Long-term risks for VT? [Vanguard Total World Stock]

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zirriz
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Long-term risks for VT? [Vanguard Total World Stock]

Post by zirriz »

What are the long-term risks for Vanguard Total World Stock Index Fund (ticker: VT)?

The only one I can think of is the collapse of the entire world economy. But if that' happens, what good would money be anyway?

Trying to think of a reason why I shouldn't throw money at this ETF. Let me know what you think.
Triple digit golfer
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by Triple digit golfer »

It is what it is. It's basically the world stock market. If the entire world stock market collapses, I suppose you'll regret investing in it. Have a long term outlook. It can and will be volatile.

If investing in a taxable account, don't use it. As I understand, you won't be able to claim the foreign tax credit. Instead, use a mix of VTI and VXUS.
drk
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by drk »

Welcome to the forum. Vanguard highlights some risks in the fund's profile (scroll to "Plain talk about risk").

Without knowing more (e.g., age, savings, income, taxes), it's hard to say that it's right or wrong for you in particular, but VT/VTWAX is an excellent fund in general.
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by GaryA505 »

Global nuclear war would be bad for VT.
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Blue456
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by Blue456 »

GaryA505 wrote: Fri Mar 19, 2021 6:47 pm Global nuclear war would be bad for VT.
The fund would rebalance itself to have more emerging market exposure :)
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watchnerd
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by watchnerd »

Just the usual risk:

Stocks go down a lot and stay down for an extended period of time.

Nuclear war not required.
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DB2
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by DB2 »

Blue456 wrote: Fri Mar 19, 2021 7:06 pm
GaryA505 wrote: Fri Mar 19, 2021 6:47 pm Global nuclear war would be bad for VT.
The fund would rebalance itself to have more emerging market exposure :)
Yes. And it gets said a lot, but it would have helped that 100%-only Japan equity holder from 1989.
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by LadyGeek »

Welcome! Let's assume the economy survives. :D

May I instead suggest you start a new thread in the Personal Investments forum and post your portfolio information using the Asking Portfolio Questions format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask in the new thread.
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zirriz
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by zirriz »

LadyGeek wrote: Fri Mar 19, 2021 7:31 pm Welcome! Let's assume the economy survives. :D

May I instead suggest you start a new thread in the Personal Investments forum and post your portfolio information using the Asking Portfolio Questions format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask in the new thread.
Thank you and will do!
Tamalak
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by Tamalak »

Everyone's talking about negative disasters where the world collapses. I'm more worried about positive disasters, where some set of innovations creates a new economy that leaves corporations behind
runninginvestor
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by runninginvestor »

Tamalak wrote: Sat Mar 20, 2021 10:23 am Everyone's talking about negative disasters where the world collapses. I'm more worried about positive disasters, where some set of innovations creates a new economy that leaves corporations behind
Like Star Trek's money free society.
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by Tamalak »

runninginvestor wrote: Sat Mar 20, 2021 11:31 am
Tamalak wrote: Sat Mar 20, 2021 10:23 am Everyone's talking about negative disasters where the world collapses. I'm more worried about positive disasters, where some set of innovations creates a new economy that leaves corporations behind
Like Star Trek's money free society.
Something like that. A meritocracy like Star Trek, or just a different kind of currency and economy that fit human nature better than capitalism (think an economy based on gacha games..)
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by dmcmahon »

runninginvestor wrote: Sat Mar 20, 2021 11:31 am
Tamalak wrote: Sat Mar 20, 2021 10:23 am Everyone's talking about negative disasters where the world collapses. I'm more worried about positive disasters, where some set of innovations creates a new economy that leaves corporations behind
Like Star Trek's money free society.
And yet the Picard family still had estates in France. And don’t get me started on Dilithium miners!
nalor511
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by nalor511 »

I don't like total-world, because it doesn't get the foreign tax credit every year - I hold total-us and total-exus separately.
jayk238
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by jayk238 »

Could you imagine a time when hundreds of millions die from a virus, millions more soldiers die fighting a war from brutal dictator and then many more are unconscionably massacred? And then to cap it off millions are shucked into poverty and then a few nukes are dropped on a country?

