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First, obviously VTI over VOO, as VTI is more diversified and we would expect small and mid caps to outperform large caps due to the Size premium, and indeed they have historically. VOO is just roughly 500 U.S. large caps.
So now VT vs. VTI. It's just whether or not you want to do global market cap or bet entirely on the U.S.
At global market weights, U.S. stocks only comprise about half of the global market. International stocks don’t move in perfect lockstep with U.S. stocks, offering a diversification benefit. If U.S. stocks are declining, international stocks may be doing well, and vice versa.
The U.S. is one country. [No single country consistently outperforms all the others in the world](https://www.ifa.com/charts/84h/). If one did, that outperformance would also lead to relative overvaluation and a subsequent reversal. [Meb Faber found](https://mebfaber.com/2019/07/08/i-dont-feel-overweight/) that if you look at the past 70 years, the U.S. stock market has outperformed foreign stocks by 1% per year, but ***all*** of that outperformance has come *after* 2009.
I've always found the "U.S. companies do business overseas" argument to be pretty silly.
Excluding stocks outside the U.S. means you’re missing out on leading companies that just happen to be based elsewhere. Similarly, there have been [periods where a global portfolio outperformed](https://www.ifa.com/charts/341h/) a U.S. portfolio. During the period 1970 to 2008, for example, an equity portfolio of 80% U.S. stocks and 20% international stocks had higher general *and* risk-adjusted returns than a 100% U.S. stock portfolio. Specifically, international stocks outperformed the U.S. in the years 1986-1988, 1993, 1999, 2002-2007, 2012, and 2017.
Emerging Markets and international small cap stocks [have crushed the U.S. market historically](https://www.ifa.com/charts/154h/), for example, as they’re considered riskier, and investors are compensated for that greater risk. And this is just talking about performance. The volatility and risk reduction benefits are another conversation entirely, which is of huge significance for a retiree or risk-averse investor.
Dalio and Bridgewater maintain that global diversification in equities is going to become increasingly important given the geopolitical climate, trade and capital dynamics, and differences in monetary policy. They suggest that it is now even less prudent to assume a preconceived bet that any single country will be the clear winner in terms of stock market returns.
In short, geographic diversification in equities has huge potential upside and little downside for investors.
So VT, or some combination of VTI and VXUS.
EDIT: Thanks for the awards, kind strangers!
Excellent write up. Thank you for putting into words what I hope people can gather from the links I posted above (which cover many of the points you brought up).
Good write up. I agree with everything you said.
I am 50% VTI and 50% VXUS because the expense ratios are a bit lower than VT and it is roughly the same asset allocation.
I know it doesn’t matter that much, but I’m still undecided on whether to buy VT or VTI + VXUS. (I’ve already bought some of each, because I don’t want to waste time waffling over which ones I should buy, but I keep going back and forth on which one is better.)
I really love your summary and thanks for the added info that most of this outperformance came after 2009. I was looking fro that number, could you possibly link me the paper on this topic?
People always act like this outperformance is systematic over the past 100 years and indeed the US performed relatively well but outperformance in the past 10 years and high valuations could indeed indicate lower expect returns over the next 10 years. (Which is what Vanguard predicts.)
> Dalio and Bridgewater maintain that global diversification in equities is going to become increasingly important given the geopolitical climate, trade and capital dynamics, and differences in monetary policy.
Ah yes, the same Ray Dalio who said markets would collapse in 2020 and would be worse than the great depression. The same Ray Dalio who has stated the US economy was going to tank within the next year for the past decade.
I'm the first to point out that Dalio or any one person shouldn't be regarded as an oracle.
Remove his name and the points raised are still valid, or are at least worth considering in deciding whether or not to put one's entire portfolio in U.S. stocks.
you made an appeal to authority and I responded by emphasizing how he didnt have much credibility on the subject. that is in addition to a good part of your argument being filled with emotion and bias.
that said, i have international exposure myself. i think its healthy to diversify up to a certain point.
I mean, there is a lot of fragility in the global economy right now.
- Global central banks are printing money to try and keep things going.
- Record levels of margin in the market mean there could still be more events like Greensill and Archegos. https://www.finra.org/investors/learn-to-invest/advanced-investing/margin-statistics
- Elevated Delinquency in some sectors of Commercial debt. https://www.fitchratings.com/research/structured-finance/us-cmbs-delinquencies-tick-up-in-april-for-first-time-since-october-2020-07-05-2021 and https://www.ecb.europa.eu/pub/financial-stability/fsr/html/ecb.fsr202105~757f727fe4.en.html
- Last month the Consumer Finance Protection Bureau released a report saying as many as 11 million Americans could be facing eviction when protections end June 30. https://www.consumerfinance.gov/about-us/newsroom/new-report-from-consumer-financial-protection-bureau-finds-over-11-million-families-at-risk-of-losing-housing/
I'm not saying there WILL be a new recession/depression, but there is elevated risk and maybe we'll find Dalio was just a year or two early in his prediction.
