3rd Fund Question: VXUS, VTIAX or I-Fund

[thethinker]

Im looking for guidance on how to best include the third leg of my portfolio. I’m considering three different international fund options.

I think almost everyone here would agree that they are all good options, and that might make it difficult to apply much differentiation between the three, but if a community could help me decide on a choice it would be most helpful.

The 3 international funds I’m considering are: VXUS, VTIAX or the I-Fund.

Of course the I-Fund would be in my TSP, and that is my account that will have taxable withdrawals, while VXUS or VTIAX would be held in my vanguard Roth account. Would the location of where this fund is held factor into your decision?

As any good Boglehead would do, comparing ER can be a key factor too. In this case all are relatively low, but the I-Fund is lowest at 0.054% then VXUS is next at 0.08% and finally 0.12% for VTIAX.

I looked into overall international diversification too and the VG funds hold about 8,500 stocks while the I Fund has about 5,000.

I only have and have ever had index funds in my accounts so an ETF makes me ever so slightly uneasy but I’m sure that’s only because I don’t fully understand the differences. Tracking the same index at a lower ER is certainly enough for me to get over this uneasy feeling and consider the ETF. Also it’s a ROTH account that gets one lump contribution every year and I rebalance a maximum once per year, so I likely won’t notice much difference in holding an ETF v Fund.

Are there any other factors I should take into account?

considering the expense ratios, fund diversification, location where it will be held, and ETF v Fund, what would your long-term investment of choice be?

[retired@50]

...
The 3 international funds I’m considering are: VXUS, VTIAX or the I-Fund.

Of course the I-Fund would be in my TSP, and that is my taxable account while VXUS or VTIAX would be held in my vanguard Roth account. Would the location of where this fund is held factor into your decision?

As any good Boglehead would do, comparing ER can be a key factor too. In this case all are relatively low, but the I-Fund is lowest at 0.054% then VXUS is next at 0.08% and finally 0.12% for VTIAX.
...

Just a tiny little nit to pick with your terminology above...

If the TSP account is like most that I've run across, it's generally referred to as a tax-deferred account (sometimes also called pre-tax). True, when you withdraw that money, it will be taxed as income at that time. When people generally discuss a "taxable account" they're referring to a non-retirement account that has no restrictions on contributions or withdrawals, and has its annual dividends taxed each year.
https://www.bogleheads.org/wiki/Taxable_account

As for your main question, any of the three international funds you're considering are good choices. Sometimes the tiny differences in the expense ratios don't amount to much, and in some cases provide the opposite result of what you'd expect.
See this thread: viewtopic.php?t=368277
Read the whole thing.

I'd put the international holding in the TSP.

Regards,

[jimkinny]

Before doing anything, read some of this thread on international stocks [urlhttps://www.bogleheads.org/forum/viewtopic.php?t=409214][url]

[thethinker]

...
The 3 international funds I’m considering are: VXUS, VTIAX or the I-Fund.

Of course the I-Fund would be in my TSP, and that is my taxable account while VXUS or VTIAX would be held in my vanguard Roth account. Would the location of where this fund is held factor into your decision?

As any good Boglehead would do, comparing ER can be a key factor too. In this case all are relatively low, but the I-Fund is lowest at 0.054% then VXUS is next at 0.08% and finally 0.12% for VTIAX.
...

Just a tiny little nit to pick with your terminology above...

That’s embarrassing. Thank you for catching that. I changed the OP

[retired@50]

That’s embarrassing. Thank you for catching that. I changed the OP

No worries. Everyone makes mistakes from time to time.

Regards,

[thethinker]

That’s embarrassing. Thank you for catching that. I changed the OP

No worries. Everyone makes mistakes from time to time.

Regards,

[stan1]

The TSP I Fund is now an ex-US & ex-China fund, its your decision on whether to use it or not.

[sycamore]

considering the expense ratios, fund diversification, location where it will be held, and ETF v Fund, what would your long-term investment of choice be?

Expense ratio and diversification at each of the three funds are comparable, so those attributes won't affect my choice.

I slightly prefer ETFs, mostly for the ability to know what price I'll get on a sale or purchase (rather than waiting for market close).

I think international stocks have roughly the same expected return as US stocks. I'd usually put higher expected return asset in Roth, but that's a secondary consideration anyway.

Regarding location, I would take into account what other assets are in the TSP and Roth accounts, and how that impacts my rebalancing. Maybe it's easier to rebalance in one account versus another, like if one account has a better US stock or bond fund to rebalance into/out of, or one account is larger (dollar wise) and thus allows for larger rebalances.

Any of them will do, really, but if I had to pick I'd go with VXUS.

[thethinker]

The TSP I Fund is now an ex-US & ex-China fund, its your decision on whether to use it or not.

I wouldn’t make this choice for political reasons but wouldn’t it likely hold true that including China offers better diversification? Even if minimal

[arcticpineapplecorp.]

fyi vxus and vtiax are identical funds, it's just that the first is an etf and the second a mutual fund.

if you want to go with lowest costs if the I fund is lowest, I'd probably put it there.

as far as whether holding china or not in an international fund will help or hurt, there's no way to know that in advance. In addition to the actual fluctuations of their market and the accessibility, transparency, etc there are also currency fluctuations that can't be determined in advance.

[WeakOldGuy]

I know nothing.