Imagine what the future of that world would have been like.....
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by Samosa22 »

jayk238 wrote: Sat Mar 20, 2021 4:45 pm Could you imagine a time when hundreds of millions die from a virus, millions more soldiers die fighting a war from brutal dictator and then many more are unconscionably massacred? And then to cap it off millions are shucked into poverty and then a few nukes are dropped on a country?

Imagine what the future of that world would have been like.....
Seems bullish.
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by invest2bfree »

This etf protected you against market crashes and hyperinflation.

Imagine you are a Japanese investor in 1989 and you had all your net worth in VT, you would have a 10% return for the last 30 years when Japanese equities crashes and burned.


Imagine if you are a Venezuelan investor and you had in VT, you could sleep soundly.

For a US investor since US makes up 55% it may not give adequate diversification but still 45% xUS is way better than 20% recommended by boglehead community.

Always buy the haystack and dont commit the sin of home country bias. Countries are run by self serving politicians who can commit major policy blunders.
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Scooter57
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by Scooter57 »

The risk of VT is that it is market cap weighted, so no matter how many stocks are in that index, your invested dollar is actually buying shares in just the top 100 or so. You miss out on the profits of smaller companies that might be where most of the growth happens.

Let's look at the fund's actual holdings: https://investor.vanguard.com/etf/profi ... o-holdings

There are currently 8,901 stocks in VT. Dropping down to just the 2,000th stock in the index, we see that it has a market cap of $500M. The amount that VT holds of this stock is $102,478, which if you work it out as a percentage of the $25,700,000,000 worth of stock the fund holds is .000398% of the fund. So when you put $100,000 into the fund, you are buying $.40 worth of this stock. Lets say that stock grows dramatically, so the price rises by a factor of 5. You now will hold $2.00 of that stock in your $100,000 holding.

Meanwhile, the top five holdings are the same as in Total Stock Market. Apple, Microsoft, Amazon, Alphabet, Facebook. They make up 10% of the fund's holdings, so your $100,000 investment bought $10,000 of those five stocks as opposed to the $.40 of that 2,000th stock by weight.

And if you own that little of the 2,000th stock how much less do you own of the other 6,901 stocks in the index? A penny or two, if that. They could grow to a hundred times their size right now, and you would have turned your penny into $1.00.

Market cap weighting pretty much makes meaningless all but the top 100 stocks held in an index. You are investing in the largest, most mature, or most hyped (take Tesla, Please!) stocks on the market. The subset of smaller companies from which innovation and great growth could arise will have a very small impact on your wealth, if any.
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by DB2 »

Scooter57 wrote: Sat Mar 20, 2021 5:19 pm The risk of VT is that it is market cap weighted, so no matter how many stocks are in that index, your invested dollar is actually buying shares in just the top 100 or so. You miss out on the profits of smaller companies that might be where most of the growth happens.

Let's look at the fund's actual holdings: https://investor.vanguard.com/etf/profi ... o-holdings

There are currently 8,901 stocks in VT. Dropping down to just the 2,000th stock in the index, we see that it has a market cap of $500M. The amount that VT holds of this stock is $102,478, which if you work it out as a percentage of the $25,700,000,000 worth of stock the fund holds is .000398% of the fund. So when you put $100,000 into the fund, you are buying $.40 worth of this stock. Lets say that stock grows dramatically, so the price rises by a factor of 5. You now will hold $2.00 of that stock in your $100,000 holding.

Meanwhile, the top five holdings are the same as in Total Stock Market. Apple, Microsoft, Amazon, Alphabet, Facebook. They make up 10% of the fund's holdings, so your $100,000 investment bought $10,000 of those five stocks as opposed to the $.40 of that 2,000th stock by weight.

And if you own that little of the 2,000th stock how much less do you own of the other 6,901 stocks in the index? A penny or two, if that. They could grow to a hundred times their size right now, and you would have turned your penny into $1.00.

