FTSE ex-US versus Total Int in Taxable (spinoff from Ferri)

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ramsfan
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FTSE ex-US versus Total Int in Taxable (spinoff from Ferri)

Post by ramsfan » Sun Dec 30, 2007 4:50 pm

HI all,

This is a spinoff from a Rick Ferri Thread, I did not want to clutter his thread with my reply, as their is some great discussion around core and simple portfolio construction, and the questions of Fund A versus Fund B, I thought were better discussed offline.
foodnerd wrote:Rick, my question to you (and to the forum) is that won't the cost difference between All World Index versus the Total International index also make some of the difference in tax deferred accounts (.4 for All World vs .27 for Total Int). Will the tax credit make up that difference in the taxable account?

FN
foodnerd. This issue has been discussed at length on these boards. I will try a high level summary.

First, I will say I did Total International Index in taxale, starting many years ago, and if not for the large capital gains I have, I would have FTSE ex-US. All my new money for International Equity is going into FYSE ex-US, and I shut off reinvestment of dividends and capital gains in Total International.

Here is why, again this really matters only in Taxable. Also, there is NOT a huge difference, and both funds are excellent.

Due to Total International being Fund of Funds, there are TWO major downsides, the third one being minor:

1 - no foreign tax credit. Again, ask the IRS if you want to know why, it makes little sense to anyone here.

2 - There will not be Admiral Shares offered.

3 - Total International has no exposure to Canada, if this is important to you.

You notice the only downside that I see, that being higher expense ratio. Most here expect that to go down with time, as most other Vanguard Funds do as they grow. I would expect in 1-2 years or less, the expense ratios will be similar. I am also hopeful that Vanguard offers an Admiral Share Class on this fund someday. On Total International they cannot.

Hope this helps. It is a fine line, not HUGE differences, but to me it is a clear choice to go with FTSE ex-US in taxable.

Gregory
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Post by Gregory » Sun Dec 30, 2007 5:14 pm

Some of us are sitting here with Tax-Mang'd Int'l and have grown to like it.

Greg
Pecuniae imperare oportet, non servire. | Fortuna vitrea est; tum cum splendit frangitur. -Syrus

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PiperWarrior
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Re: FTSE ex-US versus Total Int in Taxable (spinoff from Fer

Post by PiperWarrior » Sun Dec 30, 2007 5:22 pm

ramsfan wrote:it is a clear choice to go with FTSE ex-US in taxable.
The FTSE fund gives you 100% qualified dividends if you need one more reason.

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foodnerd
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Post by foodnerd » Sun Dec 30, 2007 5:42 pm

Ramsfan, that was very helpful. I appreciate the spin-off. So, As I am getting both my wife's and my Roth IRAs started this year, which is better for the Roth, FTSE or Total Int? I want to make sure that I invest in the right one.

Again, thanks for the info.

FN
Last edited by foodnerd on Sun Dec 30, 2007 6:07 pm, edited 1 time in total.

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foodnerd
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Post by foodnerd » Sun Dec 30, 2007 5:54 pm

Ramsfan (and anyone else who might know)

I noticed on the FTSE page on Vanguard.com that this fund has a purchase fee of 0.25%. Since I am definetly in the early stages of investing and will be using dollar cost averaging, will that hurt more than the Total International?

Would the fee be waived for AIP?

Let me know if you guys know.

Thanks,

FN

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PiperWarrior
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Post by PiperWarrior » Sun Dec 30, 2007 6:15 pm

foodnerd wrote:So, As I am getting both my wife's and my Roth IRAs started this year, which is better for the Roth, FTSE or Total Int?
I would go for Total International in a tax-advantaged account. The expense ratio is lower (0.27% v.s. 0.40%). No purchase fee, either. You don't get Canada though. Tax-efficiency doesn't matter in a Roth IRA.

No, I don't think the purchase fee would be waived for automatic investment.

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foodnerd
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Post by foodnerd » Sun Dec 30, 2007 6:25 pm

I was afraid of that. :(

Thanks PiperWarrior. Do you think the fee will go away as the fund grows?

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PiperWarrior
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Post by PiperWarrior » Sun Dec 30, 2007 6:35 pm

foodnerd wrote:Do you think the fee will go away as the fund grows?
I have no idea to be honest.

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ramsfan
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Post by ramsfan » Sun Dec 30, 2007 6:59 pm

Foodnerd, I agree with Piper, in ROTH, I would go with Total International. Again, by a very slim margin over FTSE ex-US.

In both cases (ROTH and TAXABLE) the differences between the two funds are relatively minor, they are both excellent funds.