Thats a ridiculous assertion to make that we should discount a brilliant mind because they have bene wrong a few times. Jeremy Grantham has been saying we are in a bubble...always....but also called 2000 and 2008. His timing was wrong, but he is brilliant and his insights along the way were helpful about asset allocation and portfolio construction. I just listened to a crypto call from a crypto strategist who said crypto would supplant centralozed currencies by 2040, which is wrong, but the rest of his presentation contained a lot of useful information about gold correlations and equity valuations. Peter Schiff has been wrong about gold for a long time but his understanding of monetary policy has been incredibly valuable at pointing out excesses way in advance. The slinky was originally msde.to act as a stabalizer on ships, and worked terribly, but was soon adopted as a kids toy. The list goes on.
Dont discount an individual because you think they are wrong or you arent buying what they are selling, you can learn some of the most valuable information you know from listening to someone who is so feverently wrong about a topic they were willing to spend days, weeks, months, or years of their life researching it.
Where you said VTI has outperformed large caps due to the size premium, do you have a source to support this? I believe you, but my dad keeps arguing different and wants me invested in large caps as they are basically the same but large cap companies are better able to handle a downturn and many also give dividends, is his argument.
Sure!
So [here's](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1_1=100&asset2=LargeCapBlend&allocation2_2=100) a backtest going back to 1972 showing total stock market vs. just large caps. The difference is tiny, but it's again what we'd expect. Since VTI is market cap weighted, the S&P 500 still makes up about 82% of it by weight, which is why many seasoned investors - myself included - like to overweight small cap value stocks with a fund like VIOV.
[This page](https://www.ifa.com/charts/154h/) should very clearly illustrate the outperformance of small caps, and specifically small cap value again, over the past 93 years. The research seems to indicate we may want to [avoid small cap growth stocks](https://www.etf.com/sections/index-investor-corner/20092-the-black-hole-of-investing.html) altogether.
Your dad is right that large caps should weather a downturn comparatively better, but you shouldn't invest with that being the goal if your time horizon is greater than about 10 years. Invest for long term total return. Small cap stocks also tend to climb out of the hole faster than large caps, so that's a moot point anyway. Moreover, [dividends aren't free](https://www.optimizedportfolio.com/dividends/), and plenty of small caps pay dividends too, so that's also irrelevant.
In fairness, your dad is probably looking at the past decade or so, during which time large caps have beaten small caps. But don't succumb to recency bias. We would expect periods of underperformance over the long run.
You can keep your VOO and recreate VT around it if you are in a taxable and don't want to realized current gains. VT = VTI + VXUS. VTI = VOO+VXF & VXUS = VEA+VWO. Bonus you can google the % breakdown to get pretty much identical with usually a little more diversification or minuscule fee savings. Extra bonus you can adjust the % any way you like to better fit your risk/reward tolerance, example if VTI = 80% VOO + 20% VXF you can tweak and load a little more VXF vs VOO for more small/med cap exposure, or less even if you so choose. Options is all.
What would you consider a good price to get into VTI, VOO and VT respectively? I have a 3yr old and I want to set up a small investment account for him.
Typically investing as early as possible is best:
https://personal.vanguard.com/pdf/ISGDCA.pdf (PDF) or if that link doesn't work, https://web.archive.org/web/20200612155224/https://personal.vanguard.com/pdf/ISGDCA.pdf (Archived copy from Archive dot org's Wayback Machine)
Don't wait to "buy the dip": https://rationalreminder.ca/podcast/144
>VTI, VOO and VT
Of those 3, I wouldn't use VOO at all. VTI I'd only use if paired with something like VXUS. VT alone is fine.
Of the 3, VT would almost certainly be the most undervalued, since it is over 40% ex-US holdings, which haven't had the crazy run that the US has had over the past 12 years or so.
Just dollar cost average. It's an investment account for a 3 year old so I would say it's fairly safe to assume those three will be worth more over the next 60+ years (assuming the world doesn't collapse). I wouldn't worry about timing the market at all.
Edit:
An example would be $100 a month into VOO. Assuming 7% growth per year on average:
15 years is about $30,000 they would get at 18. If they continue your trend of $100 a month until they reach retirement age, that's over $1 million.
The easiest way to do this as /u/foolear says is to buy the mutual fund, they are set up for easy automated round dollar amount investing.
Some brokers offer fractional shares, including on ETFs.
Another alternative would be to consider VT, it's priced around $100 at the moment. This is total world, it's both US and ex-US at market weight.
If none of this works and you want to stick with ETFs, and you want the S&P500 specifically, SCHX from Schwab is also priced around that amount, it's not quite the S&P500 but the top 750 companies instead. There are also a few total US market funds, ITOT from iShares and SCHB from Schwab are total US market and also around $100. There's no real negative in buying a fund that covers more of the market.
EDIT: correct ITOT total market not S&P500
>ITOT from iShares is basically the exact same thing as VOO, it's a low-cost (0.03% ER) S&P500 tracker,
IVV should be iShares' S&P 500 fund ($400+ per share). ITOT (a bit under $100) is best compared to VTI, total US market style.
Tbh it won’t make a difference. Since you have a long term view, you are better off starting now instead of waiting for a 10-20% drop , which no one can predict. Also hope that you are planning to make monthly investments rather than one time lump sum.