Market cap weighting pretty much makes meaningless all but the top 100 stocks held in an index. You are investing in the largest, most mature, or most hyped (take Tesla, Please!) stocks on the market. The subset of smaller companies from which innovation and great growth could arise will have a very small impact on your wealth, if any.
One would be making a tremendous bet (and increased risk) in those "penny" stocks of VT if it were not market cap weighted. In addition, FAANG, love them or hate them, has provided tremendous $$$ for a VT investor for years and one would have missed out on that if not cap weighted. Even if we look at small cap vs FAANG, really no comparison for years now. And no one has a crystal ball of the future. VT just goes where the growth goes as a truly dynamic and globally diversified index fund.
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by drk »

Scooter57 wrote: Sat Mar 20, 2021 5:19 pm Market cap weighting pretty much makes meaningless all but the top 100 stocks held in an index. You are investing in the largest, most mature, or most hyped (take Tesla, Please!) stocks on the market. The subset of smaller companies from which innovation and great growth could arise will have a very small impact on your wealth, if any.
Tesla is actually a good example of the strength of market-cap weighting: someone holding Vanguard Total World or Total Stock Market has been invested in Tesla for several years, so they've benefited from the company's increasing valuation.
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lucha
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by lucha »

Scooter57 wrote: Sat Mar 20, 2021 5:19 pm The risk of VT is that it is market cap weighted, so no matter how many stocks are in that index, your invested dollar is actually buying shares in just the top 100 or so. You miss out on the profits of smaller companies that might be where most of the growth happens.

Let's look at the fund's actual holdings: https://investor.vanguard.com/etf/profi ... o-holdings

There are currently 8,901 stocks in VT. Dropping down to just the 2,000th stock in the index, we see that it has a market cap of $500M. The amount that VT holds of this stock is $102,478, which if you work it out as a percentage of the $25,700,000,000 worth of stock the fund holds is .000398% of the fund. So when you put $100,000 into the fund, you are buying $.40 worth of this stock. Lets say that stock grows dramatically, so the price rises by a factor of 5. You now will hold $2.00 of that stock in your $100,000 holding.

Meanwhile, the top five holdings are the same as in Total Stock Market. Apple, Microsoft, Amazon, Alphabet, Facebook. They make up 10% of the fund's holdings, so your $100,000 investment bought $10,000 of those five stocks as opposed to the $.40 of that 2,000th stock by weight.

And if you own that little of the 2,000th stock how much less do you own of the other 6,901 stocks in the index? A penny or two, if that. They could grow to a hundred times their size right now, and you would have turned your penny into $1.00.

Market cap weighting pretty much makes meaningless all but the top 100 stocks held in an index. You are investing in the largest, most mature, or most hyped (take Tesla, Please!) stocks on the market. The subset of smaller companies from which innovation and great growth could arise will have a very small impact on your wealth, if any.
Are you saying it could be helpful to tilt toward sectors with more growth potential if you decide to hold majority VT for equities?
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by Triple digit golfer »

Scooter57 wrote: Sat Mar 20, 2021 5:19 pm The risk of VT is that it is market cap weighted, so no matter how many stocks are in that index, your invested dollar is actually buying shares in just the top 100 or so. You miss out on the profits of smaller companies that might be where most of the growth happens.

Let's look at the fund's actual holdings: https://investor.vanguard.com/etf/profi ... o-holdings

There are currently 8,901 stocks in VT. Dropping down to just the 2,000th stock in the index, we see that it has a market cap of $500M. The amount that VT holds of this stock is $102,478, which if you work it out as a percentage of the $25,700,000,000 worth of stock the fund holds is .000398% of the fund. So when you put $100,000 into the fund, you are buying $.40 worth of this stock. Lets say that stock grows dramatically, so the price rises by a factor of 5. You now will hold $2.00 of that stock in your $100,000 holding.

Meanwhile, the top five holdings are the same as in Total Stock Market. Apple, Microsoft, Amazon, Alphabet, Facebook. They make up 10% of the fund's holdings, so your $100,000 investment bought $10,000 of those five stocks as opposed to the $.40 of that 2,000th stock by weight.

And if you own that little of the 2,000th stock how much less do you own of the other 6,901 stocks in the index? A penny or two, if that. They could grow to a hundred times their size right now, and you would have turned your penny into $1.00.

Market cap weighting pretty much makes meaningless all but the top 100 stocks held in an index. You are investing in the largest, most mature, or most hyped (take Tesla, Please!) stocks on the market. The subset of smaller companies from which innovation and great growth could arise will have a very small impact on your wealth, if any.
Those are all positives, in my opinion.