My goal is to put all of my international stock in VXUS. My reasoning is that I don't want to exclude emerging markets and VXUS is about 25% emerging markets. My preference is to not hold it in my taxable account as it less efficient than a total US market ETF such as VTI.

[Taylor Larimore]

thethinker wrote:

"Considering the expense ratios, fund diversification, location where it will be held, and ETF v Fund, what would your long-term investment of choice be?"

The Three Fund Portfolio.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment decisions, and guide the implementation of your plan."

[retiredjg]

This is a very minor decision. Don't struggle with it. Either is a good choice.

Consider how money flows into your portfolio and if you put international into the TSP, what will that move out of the TSP and where will you move it.

[stan1]

The TSP I Fund is now an ex-US & ex-China fund, its your decision on whether to use it or not.

I wouldn’t make this choice for political reasons but wouldn’t it likely hold true that including China offers better diversification? Even if minimal

Yes, the academic theory would be that an ex US fund is more diversified than an ex US & China fund.

[itnetpro]

Before doing anything, read some of this thread on international stocks [urlhttps://www.bogleheads.org/forum/viewtopic.php?t=409214][url]

I strongly agree with this poster, a good thread to read through...

viewtopic.php?t=409214

Back in the 90s, I became increasingly concerned about US P/E ratios. Many were talking about how low P/E ratios were in other countries. So I diversified off my usual 100% blended mid-large cap investments and into international. They performed ok but underperformed the rest of my portfolio.

Over the remaining period of accumulation, I have rarely seen internationals perform nearly as well as domestics for any meaningful amount of time.

I understand the logic in why to diversify but every time we crash, so does the rest of the world. It seems, more often than not, our economy recovers faster and stronger than most foreign markets.

Perhaps if I was going to invest anywhere directly out of the US, I would invest in a single international market, one I understand. I'm not familiar enough with any others so I stick to what I do know, US equities and bonds. Besides, if you own any US mega cap, you are already in a Muti-national stock anyway and have exposure.

While I don't think it would hurt to diversify internationally, I also don't think it will help much in a downturn. For now, with everyone still trading in US dollars (including Russia & China) and with all the instability around the world, I stick with what I know best and what has worked well enough to retire me at 52.

John

[thethinker]

thethinker wrote:

"Considering the expense ratios, fund diversification, location where it will be held, and ETF v Fund, what would your long-term investment of choice be?"

The Three Fund Portfolio.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment decisions, and guide the implementation of your plan."

I appreciate the educational link Taylor

[Taylor Larimore]

I appreciate the educational link Taylor

thethinker:

I appreciate your comment that you found my link to The Three-Fund Portfolio "educational." It may be the primary reason I so frequently post a link to that Portfolio. It is full of information for any investor--but especially newbies.

Best wishes
Taylor

Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment decisions, and guide the implementation of your plan."

[grabiner]

The 3 international funds I’m considering are: VXUS, VTIAX or the I-Fund.

Of course the I-Fund would be in my TSP, and that is my account that will have taxable withdrawals, while VXUS or VTIAX would be held in my vanguard Roth account. Would the location of where this fund is held factor into your decision?

The location doesn't really matter, since you can always reallocate. If you withdraw from the TSP which holds the I fund, but you want to sell US stock, then you can move money in the TSP or in your Roth IRA from a US to an international fund to keep the correct allocation.

Probably more important is holding the G fund in the TSP rather than bond funds elsewhere, since the G fund is significantly better than anything you can get at retail, while the other funds are comparable.

[thethinker]

I appreciate the educational link Taylor

thethinker:

I appreciate your comment that you found my link to The Three-Fund Portfolio "educational." It may be the primary reason I so frequently post a link to that Portfolio. It is full of information for any investor--but especially newbies.

Best wishes
Taylor

Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment decisions, and guide the implementation of your plan."

I absolutely agree. It’s a wealth of information, condensed down for easy reading .

[thethinker]

Probably more important is holding the G fund in the TSP rather than bond funds elsewhere, since the G fund is significantly better than anything you can get at retail, while the other funds are comparable.

I appreciate the entire message you sent as it was helpful in giving me clarity. Though I’d like to question a bit further this last portion. As I understand that the G fund is extremely important, nearing and in retirement because it offers beneficial gains for literally zero risk. However, during the accumulation phase, is there a case to be made for holding entirely or majority or at least a portion of the F fund?

I’d appreciate your help with this point

[grabiner]

Probably more important is holding the G fund in the TSP rather than bond funds elsewhere, since the G fund is significantly better than anything you can get at retail, while the other funds are comparable.

I appreciate the entire message you sent as it was helpful in giving me clarity. Though I’d like to question a bit further this last portion. As I understand that the G fund is extremely important, nearing and in retirement because it offers beneficial gains for literally zero risk. However, during the accumulation phase, is there a case to be made for holding entirely or majority or at least a portion of the F fund?

I’d appreciate your help with this point

The reason I don't recommend the F fund is that you have to consider the risk of your whole portfolio. The F fund has slightly higher expected returns than the G fund, but some of its risk is correlated with stock-market risk; in an economic decline, stocks and corporate bonds will both lose value. Therefore, you need less of the G fund to get the same risk reduction.

The TSP L funds draw the same conclusion. Their allocation is based on a model that optimizes return for a given risk level, and this model includes very little of the F fund. (I view it as a token amount, the same way that the longest-dated funds are 99% rather than 100% stock.)