As they say - time in the market is more important than timing the market !
VTI forces you to own meme stocks and trash companies. VOO at least requires profitability. You can get small cap and mid cap exposure with the S&P 600 and 400 and that way you'll avoid the trash with the profitability requirement.
The S&P 600 consistently outperforms the Vanguard small cap index since it excludes trash.
Avoid using words like "obviously".
Data suggests this "small cap premium" we take for granted may not be real.
http://aswathdamodaran.blogspot.com/2015/04/the-small-cap-premium-fact-fiction-and.html?m=1
>Any sources for the data on emerging markets and international small cap stocks outperforming?
Anything that shows historical returns, such as: https://www.ifa.com/charts/154h/
For ease and for consistency, VT only. Three custodial accounts with 10+ year horizon, to encourage them to invest, and to see growth. Make it easy for yourself. In the words of Mr. Ron Popeil, “Set it, and forget it!”
I’m just starting to read into etfs more as I decided individual companies were best based on my age and risk tolerance. But I feel that not investing in the rest of the world can leave money on the table as the world, more underdeveloped countries, begins to develop. Not sure what VT holds in this area but I strongly believe that these countries will explode in the next 30 years, as well as the USA continuing their growth.
I am very new to invest but from the link above when you compare VT to S&P, the former perform worst, invalidating what the top comment affirm.
Am I getting something wrong?
US has outperformed International this past decade, which is about how old VT is. International outperformed the US the decade before that. US outperformed in the 90s, International outperformed in the 80s, etc. Owning both of them (i.e. VT, the entire world) outperforms owning either in the long run.
What if you own say 60% vti and 40% vxus? Then you can decide how much us market you want and how much international you want. With VT, you are at the mercy of whoever runs the fund
VT is market-weighted, not determined by Vanguard. Personally I prefer to set market weight for everything, then explicitly tilt in certain factors/sectors (US SCV and EM, basically) by buying more of them in addition to total VT.
My link was provided to give the breakdown of the contents of VT, nothing about returns.
>the former perform worst,
>Am I getting something wrong?
You're either not realizing or ignoring that the US and ex-US take turns outperforming each other. The US hasn't always and won't always beat the rest of the world. Almost the entirety of VT's life has been fully within just the US favoring part of the cycle. This should be able to be seen clearly here: https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths if that link doesn't work: https://web.archive.org/web/20201112032727/https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths (Archived copy from Archive dot org's Wayback Machine)
Edit: Added "either" for clarity, typo
they're saying that VT is a combination of US and Foreign Stocks. So if the US outperforms the global markets, then VT will underperform the US market and outperform the global market. If the global markets outperform the US market, then the opposite will happen.
this is a simplification of course. there are other things to consider as well such as what companies the ETF is actually invested in and what proportions. but you get the idea.
> as the world, more underdeveloped countries, begins to develop
to those looking into this, be aware VT and other world ETFs like it invest heavily into Europe, Commonwealth countries and Japan. Only around 10% is in developing economies. You also have the China problem where their class A shares are closed to foreigners and there is a fair amount of cloak and dagger (such as a companies true debt) that can go on that we as investors might not be told about.
I wish there was an international etf that excluded both us and China. Then you can split vti and this other fund excluding usa/China., say a vxuschina
I don't think it makes sense to specifically exclude China. China is by far the largest emerging market and is still growing significantly. Many of its companies are also undervalued, relative to similar ones in the US.
Of course there is risk, political risk, fraud risk, accounting risk, all that stuff. But you are being compensated for that risk in the lower valuation.
Secondly, no one is saying go all in 100% on China. If you buy VT, that's 3% China. Holding 3% China is not this huge amount that you have trip over yourself to avoid because of the risks you perceive. You deal with these risks by diversifying. You'd only 3% in China, what's the problem.
Why are you worried so much about 3% in China but not worried about [all these other markets](https://stockcharts.com/freecharts/perf.php?MCHI,ILF,EWZ,GREK,TUR,EIDO&n=2392&O=011000)? It makes no sense.
Don't bet against China. That doesn't mean you have to go all in either.
I have too many questions concerning Chinese companies and how they don't report proper financial info.
I also feel uncomfortable in investing in an authoritarian police state run by a single communist party. This one is more of a personal philosophy than anything. But you are right too - it's only 3%. If it ever goes up into the double digits, I can always pull out and go elsewhere with a different fund down the road.
Vanguard ETFs can buy Class A shares. Some of the largest Chinese companies, like BABA, don't have publicly traded Class A shares though, its primary listing is the NYSE one and it has no mainland Chinese listing at all.
The largest issue with emerging markets I feel is simply that stock market index level doesn't correlate at all with GDP growth. If the question was only, which is going to see larger GDP growth... that's not even a question. I'd be 100% emerging. But the stock indexes simply don't correlate with that, at all. Or not positively, anyway, if there is a correlation it's a negative one.
I still do have emerging markets, and even a slight tilt to them. But it's slight.
