 40% of equities in int'l equities. That is what your friend would get with a Vanguard Target Retirement or LifeStrategy fund, which would also be a good option for your friend:

Target Retirement 2045 100%

and Vanguard takes care of rebalancing.

If not comfortable with int'l diversification, then just hold:

vtsax 90%
vbtlx 10%
Risk is not a guarantor of return.
whereskyle
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Re: VTSAX & VTWAX

Post by whereskyle »

Mario2222 wrote: Fri Aug 28, 2020 8:48 pm Asking for a friend. One of my friends at work invested his Roth IRA in a 3 funds portfolio.
Vanguard total stock market VTSAX =70%
Vanguard total world stocks VTWAX=20%
Vanguard total bonds VTBLX=10%
He is 38 years old. Any thoughts?
I think any combination of VTSAX and VTWAX results in an excellent portfolio. My money is where my mouth is: I am roughly 50/50 VTSAX/VTWAX (and their etf equivalents) across my accounts.

The beauty of a VTSAX/VTWAX portfolio is that, in my view, it does not require rebalancing and it reduces behavioral risks. I couldn't bring myself to build a portfolio using a fund that consists entirely of ex-us stocks after their recent sustained underperformance and question from even seasoned bogleheads wondering if they should dump ex-us. Still, I want to make sure I'm prepared for a market that may look very different in 30 years when I actually need to use this money. VTSAX/VTWAX helps me stay the course, although I waver slightly on that course all the time.

When I feel like the US market is obviously overvalued, I buy VTWAX and put 40% of my money outside the US. When I feel like ex-us stocks will continue to underperform, I buy VTSAX. I have no real insight into either of these areas. I am speculating. And like most people, I waffle between two (or more) positions. However, this back and forth consistently smoothes itself out: I end up right around 50/50 regardless of the back and forth. And if I ever seriously stray in the future, the worst thing that can happen is that I will hold a global market cap portfolio with a US tilt, which is a classic Boglehead approach.

With VTSAX/VTWAX, I can wander, but I never stray.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: VTSAX & VTWAX

Post by moshe »

000 wrote: Fri Aug 28, 2020 8:59 pm I don't see the point holding both VTSAX & VTWAX as VTWAX is 50%+ US stocks, has a higher ER, and doesn't get a foreign tax credit.
This sounds important. Can you explain this please? Why doesn't VTWAX quality for foreign tax credit for its % of distributions from its foreign holdings?

Thank you,
~Moshe
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams
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Re: VTSAX & VTWAX

Post by Dottie57 »

rkhusky wrote: Fri Aug 28, 2020 8:56 pm Not bad. I might choose a higher amount of Total World and use Total Stock to tilt to US. Another option is some combo of Total Stock and Total International if you don’t want to use just Total World for stocks.
+1
rkhusky
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Re: VTSAX & VTWAX

Post by rkhusky »

moshe wrote: Sat Aug 29, 2020 6:46 am
000 wrote: Fri Aug 28, 2020 8:59 pm I don't see the point holding both VTSAX & VTWAX as VTWAX is 50%+ US stocks, has a higher ER, and doesn't get a foreign tax credit.
This sounds important. Can you explain this please? Why doesn't VTWAX quality for foreign tax credit for its % of distributions from its foreign holdings?

Thank you,
~Moshe
Actually the OP was talking about an IRA, so the foreign tax credit is moot.

But in a taxable account there is some uncertainty on whether Vanguard will pass along the foreign tax credit, even though they had, up to 2018.

See viewtopic.php?t=237427
viewtopic.php?t=322656
viewtopic.php?t=307122

Also see: https://www.bogleheads.org/wiki/Vanguar ... tributions, which hasn't been updated for 2019 yet.
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Re: VTSAX & VTWAX

Post by moshe »

rkhusky wrote: Sat Aug 29, 2020 6:54 am
moshe wrote: Sat Aug 29, 2020 6:46 am
000 wrote: Fri Aug 28, 2020 8:59 pm I don't see the point holding both VTSAX & VTWAX as VTWAX is 50%+ US stocks, has a higher ER, and doesn't get a foreign tax credit.
This sounds important. Can you explain this please? Why doesn't VTWAX quality for foreign tax credit for its % of distributions from its foreign holdings?

Thank you,
~Moshe
Actually the OP was talking about an IRA, so the foreign tax credit is moot.

But in a taxable account there is some uncertainty on whether Vanguard will pass along the foreign tax credit, even though they had, up to 2018.