Regarding the purchase fee, this does not bother me at all, because the fee goes into the fund (ME as a fund shareholder). It is not a load that is siphoned off to brokers, management, etc....

Although we cannot predict the future, I believe that the purchase fee will go away after the fund gets going larger.

Just my opinion though, I have absolutely no information to back that up with.

To summarize, in ROTH or IRA or 401k, I go Total International and love every minute of it.

In taxable, I go FTSE ex-US and love every minute of that.

Hope this helps.

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Post by stan1 » Sun Dec 30, 2007 7:06 pm

Another reason to stick with Total International in Tax Advantaged for now is that you can switch to FTSE All World at any time if the expense ratio should go lower or if the purchase fee should go away. In taxable accounts you would owe capital gains taxes (if there are gains).

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ramsfan
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Post by ramsfan » Sun Dec 30, 2007 7:10 pm

stan1 wrote:Another reason to stick with Total International in Tax Advantaged for now is that you can switch to FTSE All World at any time if the expense ratio should go lower or if the purchase fee should go away. In taxable accounts you would owe capital gains taxes (if there are gains).
Stan, Darn good point, lots of flexibility, due to removing tax issues, in ROTH or IRA. Just watch for redemption fees of some funds. Vanguard is really which ones have them, which don't.

Thanks Stan!

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foodnerd
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Post by foodnerd » Sun Dec 30, 2007 7:44 pm

Regarding the purchase fee, this does not bother me at all, because the fee goes into the fund (ME as a fund shareholder). It is not a load that is siphoned off to brokers, management, etc....
Ramsfan, as much as I like helping out my fellow man, I want my money to work for me. :wink:

All of the input has been great!

FN

james22
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Post by james22 » Mon Dec 31, 2007 5:08 am

Gregory wrote:Some of us are sitting here with Tax-Mang'd Int'l and have grown to like it.

Greg
I'd like to hear how it compares to FTSE All World, please.

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PiperWarrior
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Post by PiperWarrior » Mon Dec 31, 2007 7:56 am

james22 wrote:
Gregory wrote:Some of us are sitting here with Tax-Mang'd Int'l and have grown to like it.
I'd like to hear how it compares to FTSE All World, please.
The Tax Managed One doesn't have Canada or emerging markets. It's also very tax efficient.

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ramsfan
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Post by ramsfan » Mon Dec 31, 2007 8:26 am

foodnerd wrote:
Regarding the purchase fee, this does not bother me at all, because the fee goes into the fund (ME as a fund shareholder). It is not a load that is siphoned off to brokers, management, etc....
Ramsfan, as much as I like helping out my fellow man, I want my money to work for me. :wink:

All of the input has been great!

FN
Darn, Foodnerd, I was hoping you would be up for paying The Man, as in this one case, I am The Man, because I am a shareholder of FTSE ex-US :lol:

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alvinsch
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Post by alvinsch » Mon Dec 31, 2007 11:08 am

PiperWarrior wrote:
james22 wrote:
Gregory wrote:Some of us are sitting here with Tax-Mang'd Int'l and have grown to like it.
I'd like to hear how it compares to FTSE All World, please.
The Tax Managed One doesn't have Canada or emerging markets. It's also very tax efficient.
I also prefer VTMGX (with a bit of VWO) over VFWIX because it has half the ER (0.2% vs 0.4%), no purchase fee (0.25% VFWIX), and a track record of tax efficiency over many years instead of only a partial year of VFWIX (100% QDI every year I've owned it).

Downside to VTMGX is to get EM you also need to own VWO, and VTMGX has a 1% redemption fee for 5 years but this can be avoided by converting to the ETF (VEA) before selling (free if flagship, otherwise $50).

My pre-tax $0.02 ($0.015 after tax).
- Al

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foodnerd
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Post by foodnerd » Mon Dec 31, 2007 12:49 pm

PiperWarrior wrote: No, I don't think the purchase fee would be waived for automatic investment.
PiperWarrior, I checked with Vanguard and you are correct, AIP will not discount the purchase fee. :x

Ramsfan, I appreciate the witty reply. I think we're going with the Total International. :wink:

FN

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foodnerd
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Post by foodnerd » Tue Mar 25, 2008 5:15 pm

Bringing this back up because I have been questioning which International Index fund to use. Does the 0.13% ER make that much difference? Since I am looking for long term on this fund, wouldn't it be better to use the FTSE in a Roth because of the potential of admiral shares down the road?

Which index is better, MSCI or FTSE?

I thought I had this figured out, but I don't. :?

FN

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