VG FTSE all world ex US vs Total It'l Stock Index

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InvestingMom
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VG FTSE all world ex US vs Total It'l Stock Index

Post by InvestingMom »

Trying to make a final decision on which fund to buy (for my mom) and am wondering if anyone has any knowledge of the differences between the two funds listed above.

Recently I asked for portfolio advice on my mom's portfolio and most recommended the FTSE all world ex US (VFWIX). I think this is good advice but wanted to be thorough and so looked one more time look at all of the foreign funds offered by Vanguard.

I checked out the Total It'l Stock Index (VGTSX) and see that it is very similar. I realize that it tracks 3 intl funds but in the end it looks like it is achieving the same thing as the VFWIX and has lower fees. I am probably over analyzing this, but wanted to make sure I know exactly why I am picking one over the other.
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CyberBob
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Post by CyberBob »

They're actually more similar than different. Vanguard would probably still have the Total International Fund as the only choice except that they couldn't figure out how to make an ETF share-class out of it; hence the birth of the FTSE fund.
The basic differences are:
  • The FTSE fund has an ETF share-class.
  • The FTSE fund includes Canada, Total International does not.
  • Total International is a 'fund-of-funds' and so due to a quirk in the tax code isn't eligible for the foreign tax credit (in a taxable account), which last year was worth about 0.16%.
  • The FTSE fund has a purchase fee and a higher expense ratio (although the ability to take the foreign tax credit offsets some of this)
Since the long-term returns of the two will likely be quite similar, the consensus seems to be that the FTSE may be better in a taxable account because even though it's more expensive, if you hold it very long-term, the ability to take the 0.16% foreign tax credit will eventually offset the higher expenses after holding the fund for a number of years. And Total International is better in a tax-deferred account because the tax credit there doesn't matter and the Total International fund is cheaper, having a smaller expense ratio than the FTSE fund.

Bob
Last edited by CyberBob on Tue Oct 02, 2007 12:59 pm, edited 1 time in total.
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InvestingMom
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Aha!

Post by InvestingMom »

I knew one of you would know this right off the bat.
Now I understand why a few of the posters in my previous post recommended this in the taxable account. I am still thinking I will put it in an IRA because the chances of rebalancing are higher with this fund.
Thanks!
Pulsar36
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Post by Pulsar36 »

I think we should make this topic a sticky...it has been answered so many times, and I'm guilty of posing this question a few weeks back as well. How about we gather all the great topics (lots of good reading and points) and make it a sticky?
Pulsar36
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Post by Pulsar36 »

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woof755
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Post by woof755 »

I agree. I asked this question on the M* forum a few months ago, and have seen it at least 3 times since then.

It's a great question, but at some point maybe should be posted so people won't have to keep asking.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
Puakinekine
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Post by Puakinekine »

In time there is also the possibility that the FTSE will get rid of the initial fee, lower its ER and make Admiral shares available. As a fund of funds, Total Int'l will not be offering Admiral shares, unless Vanguard changes it's policies. I have FTSE in my taxable account and Total Int'l in my non-taxable. This way I can easily sell off the Total Int'l as more room becomes available in my taxable for FTSE.
joelesposito
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Sticky

Post by joelesposito »

Yeah it should be a sticky.
Also, I think for all their benefots, Vanguard does a terrible job with stuff like this. They prospectus is so boilerplate that it doesn't really tell you much about the fund.
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InvestingMom
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Thanks for the further input

Post by InvestingMom »

Wow, I guess this has been vetted out before. Agree that a sticky would be good. Thanks again for the further input.
jberkman
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VTMGX

Post by jberkman »

I'm curious as to why more people are not promoting Vanguard's Tax Managed International Fund (VTMGX) to be placed in a taxable account. An ER of 0.2% makes this fund much more affordable than FTSE with an ER of 0.4%.

What's the advantage?
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tfb
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Post by tfb »

If we make topics like this one a sticky, the entire first page will probably be taken up by stickies. Just search before you post a question. So many topics have been discussed over and over. Chances are all questions are already covered by a previous thread. It will help if they make the search a little more targeted but if the poster spends a few minutes searching for an answer, it will save a lot of time for who people who respond.
Harry Sit, taking a break from the forums.
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DaveTH
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Post by DaveTH »

I'm curious as to why more people are not promoting Vanguard's Tax Managed International Fund (VTMGX) to be placed in a taxable account. An ER of 0.2% makes this fund much more affordable than FTSE with an ER of 0.4%.
This fund does not include Canada or emerging markets and requires you to hold shares for 5 years to avoid a 1% penalty. Too many negatives for me.
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VG FTSE all world ex US vs Total It'l Stock Index

Post by YDNAL »

jberkman,

VTMGX is an excellent Developed Markets fund in Taxable if you don't mind the restrictions, as previously noted. VFWIX offers two items that can easily support/substantiate the added 0.2% expenses in most investors' minds:
1) Emerging Markets [Asia, Latin America].
2) Canada.

Regards,
Landy
Last edited by YDNAL on Tue Oct 02, 2007 4:04 pm, edited 1 time in total.
jberkman
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vtmgx

Post by jberkman »

I'm new to this and I wasn't sure what the difference was between VTMGX and VFWIX besides the difference in ER. The 0.2% difference in ER would equate to $2,000 per year for a $1,000,000 investment. I guess that's not a big deal though.

I originally thought that Emerging Markets meant small cap growth from any country, but from a previous post, I guess it really means countries such as Asia, Latin America and Africa.

And I'm not sure why having stock in Canada would be such a big consideration.

Thanks for all your help. I found this blog last week and I've been addicted to it since.

-Jeff
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DaveTH
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Post by DaveTH »

And I'm not sure why having stock in Canada would be such a big consideration.
Canada represents nearly 4% of the world equity and provides above-average exposure to natural resource stocks. One of the flaws of the MSCI EAFE index is that it excludes Canada even though it is considered a developed country. It may not make a huge difference in total returns, but why not go for the broadest, most diversified international exposure?
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woof755
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Post by woof755 »

DaveTH wrote:
And I'm not sure why having stock in Canada would be such a big consideration.
Canada represents nearly 4% of the world equity and provides above-average exposure to natural resource stocks. One of the flaws of the MSCI EAFE index is that it excludes Canada even though it is considered a developed country. It may not make a huge difference in total returns, but why not go for the broadest, most diversified international exposure?
I was going to ask why VGTSX (total int'l) did not include Canada, but this has been answered for me--the EAFE doesn't include it.

So...VFWIX was developed in part to include Canada, I assume (what part Canada played in the decision, I wouldn't venture to guess).

Question to me is why Canada is excluded from the EAFE in the first place? Sure, it would have to be renamed (CEAFE?), but why exclude an international market from an index that is so widely used?

B/c it correlates too tightly with the US index?
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
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DaveTH
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Post by DaveTH »

Question to me is why Canada is excluded from the EAFE in the first place? Sure, it would have to be renamed (CEAFE?), but why exclude an international market from an index that is so widely used?
My guess is that since it is an international developed markets index they were already excluding the U.S. and Mexico so it was probably easier to just exclude all of North America including Canada.
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woof755
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Post by woof755 »

Oh. I was under the false assumption that Mexico was in the Latin America market. Should have known that it wasn't exactly an "emerging" market. Certainly seems plenty risky a place to invest some $$$, though.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
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