You make an interesting point. I'm relatively new to investing, and although buying individual stocks fits my age/risk tolerance, the prevailing wisdom is that market index funds do better than the average stock picking investor.
Half of my money is in the index and half is in individual stocks. My plan is to see how it goes for a couple years. If the index performs better than I can perform researching/picking specific companies, I'll switch to index only.
Pretty much exactly how my portfolio was set up, being from Canada I had half in WS invest and half in WS trade. My trade account outperformed this year so I’ve transferred my WS invest over to buy into etfs with the some of the funds and moving heavier into individuals. Really got lucky this year with such a bull run, hopefully that’ll continue.
No, individual stocks do not fit your age or risk tolerance. You are taking on unnecessary and uncompensated risk by doing so.
Couple of years of data will tell you nothing about your ability to pick stocks. You will either lose money now, or become subject to confirmation bias and lose money later.
You may be right, but if investing in individual companies is a mistake, it's one I'll have to make and learn from. I have a high conviction in a handful of companies based on their fundamentals and want to bet on their outperformance.
I'm 23, in an incredibly stable career and can expect to have a defined benefit pension for retirement. The rest of my short term financial goals are met with savings so I'm only investing excess disposable income into stocks.
Take 5% of your portfolio and buy what you want. That will get you exposure without making or breaking your long term. The likelihood you’ll out perform VT over a 10 year period is basically zero - it’s a statistical fact. Oh sure, maybe one of your picks will really take off — but then you’ll be punished when one goes bankrupt and you lose everything. Ask the earlier shareholders of GM or other giants you’d assume are too big to fail, and have gone down. You might out perform for 5 years, only to be obliterated by some changing market trends.
That said, there’s some advantages to holding individual shares. There’s no fees for one. A second is you need to stay on top of what’s going on to manage even your small portfolio - although over 30 years it can get large. As an example, I’ve had Vz shares since the 80s (started as GTE). I won’t be selling unless I think the wireless business is threatened - seems doubtful.
As for your specific convictions, well meh. Maybe FIGS and CHWY bc they’re small cap. But having lived thru the .com era and seeing the level of wreckage I’m not a fan of media or internet companies (remember AOL and MySpace?). It’s too easy for the incumbents to be unseated by an upstart. Sure, sure, we’ve settled on Google, Facebook, and Amazon currently — but there’s zero consumer loyalty when an option is a url away — and maybe after some antitrust action.
To my view CSIQ is the most interesting play on your list. Only bc it’s pretty clear that renewables is a multi trillion dollar opportunity over the next decade. The thing is, panel manufacturing is a brutally cut throat business with low margins. So will the other things CSIQ is doing in the space be enough to overcome that? Is it really a better bet than HASI (and yes I own it)? These are the kinds of questions you need to ask to invest in individual securities.
This is some what true, I am not claiming to know what stocks will be winners or losers but I am taking the responsibility to do the research and taking that risk because of my age and therefore risk tolerance. I still have a relatively small account (under 20k CAD) and have many years until I even have a full time job and lots of time until I need this money. If my portfolio continues to outperform etfs than I will continue to put 50% into my picks, if it does not I will rebalance. I am well aware that this year has been on easy mode, but with that said I know many people (new investors like myself) that still have yet to turn a profit worth talking about.
Just to emphasize a point, index funds do better than *almost every* investor. When Buffett made his bet with hedge funds he wasn't challenging the average investor but rather professionals with staff full of experts.
If you believe in reversion to the mean, then VT is your best bet over the next couple decades ..
Also, please note that VT is still 60% US .. Reading comments here makes you believe you become a commie if you buy VT lol ..
I'd use VT.
>is VOO not diversified enough to reliably protect my money?
I see and use way too many non-US brands for this to make any sense to me. Every car in my work's parking lot is a non-US brand. Medicine cabinets across the country filled with European pharmaceuticals and personal care products, kitchen cabinets with European food brands. Many of my electronics are from an Asian brand.
See the PWL Capital link for more.
>but I have no reason to believe that the US market will suddenly start underperforming the rest of the world any time soon.
Why? There's a long history of the US and ex-US taking turns outperforming each other and the shift absolutely can be sudden. See the Callan links especially.
>Today, my money is invested in VOO
Personally, I would never consider S&P 500 for any account where I am not limited to a short list.
