International Stocks: Total (VXUS) vs Developed (VEA)

[Hot Sauce]

Boglefriends

For my 20% international allocation, most of which is in a taxable account (so tax efficiency is critical), I struggle with which direction to go -- Total International (VTIAX/VXUS, IXUS) or Developed Markets (VEA). I’d like to understand what others do and why.

Pros for Total

—Total is “total”, which conforms to buy the haystack

Cons for Total (Pros for Developed)

—Total is less tax efficient because it has higher dividend yield and lower % of qualified dividends.

—Total has emerging markets, some of which are questionable investments (e.g., China).

—Total (0.08%) has a higher expense ratio than VEA (0.06%)

[livesoft]

Do both and give up the struggle. Perhaps VEA in taxable (until you tax-loss harvest those shares) and VXUS in tax-advantaged.

I own neither nowadays, but do own some VEU and some SPDW.

[Hot Sauce]

Do both and give up the struggle. Perhaps VEA in taxable (until you tax-loss harvest those shares) and VXUS in tax-advantaged.

I own neither nowadays, but do own some VEU and some SPDW.

I actually am doing both right now just as you mentioned. But it feels weird, divided, like I can’t make up my mind.

[Agitated_Analyst]

Looking at how FTSE classifies countries as "emerging" or "developed" helped me make a decision. The following link will take you to the related web page: https://www.lseg.com/en/ftse-russell/eq ... sification.

Many of the countries (ie - China & India) that drive the emerging market funds don't make it into the "advanced emerging market" category and are stuck in the "secondary emerging market" section. The secondary emerging market category means the country does not have "fair and non-prejudicial treatment of minority shareholders". This was a large turn off for me. The first line of my investment policy statement says that I should prioritize the return of my money over the return on it. In my opinion, investing in many emerging market countries is a violation of that preference. Lastly, I just asked myself a simple question: Would I ever purchase or own a business located in China or India under their current rule-of-law systems? For me, the answer was no.

At the end of the day, however, the primary reason I chose VEA is because it is the investment I can stick with and never second guess. I have a large allocation to international and being comfortable with my choice is paramount for behavioral reasons.

[Northern Flicker]

Boglefriends

For my 20% international allocation, most of which is in a taxable account (so tax efficiency is critical), I struggle with which direction to go -- Total International (VTIAX/VXUS, IXUS) or Developed Markets (VEA). I’d like to understand what others do and why.

Pros for Total

—Total is “total”, which conforms to buy the haystack

Cons for Total (Pros for Developed)

—Total is less tax efficient because it has higher dividend yield and lower % of qualified dividends.

—Total has emerging markets, some of which are questionable investments (e.g., China).

—Total (0.08%) has a higher expense ratio than VEA (0.06%)

VXUS has had a somewhat lower dividend yield than VEA, not higher.

My suggestion is first to decide on an asset allocation, then decide on the most tax-efficient implementation of it. Either you want the diversification of, and are willing to accept the risks of EM, or you do not. Or you may consider holding a lower percentage in EM than market weight but still more than zero.

IDEV is more tax-efficient than VEA in a taxable account but also lacks exposure to Korean (and Polish) equity.

[JRA]

I abandoned Total International about a year ago, preferring instead VEA (Developed Markets) and EMXC (Ishares MSCI EM ex China) and have been relatively pleased. I have moral and transparency concerns with investing in China.

[FootballFan5548]

This won't help you very much, but i actually do both. I have two brokerages, one at Vanguard and one at Merrill Edge.
At Vanguard i buy the VXUS Mutual fund equivalent, Total.

At Merrill, i use ETFs not mutual funds, and I own both VEA and VWO somewhat 50/50 weighted so a slight tilt toward emerging. If i had to choose an absolute, one or the other, i'd just choose the Total, VXUS option personally

[Dude2]

Where it really probably doesn't matter much, I embrace the Boglehead philosophy of total markets. This drives me toward VXUS.

[Northern Flicker]

Also at only 20% of equity in int'l the differential impact on portfolio performance is small. If equities are 60% of the portfolio, ex-US is 12% and the difference between total int'l and DM is whether 3% of the portfolio is in EM or DM (as EM is 25% of total int'l).

Even a (very sizable) 10 percentage point difference in performance between EM and DM will only drive a 30 bp difference in portfolio performance in this scenario.

[ruralavalon]

Boglefriends

For my 20% international allocation, most of which is in a taxable account (so tax efficiency is critical), I struggle with which direction to go -- Total International (VTIAX/VXUS, IXUS) or Developed Markets (VEA). I’d like to understand what others do and why.

Pros for Total

—Total is “total”, which conforms to buy the haystack

Cons for Total (Pros for Developed)

—Total is less tax efficient because it has higher dividend yield and lower % of qualified dividends.

—Total has emerging markets, some of which are questionable investments (e.g., China).

—Total (0.08%) has a higher expense ratio than VEA (0.06%)

Either would be fine in my opinion.

[DonIce]

I prefer not to invest in certain countries classified as EM. Depending on the country, this may be based on personal disagreement with the politics/ideology of that government, a sense that foreign investors may not be treated the same as domestic investors in that country, or a sense that as a US investor, geopolitical tension between the US and that country may affect one's assets. Based on this, I avoid EM.

As mentioned by Northern Flicker above, even very significant outperformance by EM would not move the needle much on the overall portfolio given typical allocations to international. Therefore, it doesn't seem like much of a loss to satisfy my above stated preferences for avoiding it.

[the_wiki]

It’s kind of like the discussion about VOO (S&P500) vs VTI (total market). In the end they aren’t going to be that different, but many prefer to cover the whole market, while others just want the biggest stocks. Same is true here for international. Biggest markets are covered in VEA, but some want to cover all markets for completeness. Maybe slight outperformance with the riskier markets, maybe not.

It is not going to be the difference between success and failure. Flip a coin or just go with what you already have and let inertia win.

[Hot Sauce]

Thanks everyone. I think I’ll go with VEA. It’s risky enough, no need for emerging markets.