Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

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CamFri
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Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by CamFri »

The Vanguard Total World Index (VTWAX) has an expense ratio of 0.1%. As of the time of my posting this, VTWAX is 57% U.S. stocks, and 43% non-U.S. stocks. Is there some reason why it would ever be advantageous to buy VTWAX when you could just buy a combination of 57% Vanguard Total Stock Market (VTSAX) and 43% Vanguard Total International (VTIAX)? VTSAX has an expense ratio of 0.04%, and VTIAX has an expense ratio of 0.11%, so the 57/43 combination of these two indexes would have an effective expense ratio of 0.0701%, which is much lower than Vanguard Total World's expense ratio of 0.1%.

Am I missing something? Is there some way in which VTWAX is more diversified than a 57/43 combination of VTSAX and VTIAX? Why would someone ever buy VTWAX, assuming they can afford the fund minimums of VTSAX and VTIAX ($3,000 each)?
Samueul
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by Samueul »

I’m lazy and don’t want to manage two funds or worry about my us/international ratios.
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happenstance
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by happenstance »

The advantages for VTWAX are that it automatically rebalances to the market cap weight without any work on your part, and it’s simpler (1 fund).

The disadvantages are the slightly higher expense ratio, and you cannot tax-loss harvest between the U.S. and International components.

Note that the VT (ETF) expense ratio is lower (0.08%), though still higher than than the blended 0.05% of VTI/VXUS.
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geerhardusvos
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by geerhardusvos »

CamFri wrote: Tue Sep 15, 2020 3:53 pm The Vanguard Total World Index (VTWAX) has an expense ratio of 0.1%. As of the time of my posting this, VTWAX is 57% U.S. stocks, and 43% non-U.S. stocks. Is there some reason why it would ever be advantageous to buy VTWAX when you could just buy a combination of 57% Vanguard Total Stock Market (VTSAX) and 43% Vanguard Total International (VTIAX)? VTSAX has an expense ratio of 0.04%, and VTIAX has an expense ratio of 0.11%, so the 57/43 combination of these two indexes would have an effective expense ratio of 0.0701%, which is much lower than Vanguard Total World's expense ratio of 0.1%.

Am I missing something? Is there some way in which VTWAX is more diversified than a 57/43 combination of VTSAX and VTIAX? Why would someone ever buy VTWAX, assuming they can afford the fund minimums of VTSAX and VTIAX ($3,000 each)?
Just do the two funds, especially if we are talking about a taxable account.
VTSAX and chill
000
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by 000 »

happenstance wrote: Tue Sep 15, 2020 4:21 pm The advantages for VTWAX are that it automatically rebalances to the market cap weight without any work on your part, and it’s simpler (1 fund).
Buying VTI and VXUS at world market cap weight (and, if you care, reinvesting dividends at new weighting) will track the same without any work.

It's not simpler, other than dividend reinvestment.

Also VTWAX in taxable gets no foreign tax credit, unless foreign source income increases in the future.
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lostdog
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by lostdog »

000 wrote: Tue Sep 15, 2020 5:09 pm
happenstance wrote: Tue Sep 15, 2020 4:21 pm The advantages for VTWAX are that it automatically rebalances to the market cap weight without any work on your part, and it’s simpler (1 fund).
Buying VTI and VXUS at world market cap weight (and, if you care, reinvesting dividends at new weighting) will track the same without any work.

It's not simpler, other than dividend reinvestment.

Also VTWAX in taxable gets no foreign tax credit, unless foreign source income increases in the future.
If you start out at the correct weighting, the allocation will float with world market cap. With this being said, will reinvesting dividends throw it off?
000
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by 000 »

lostdog wrote: Tue Sep 15, 2020 5:30 pm If you start out at the correct weighting, the allocation will float with world market cap. With this being said, will reinvesting dividends throw it off?
Yes, very slightly. Manual reinvestment at the current world market cap weight would be required if someone wants to track as close as possible.
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lostdog
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by lostdog »

000 wrote: Tue Sep 15, 2020 5:37 pm
lostdog wrote: Tue Sep 15, 2020 5:30 pm If you start out at the correct weighting, the allocation will float with world market cap. With this being said, will reinvesting dividends throw it off?
Yes, very slightly. Manual reinvestment at the current world market cap weight would be required if someone wants to track as close as possible.
Thanks!
MrJedi
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by MrJedi »

VTSAX+VTIAX is technically more diversified as well, as it combines for more holdings than VTWAX, though the difference I'm sure is negligible.
bogledogle87
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by bogledogle87 »

lostdog wrote: Tue Sep 15, 2020 5:30 pm
000 wrote: Tue Sep 15, 2020 5:09 pm
happenstance wrote: Tue Sep 15, 2020 4:21 pm The advantages for VTWAX are that it automatically rebalances to the market cap weight without any work on your part, and it’s simpler (1 fund).
Buying VTI and VXUS at world market cap weight (and, if you care, reinvesting dividends at new weighting) will track the same without any work.

It's not simpler, other than dividend reinvestment.

Also VTWAX in taxable gets no foreign tax credit, unless foreign source income increases in the future.
If you start out at the correct weighting, the allocation will float with world market cap. With this being said, will reinvesting dividends throw it off?

Dividends can definitely throw it off, but probably not more than 1% per year. Assuming you always reinvest, you are modeling 100% reinvestment. But keep in mind that the rest of the world in aggregate is not doing so. The amount of dividends that is reinvested on a stock level will vary considerably and is hard to predict.

Interestingly, new companies added to the index can also change capitalization By country since they simply were not present before and suddenly are.

After comparing some data for about 18 months to the benchmark, I decided I would rebalance once per year, even with the float reinvestment approach.
VTWAX and chill
bogledogle87
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by bogledogle87 »

happenstance wrote: Tue Sep 15, 2020 4:21 pm The advantages for VTWAX are that it automatically rebalances to the market cap weight without any work on your part, and it’s simpler (1 fund).

The disadvantages are the slightly higher expense ratio, and you cannot tax-loss harvest between the U.S. and International components.

Note that the VT (ETF) expense ratio is lower (0.08%), though still higher than than the blended 0.05% of VTI/VXUS.
This right here. A manual tracking error could be well within 0.03%. For me, this price is well worth the value add of not having to bother with it in my several accounts that hold the fund.

I do keep separate in taxable for harvesting purposes, and have seen first hand how detailed one would need to be to get exactly right holding two funds with new contributions and dividends.
VTWAX and chill
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happenstance
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Re: Vanguard Total World vs. Vanguard Total Stock Market + Vanguard Total International

Post by happenstance »

000 wrote: Tue Sep 15, 2020 5:09 pm
happenstance wrote: Tue Sep 15, 2020 4:21 pm The advantages for VTWAX are that it automatically rebalances to the market cap weight without any work on your part, and it’s simpler (1 fund).
Buying VTI and VXUS at world market cap weight (and, if you care, reinvesting dividends at new weighting) will track the same without any work.

It's not simpler, other than dividend reinvestment.

Also VTWAX in taxable gets no foreign tax credit, unless foreign source income increases in the future.
You do also need to periodically adjust any investments for future contributions, too. It is I think slightly simpler to hold the one fund (but personally I prefer the split).

I forgot about the foreign tax credit, though. That is indeed another disadvantage of VTWAX.
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