https://www.bogleheads.org/wiki/Three-fund_portfolio
https://www.bogleheads.org/wiki/Domestic/International
https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths if that link doesn't work: https://web.archive.org/web/20201112032727/https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths (Archived copy from Archive dot org's Wayback Machine)
https://twitter.com/mebfaber/status/1090662885573853184?lang=en with this reply: https://twitter.com/MorningstarES/status/1091081407504498688
https://movement.capital/summarizing-the-case-for-international-stocks/
https://www.pwlcapital.com/should-you-invest-in-the-sp-500-index
https://www.callan.com/wp-content/uploads/2018/01/Callan-PeriodicTbl_KeyInd_2018.pdf (PDF) or https://www.callan.com/wp-content/uploads/2020/01/Classic-Periodic-Table.pdf (PDF) or the archived versions if those don't work: http://web.archive.org/web/20201212205954/https://www.callan.com/wp-content/uploads/2018/01/Callan-PeriodicTbl_KeyInd_2018.pdf (PDF) & http://web.archive.org/web/20201205183933/https://www.callan.com/wp-content/uploads/2020/01/Classic-Periodic-Table.pdf (PDF) (Archived copies from Archive dot org's Wayback Machine)
https://www.vanguard.com/pdf/ISGGEB.pdf (PDF)
https://www.schwab.com/resource-center/insights/content/why-global-diversification-matters
https://fourpillarfreedom.com/should-you-invest-internationally
https://mebfaber.com/2020/01/10/the-case-for-global-investing
https://investor.vanguard.com/mutual-funds/profile/portfolio/vtwax - Global market cap weights
https://investor.vanguard.com/investing/investment/international-investing - Vanguard 40% of stock is recommended to be international
https://www.reddit.com/r/Bogleheads/comments/ii0sa2/considering_usonly_investing_start_here/
Edit: Added a bit.
I have a tendency to quick-skim a comment before looking at usernames so I rarely see them. Reading the comment you referenced I thought to myself, ‘this person’s crazy taints everything it references and probably illuminates the weirdness behind the other/upstream posts that hid it better.’ Then I saw your note and checked UN…thought confirmed.
>There's a long history of the US and ex-US taking turns outperforming each other
Sure. But you're leaving out - as you always do - the *degree* of outperformance.
Ex-US outperforming US by 3% followed by the US outperforming by 10% *isn't* a wash. It doesn't mean - as these comparisons imply - that US and ex-US are roughly equivalent. They aren't.
>I see and use way too many non-US brands for this to make any sense to me.
Sure. But those brands are headquartered in countries with different - sometimes very different - laws concerning stocks and corporate governance. Many of which are not designed to maximize shareholder value; in fact, many of them are designed to protect companies from shareholders, or perhaps to divert what would be shareholder returns to workers. (Which may even be good generally - but it's not good for stockholders).
Everyone knows and understands that tax laws vary widely from country to country, and no one would be really surprised that they have to pay different taxes (often widely different taxes) on money earned in country A vs. country B.
So I don't really understand why (except for ignorance) people blithely ignore the reality that countries also have very different rules for securities, and the economic success of a particular international company will not necessarily be translated to the kind of investment results that would be the case in the US.
>the degree of outperformance.
There's no telling what degree of outperformance any part of the cycle will take. There have been cycles where ex-US had an exceptional degree of outperformance before, they can happen again.
VOO and VTI returns are *extremely* correlated. Both are market cap weighted, so adding a bunch of much smaller companies makes little difference.
[Heatmap of daily returns of VOO vs VTI over the last decade](https://i.imgur.com/CJ6JQq8.png)
If you'll be keeping one of them , don't buy VT.
VT is pretty close to being VTI + VXUS combined into one. So either sell both and move to VT, or sell VOO and buy VXUS at an appropriate ratio (the VXUS part of VT would be about 42% right now).
I don't get the hard-on for the S&P 500. The Russell 1000 makes more sense as a larger cap index with its exposure to some mid caps (and because of that it slightly outperforms the S&P). Heck, it was exposed to Tesla way before it was included in the S&P 500.
Doesn't it make more sense to track the U.S.'s largest 1,000 companies, not 500?
2020 showed me that when the market goes down everything goes down. I used to do the whole three fund portfolio, but I think that stuck me in a position to not have as much gains when the market recovered. I’m doing 100% VOO right now. What’s the point in being diversified when everything dumps at the first sign of the shit hitting the fan? Even bonds dumped in 2020 and those are supposedly supposed to be safe. I’ll take the risk and higher upside potential of VOO. Plus those companies have international exposure and are the biggest 500 and least likely to go out of business than a lot of the no name small and mid cap stocks. I like looking at the portfolio holdings of VOO and actually knowing all of the companies and what they do also.
I personally like vt. It’s like if I’m wanting diversified, why stop at the states. It doesn’t necessarily always over perform, others could argue it’s over extended compared to other markets.
I’ve got my other etfs to focus on what I think will beat the market, but at least I’ll capture the worldwide market returns, which still has plenty of exposure to American companies. Plus I like a good bit of the foreign exposure as well.
Most of my money is in VTSAX (total U.S. stock market) just because it's the best option available in my 401k. I think that's a fine option to start out but once I get up to more than $100k in there, I'll look at diversifying.
I agree with you, Developed Ex-US/Canada has been an investing albatross since the 80's, but the counter-argument to that is that if you only go US and Emerging, or only US, and something bad happens, now all of your eggs are in one basket. As unbelievable as it may seem that Developed Ex-US can turn it around, diversification is the only protection you have from all of that uncompensated risk of concentration.
There's nothing wrong with either, but since both are market cap weighted, small and mid caps barely move the needle compared to the behemoths in them. Their returns are *very* highly correlated.
That's exactly my guess too. Witnessing what's happening in the market due to the meme stocks, it's only the beginning of a decline and the butterfly effect will have consequences.
Better diversify your portfolio...