Apple and Amazon are huge, diversified monsters. Of course I want to own more of them than a tiny company that may make a single product.
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by lgs88 »

Scooter57 wrote: Sat Mar 20, 2021 5:19 pm ...
Let's look at the fund's actual holdings: https://investor.vanguard.com/etf/profi ... o-holdings
...
Try sorting that list by market cap, from lowest to highest. I was interested to see several dozen companies that have gone to zero (or fractions of a penny) remaining in the fund. I wonder whether these shares are retained and sold strategically for tax-loss purposes.
merely an interested amateur
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by goonie »

Scooter57 wrote: Sat Mar 20, 2021 5:19 pm The risk of VT is that it is market cap weighted, so no matter how many stocks are in that index, your invested dollar is actually buying shares in just the top 100 or so. You miss out on the profits of smaller companies that might be where most of the growth happens.

Let's look at the fund's actual holdings: https://investor.vanguard.com/etf/profi ... o-holdings

There are currently 8,901 stocks in VT. Dropping down to just the 2,000th stock in the index, we see that it has a market cap of $500M. The amount that VT holds of this stock is $102,478, which if you work it out as a percentage of the $25,700,000,000 worth of stock the fund holds is .000398% of the fund. So when you put $100,000 into the fund, you are buying $.40 worth of this stock. Lets say that stock grows dramatically, so the price rises by a factor of 5. You now will hold $2.00 of that stock in your $100,000 holding.

Meanwhile, the top five holdings are the same as in Total Stock Market. Apple, Microsoft, Amazon, Alphabet, Facebook. They make up 10% of the fund's holdings, so your $100,000 investment bought $10,000 of those five stocks as opposed to the $.40 of that 2,000th stock by weight.

And if you own that little of the 2,000th stock how much less do you own of the other 6,901 stocks in the index? A penny or two, if that. They could grow to a hundred times their size right now, and you would have turned your penny into $1.00.

Market cap weighting pretty much makes meaningless all but the top 100 stocks held in an index. You are investing in the largest, most mature, or most hyped (take Tesla, Please!) stocks on the market. The subset of smaller companies from which innovation and great growth could arise will have a very small impact on your wealth, if any.
Isn't this ignoring the fact that as successful small companies grow over long periods of time, they usually issue more and more stock? A cap weighted fund would thus be buying more and more of their stock. Again, over long periods of time (and at different price points). You're not stuck with the small amount of stock you had when the company was small.
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Re: Long-term risks for VT? [Vanguard Total World Stock]

Post by tj »

goonie wrote: Sat Mar 20, 2021 7:50 pm
Scooter57 wrote: Sat Mar 20, 2021 5:19 pm The risk of VT is that it is market cap weighted, so no matter how many stocks are in that index, your invested dollar is actually buying shares in just the top 100 or so. You miss out on the profits of smaller companies that might be where most of the growth happens.

Let's look at the fund's actual holdings: https://investor.vanguard.com/etf/profi ... o-holdings

There are currently 8,901 stocks in VT. Dropping down to just the 2,000th stock in the index, we see that it has a market cap of $500M. The amount that VT holds of this stock is $102,478, which if you work it out as a percentage of the $25,700,000,000 worth of stock the fund holds is .000398% of the fund. So when you put $100,000 into the fund, you are buying $.40 worth of this stock. Lets say that stock grows dramatically, so the price rises by a factor of 5. You now will hold $2.00 of that stock in your $100,000 holding.

Meanwhile, the top five holdings are the same as in Total Stock Market. Apple, Microsoft, Amazon, Alphabet, Facebook. They make up 10% of the fund's holdings, so your $100,000 investment bought $10,000 of those five stocks as opposed to the $.40 of that 2,000th stock by weight.

And if you own that little of the 2,000th stock how much less do you own of the other 6,901 stocks in the index? A penny or two, if that. They could grow to a hundred times their size right now, and you would have turned your penny into $1.00.

Market cap weighting pretty much makes meaningless all but the top 100 stocks held in an index. You are investing in the largest, most mature, or most hyped (take Tesla, Please!) stocks on the market. The subset of smaller companies from which innovation and great growth could arise will have a very small impact on your wealth, if any.
Isn't this ignoring the fact that as successful small companies grow over long periods of time, they usually issue more and more stock? A cap weighted fund would thus be buying more and more of their stock. Again, over long periods of time (and at different price points). You're not stuck with the small amount of stock you had when the company was small.
That's correct. Reminds me of this post:

https://thefinancebuff.com/when-will-yo ... stock.html
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