See viewtopic.php?t=237427
viewtopic.php?t=322656
viewtopic.php?t=307122

Also see: https://www.bogleheads.org/wiki/Vanguar ... tributions, which hasn't been updated for 2019 yet.
Thank you!
~Moshe
My money has no emotions. ~Moshe | | I'm the world's greatest expert on my own opinion. ~Bruce Williams
Topic Author
Mario2222
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Re: VTSAX & VTWAX

Post by Mario2222 »

He wants no more than 20% in international stocks.
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Re: VTSAX & VTWAX

Post by Northern Flicker »

Mario2222 wrote: Sat Aug 29, 2020 12:16 pm He wants no more than 20% in international stocks.
The percentage of int'l stocks in VTWAX will vary as the US and non-US markets move, but not necessarily in lockstep. Having less than 20% in int'l is not worth the trouble and extra complexity. I think your friend wants:

20% of stocks in int'l
VTSAX 72%
VTIAX 18%
VTBLX 10%

-or-

No stocks in int'l
90% VTSAX
10% VTBLX

Coronavirus's don't care about shareholder protections or currency risks etc. so I am more comfortable with int'l diversification.
Risk is not a guarantor of return.
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Mario2222
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Re: VTSAX & VTWAX

Post by Mario2222 »

Thank you so much for all your suggestions.
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Re: VTSAX & VTWAX

Post by nisiprius »

Mario2222 wrote: Sat Aug 29, 2020 12:16 pm He wants no more than 20% in international stocks.
Does he want that much? Does he understand that he has less than half that much?

Does he have a pure international, ex-US choice like the Vanguard Total International Stock Index Fund?

It isn't worth trying to put a microscope on the subtle differences between VTWAX and 50% VTSAX + 50% VTIAX or try to calculate percentages too fine.

If he wants roughly 20% of his portfolio in international stocks and VTIAX is an option, the straightforward approach is
Vanguard total stock market VTSAX =70%
Vanguard total world stocks VTWAX=20%
Vanguard Total International Stock Index Fund=20%
Vanguard total bonds VTBLX=10%

If he wants roughly 20% of his portfolio and VTIAX isn't an option, then it he probably wants something like this:
Vanguard total stock market VTSAX =70% 50%
Vanguard total world stocks VTWAX=20% 40%
Vanguard total bonds VTBLX=10%

That gives him about
50% + 57%-of-40%=72.8% of his portfolio in US stocks.
43%-of-40% = 17.2% of his portfolio in international stocks

If he only wants a token amount of international stocks in his portfolio, a little less than 10%, then that's what he has achieved in the portfolio you presented.

He didn't make a huge mistake. Despite all the argument, US and international stocks tend to go up and down together. But if his intention is to have something like 20% of his stock exposure invested internationally, then he either needs more VTWAX, or else he needs VTIAX instead of VTWAX.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: VTSAX & VTWAX

Post by flaccidsteele »

Mario2222 wrote: Fri Aug 28, 2020 8:48 pm Asking for a friend. One of my friends at work invested his Roth IRA in a 3 funds portfolio.
Vanguard total stock market VTSAX =70%
Vanguard total world stocks VTWAX=20%
Vanguard total bonds VTBLX=10%
He is 38 years old. Any thoughts?
If they’re comfortable with that allocation it seems fine

What are their concerns?
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: VTSAX & VTWAX

Post by jason2459 »

rkhusky wrote: Sat Aug 29, 2020 6:54 am
moshe wrote: Sat Aug 29, 2020 6:46 am
000 wrote: Fri Aug 28, 2020 8:59 pm I don't see the point holding both VTSAX & VTWAX as VTWAX is 50%+ US stocks, has a higher ER, and doesn't get a foreign tax credit.
This sounds important. Can you explain this please? Why doesn't VTWAX quality for foreign tax credit for its % of distributions from its foreign holdings?

Thank you,
~Moshe
Actually the OP was talking about an IRA, so the foreign tax credit is moot.

But in a taxable account there is some uncertainty on whether Vanguard will pass along the foreign tax credit, even though they had, up to 2018.