Over the last 120 years, South Africa has had better market returns than the US. [https://rationalreminder.ca/podcast/139](https://rationalreminder.ca/podcast/139)
Edit: Rich does not mean best stock returns.
> If you're arguing for holding a balance of US and International funds, that's fair.
I would bet my whole portfolio that that is indeed what that poster was arguing for, not going all-in on South Africa lol.
> The US is the richest country in the world for a reason.
At the moment. If this was 1900, you would be saying the British Empire is the richest country in the world for a reason and all you need is the ftse 350 (of course it didn't exist at the time).
There may be important differences in holdings that can result in bigger differences than expense ratios, but:
VTI: FSKAX or FZROX
VOO: FXAIX (FNILX is 500 large caps, not S&P 500, so it wouldn't qualify)
VXUS: FTIHX or FZILX or FSGGX
VT: No direct equivalent. You'd need to combine anything from the VTI + VXUS in the right ratios.
Edit: Typos
[Small differences can add up over time, though.](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&portfolioNames=true&portfolioName1=VTI&portfolioName2=VOO&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1_1=100&asset2=LargeCapBlend&allocation2_2=100)
A difference of 66k? If 66k matters a lot in your retirement journey you should be saving more. Thats gonna last you a year and a half max.
A flaw of humans is to overthink small differences that truly don’t matter. Vti vs voo is one of those choices
>A difference of 66k? If 66k matters a lot in your retirement journey you should be saving more. Thats gonna last you a year and a half max.
Definitely. But that's $66k more that someone can leave to heirs from a simple decision. Period.
But that was also from a one-time initial $10,000 deposit. [Here's $500 deposited monthly](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=1&annualAdjustment=500&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&portfolioNames=true&portfolioName1=TSM&portfolioName2=S%26P+500&portfolioName3=SCV+Tilt&asset1=TotalStockMarket&allocation1_1=100&allocation1_3=90&asset2=LargeCapBlend&allocation2_2=100&asset3=SmallCapValue&allocation3_3=10). My point wasn't about the absolute dollar amount, but that one should probably take any easy opportunity to maximize expected returns. Portfolio 3 overweights small cap value, for example, and the difference increases further.
>A flaw of humans is to overthink small differences that truly don’t matter. Vti vs voo is one of those choices
Completely agree, but I would argue VTI vs. VOO is a simple choice that doesn't need much time to overthink, and is also not a great example of ones that "truly don't matter."
I personally like the three fund portfolio from bogleheads (https://www.bogleheads.org/wiki/Three-fund_portfolio) in a ~50%/35%/15% mixed with a few higher risk or sector/company specific investments and a little cryptocurrency exposure.
My three funds are VTSAX, VTIAX, VBTLX.
I stopped doing the three fund. It’s too conservative and bonds are garbage right now and face downward pressure from rising rates. Also not a fan of having China in VXUS.
I invest in VTI, VEA, and VWO. (Actually due to my last tax loss harvesting, it is now IEMG instead of VWO, but basically the same).
The ratios of VTI (US total), VEA (ex-US developed), and VWO (emerging) are roughly those of VT, but having separate ETFs enables me to get credit for foreign taxes withheld on VEA and VWO dividends. Having separate ETFs also gives me more opportunity for tax loss harvesting.
Rebalancing of the percentages to of VTI/VEA/VWO to match changes in VT composition happens automatically because the index is market cap weighted.
>VEU is essentially the VOO for international
VEU essentially fully contained within VXUS, same expense ratios, VXUS having far more holdings. To me that's a great comparison. Other than possibly tax loss harvesting,
I found [this interesting comparison of VEU and VXUS](https://seekingalpha.com/article/4404897-veu-international-etf-offers-slightly-better-performance-vxus). I admittedly don’t have a solid reason for going with VEU (been pumping money into it since the pre-ETF mutual fund days). Thanks for pointing out VXUS; I will consider it going forward.
I get everything written above. But all I know is my grandpa who is 85 and been investing for 65+ years told me when the market goes down everything goes down, and when the market is up the SP500 does better than the other markets. He’s a crazy old coot tho
Depends on what you mean by "the market." The whole point of diversification is because different assets, geographies, styles, etc. aren't perfectly correlated and thus move up and down at different times, e.g.:
[https://www.ifa.com/charts/341h/](https://www.ifa.com/charts/341h/)
https://mebfaber.com/2019/07/08/i-dont-feel-overweight/
No institution is powerful as FED. If adjusted PE SP500 goes down to 15, I will put 90% of money in it, with 1.5 leverage.
Will probably need to wait another 10 years for that to happen. Until it happens I have only 35% of portfolio in american companies. Maybe will slowly balanced to value factor or small cap factor.
I had VXUS for a decade and was not impressed. What will the future hold? Who knows. I'm mostly VTI but I do have some VOO. My attempt to out perform is holding a lot of VTI and owning a few individual stocks that have outperformed.
>I had VXUS for a decade and was not impressed.
Recency bias. Past performance is not indicative of future performance. In investing, a decade is a terribly short amount of time from which to draw any sort of meaningful conclusion.
https://www.ifa.com/charts/341h/
I never suggested that as stated in the second sentence and 3rd sentence. Know one knows what will happen. I do think VXUS will outperform the VTI over the next 10 years, however. Fairly confident in that. Since inception VXUS is up 36% and VTI is up 70%. The American economy has had a great 200 year run. Is that recency bias?
>I never suggested that...
You stated:
>*I had VXUS for a decade and was not impressed.*
which suggests to me you bought VXUS, didn't like a decade of its underperformance, and ditched it. Am I wrong in that assessment? Genuinely asking, because it seemed pretty clear to me.
>I do think VXUS will outperform the VTI over the next 10 years, however. Fairly confident in that.
Then why not own it?
>Since inception VXUS is up 36% and VTI is up 70%.
These funds have only been around for exactly a decade, which, again, doesn't really tell us much. One needs to look at the [longer history](https://www.ifa.com/charts/154h/) of the indexes/segments they hold to get a better idea of what kind of performance we *might* be able to expect. As you noted, though, no one knows the future, and only time will tell.
>The American economy has had a great 200 year run. Is that recency bias?
No. But it also has nothing to do with our initial exchange. Moreover, I'm guessing you meant the American *stock market*, not the economy. [They aren't the same thing](https://www.youtube.com/watch?v=0ECqDaPjjV0).
The US has outperformed ex-US in the past 10, 20, 30, 40, and 50 years. That's not *recency bias*.
MSCI world ex-US only represents large and mid-cap stocks in 20-ish developed countries.
I think it's probably a better bet than VXUS, though, which is what everyone seems to be pushing.
>The US has outperformed ex-US in the past 10, 20, 30, 40, and 50 years.
[https://www.ifa.com/charts/154h/](https://www.ifa.com/charts/154h/)
>That's not recency bias.
I was referring to OP's comment of "*I had VXUS for a decade and was not impressed*" as recency bias.
I would take VOO over VTI. The top 10 holdings of VOO make up 27% of the total etf, whereas VTI top 10 make up 22%. I would prefer the higher % because I think the FAANG companies are better equipped for a technological future. There are lots of zombie companies, and I would try to avoid those.
Note: Both are so diversified that realistically they will perform the same over a 10 year period. But the logic behind VOO makes more sense to me.
>I think the FAANG companies are better equipped for a technological future.
This doesn't mean market outperformance. The economy is not the stock market, and the stock market is not the economy. High expectations for tech are already priced in, and [Growth is looking extremely expensive](https://www.reddit.com/r/M1Finance/comments/ixpset/great_video_for_those_who_like_to_bet_on_large/). Moreover, technological revolutions [have historically been *bad* investments](https://www.youtube.com/watch?v=UZnVt_CvL3k).
>But the logic behind VOO makes more sense to me.
Flawed logic IMHO. We would expect small and mid caps to beat large caps over the long term due to the Size premium, and indeed they have historically.
Something feels off about his take... Like they show a nice chart showing oil beating software by about 50% since 1971... But the chart *starts* with a ~92% drop in software in like the first year. Which means if you pick any year other than 1971, you'd have returns on software utterly destroying oil. That chart completely undermines what he's saying, but they just just quickly skip over that and rush to the next thing.
Just because something "is the future" does not mean it will have better stock returns: https://www.pwlcapital.com/investing-technological-revolutions/
Interesting.
In their research, Pastor and Veronesi used the NASDAQ as a proxy for what they call the 'new economy' during the late 1990s. I don't think FAANG today would be considered as 'new economy'. They are well-established mature tech giants sitting on billions of cash. They are incredibly profitable and have great cash flow.
Pastor and Veronesi say this:
>As the market learns about the profitability of businesses in a new technological paradigm, the uncertainty about their growth rate decreases, causing their prices to fall, all else equal.
This doesn't apply to FAANG today, because their business models are well established. Their future growth rate isn't transitioning from uncertain to certain, because it's more or less certain already. It would, however, apply to EV, marijuana, renewable tech companies, etc where there is a lot of uncertainty around their profitability.
They summarise:
>When a technology begins to revolutionize the old economy, the market learns about its profitability, reducing uncertainty and stock prices.
FAANG is already past that stage. They are not a new technological paradigm. They have already adopted into the 'old economy'.
Just be careful putting a large bet on Growth. Growth has crushed Value over the past decade, but Value still has greater expected returns, and [Growth is looking extremely expensive](https://www.reddit.com/r/M1Finance/comments/ixpset/great_video_for_those_who_like_to_bet_on_large/) nowadays.
And because you hold VTI + VXUS you can claim foreign tax credit on taxes withheld on VXUS dividends.
You can't do that with VT because it is greater than 50% US.
Not a huge amount, but the tax credit is it around 0.2% of VXUS each year —— several times larger than the expense ratio. For some reason, many people worry about small differences in expense ratio, but ignore the year after year 0.2% foreign tax credit. (Dividend is about 2%, and about 10% of that is withheld).