See viewtopic.php?t=237427
viewtopic.php?t=322656
viewtopic.php?t=307122

Also see: https://www.bogleheads.org/wiki/Vanguar ... tributions, which hasn't been updated for 2019 yet.
Not really uncertainty. If they follow current guidelines, which could change as with any tax code/law, then any fund with less then 50% ex-US holdings should not pass through the foreign tax credit. VTWAX is over 50% US and under 50% ex-US
Certain RICs are eligible to pass through foreign income taxes paid.
Under section 853(a), a RIC can elect to pass through foreign income taxes
paid to its shareholders if more than 50% of the value of the RIC’s assets
consists of stock or securities in foreign corporations.35 In such case, in
computing its income, each RIC shareholder must include a proportionate
share of the RIC’s foreign taxes paid as foreign source income, and in
computing its foreign tax credit, it must treat the proportion of the dividend
received attributable to the RIC’s foreign source income as foreign source
income.36
section 854), 854(b)(1)(B)(i)(III) (prescribing that a dividend received from a RIC whose
qualified dividend income is less than 95% of its gross income is qualified dividend income
to the extent designated by the RIC), 854(b)(4) (stating that the term “qualified dividend
income” as used in section 854 has the same meaning as under section 1(h)(11)(B)). 31 A RIC shareholder can be taxed on a fund’s gains accruing before the investor
became a shareholder. See Colon, supra note 18, at 817–28. 32 I.R.C. § 1211(b). 33 I.R.C. § 852(b)(2)(A) (excluding NCGs from ICTI); Rev. Rul. 2005-31, 2005-1
C.B. 1084 (“A RIC’s investment company taxable income equals its taxable income
(exclusive of net capital gain) reduced by allowable expenses and its deduction for dividends
paid determined without regard to capital gains dividends and exempt-interest dividends.”). 34 If a taxpayer’s trading does not constitute a trade or business, investment expenses
would be deductible only to the extent that they exceed 2% of a taxpayer’s adjusted gross
income. I.R.C. §§ 67(a), 212. Pursuant to section 67(c)(2), the Treasury is prohibited from
treating expenses of publicly offered RICs as being subject to the 2% floor of section 67.
I.R.C. § 67(c)(2). 35 I.R.C. § 853(a). 36 I.R.C. § 853(b)(2)(A)–(B). The statute specially provides that the foreign source
I.R.C. § 853(a) General Rule — A regulated investment company—
I.R.C. § 853(a)(1) — more than 50 percent of the value (as defined in section 851(c)(4)) of whose total assets at the close of the taxable year consists of stock or securities in foreign corporations, and
I.R.C. § 853(a)(2) — which meets the requirements of section 852(a) for the taxable year,
may, for such taxable year, elect the application of this section with respect to income, war profits, and excess profits taxes described in section 901(b)(1), which are paid by the investment company during such taxable year to foreign countries and possessions of the United States.
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Re: VTSAX & VTWAX

Post by rkhusky »

jason2459 wrote: Sat Aug 29, 2020 11:33 pm Not really uncertainty. If they follow current guidelines, which could change as with any tax code/law, then any fund with less then 50% ex-US holdings should not pass through the foreign tax credit. VTWAX is over 50% US and under 50% ex-US
The regulation says "can elect to". So, even if VTWAX exceeds 50% ex-US, will Vanguard elect to pass along the credit? Probably, but once they get used to not doing so, perhaps they will continue not doing so. And there is uncertainty if VTWAX will exceed 50% ex-US in some years.
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Re: VTSAX & VTWAX

Post by jason2459 »

rkhusky wrote: Sun Aug 30, 2020 7:02 am
jason2459 wrote: Sat Aug 29, 2020 11:33 pm Not really uncertainty. If they follow current guidelines, which could change as with any tax code/law, then any fund with less then 50% ex-US holdings should not pass through the foreign tax credit. VTWAX is over 50% US and under 50% ex-US
The regulation says "can elect to". So, even if VTWAX exceeds 50% ex-US, will Vanguard elect to pass along the credit? Probably, but once they get used to not doing so, perhaps they will continue not doing so. And there is uncertainty if VTWAX will exceed 50% ex-US in some years.
Correct. No fund has to at anytime. Only that if they do they need more then 50% of the fund to own US securities.
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Mario2222
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Re: VTSAX & VTWAX

Post by Mario2222 »

He is thinking to go with VTWAX 70%, VTSAX 20%, VBTLX 10% or just VTWAX 90% and VBTLX 10%
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Re: VTSAX & VTWAX

Post by arcticpineapplecorp. »

Mario2222 wrote: Fri Sep 25, 2020 7:35 pm He is thinking to go with VTWAX 70%, VTSAX 20%, VBTLX 10% or just VTWAX 90% and VBTLX 10%
Mario you keep asking the same question of everyone, several times on bogleheads, talking real investing radio show (TWICE!!), etc. You asked it here too:
viewtopic.php?p=5513240#p5513240

Just do VTWAX 90% and VBTLX 10% already and be done with it!! (or use a target date retirement index fund...all in one fund!!)

simple is best especially because you seem to be agonizing over this!!

Poor Mario!! It's you, not your "friend".

Don and Tom told you what to do.

Bogleheads are telling you what to do.

What's the problem?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: VTSAX & VTWAX

Post by whereskyle »

Mario2222 wrote: Fri Sep 25, 2020 7:35 pm He is thinking to go with VTWAX 70%, VTSAX 20%, VBTLX 10% or just VTWAX 90% and VBTLX 10%
Either one is absolutely fine, but for the sake of simplicity just go with 90% VTWAX/10% VBTLX and enjoy your life!
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: VTSAX & VTWAX

Post by LadyGeek »

The OP is asking a similar question here: VTWAX [Roth IRA - Three-funds to Two-funds]

(Thread locked to redirect the discussion.)
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