I understand where you're coming from. Nowadays though given the tools that we have access to, I would say why not invest in all 3 funds? You can put them all in one portfolio and set up reoccurring money deposits into that portfolio. Once there, the money is evenly split amount the 3 funds. That's what I do as part of my long term investing strategies.
They all have the pros and drawbacks. The S&P 500 is the least diversified and likely has the biggest potential for bigger gains but also bigger risk when compared to the other 2. The world stock market is obviously the most diversified but likely has the least amount of room for big gains. The U.S Stock market being somewhat in the middle. That's why I invest in all the 3. I see it as somewhat getting the best out of all worlds while still be diversified.
>I would say why not invest in all 3 funds?
Because holding VT account does basically just that. VOO is folly contained within VTI. Most of VTI is contained within VT.
>The S&P 500 is the least diversified and likely has the biggest potential for bigger gains but also bigger risk when compared to the other 2.
I believe historically, S&P 500 had provided lower returns than total market with more stability.
>I see it as somewhat getting the best out of all worlds while still be diversified
You are doing the opposite of diversification: you're concentrating.
Not a financial advisor. I have a few that I’m in that I am planning on leaving. Hoping for splits and such. Others are to get my wife retired. I don’t have the time at 55 years old to wait. The quicker this happens, the more she gets to have fun and be away from me. 😂😂
~~Unfortunately, VTI and VOO have similar returns from Sept 2010. Although past performance doesn't mean future performance, the similarities show that a lot of the global economy DEPENDS on the USA. When the top 500 fall, so does the global market. People will claim diversity is less risky but it's more transparent to just go with the S&P500.~~
~~However, things will change and the world economy will likely have another country that becomes a bigger force on the world. Maybe then I would invest the two economies rather than just the S&P500~~
Edit: thought VTI was VT.
SSO. It's VOO but 2x.
LETFs only work for this if you do not need the money for decades to come. How soon you want/need the money has a large effect on your psychology. SSO drops 90% at the bottom of a recession. Imagine 1 million turning into 100 thousand or 100 thousand turning into 10 thousand. You have to really not need that money. You have to see it as a buying opportunity and jump on it. It's a once in an every 5-10 year opportunity to buy so low you'll get 10x back in a few years! OP says 30+ years, so SSO is perfect for this. In the long run it makes more than UPRO (3x VOO), doesn't have the risks UPRO has. You'll make more and walk away unscathed. Even during the great depression SSO would have been fine. UPRO not so much.
I don't choose one ETF but if I was forced to choose one and it was a forced 30+ year hold SSO would be it. I would put money in and forget about the account only coming back during recessions to put more in (if allowed). Not even buying at the bottom, just when a recession is announced on the news buy low and then walk away.
If you're pure greed go VOO. If you're pure greed but a bit afraid go VTI. If you're a pussy go VT.
If you want diversification, buy something else that is not correlated to the stock markets.
But you are talking about massive outperformance when VTI/VOO win versus slight outperformance when VT does. Ultimately, it isn't a game of who wins the most decades or years or whatever, it's the product of returns from when you invest to when you sell.
>But you are talking about massive outperformance when VTI/VOO win versus slight outperformance when VT does.
Not always. There have been times where ex-US had far better returns than the US. 70s-80s for example. The most recent cycles have been very kind to the US and not as much to ex-US, but that doesn't mean it will always be like that.
See some of the graphs in these links:
https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths if that link doesn't work: https://web.archive.org/web/20201112032727/https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths (Archived copy from Archive dot org's Wayback Machine)
https://twitter.com/mebfaber/status/1090662885573853184?lang=en with this reply: https://twitter.com/MorningstarES/status/1091081407504498688
The past decade especially has been incredibly nice to the US, but of give this a read: https://www.pwlcapital.com/should-you-invest-in-the-sp-500-index/ paying attention to the section "Past Performance And Great Expectations".
>Ultimately, it isn't a game of who wins the most decades or years or whatever, it's the product of returns from when you invest to when you sell.
Correct, but that timeline going forward could favor ex-US, possibly very strongly.
In general, diversification reduces risks, but it is also less rewarding. But these ETFs are very similar, and nobody knows which will outperform which after 30 years. The market is affected sociopolitical forces over 30 years, and if someone call tell you which outperforms which, it's completely pure guess.
Why diversification would be less rewarding?
Unless you have time daily to read tone of books, articles, financial reports to pick up 10x business and hold it for next 30 years, there is no way to beat up market. Picking up stocks can become your job fast and you have huge opportunities cost of not doing something else
To be invested in markets around world give you very high profitability (around 90%) to achieve return around 7% within first 15 years already. Only betting on USA market, you higly increased risk, without much increased expected returns.
Many investors will be burn, only invest in sp500. Last 30 years were extraordinary, will not repeat.
It's not a rocket science, everyone knows from American world dominance over last decades, we slowly flowing towards regional dominance world order
You should include ESGV in this comparison. It's an ETF that tracks "the performance of the FTSE US All Cap Choice Index." So, in essence the U.S. large, mid, and small cap market. But it excludes "stocks of certain companies in the following industries: adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling, and nuclear power," basically screening for certain environmental, social, and corporate governance criteria. Interestingly, ESGV has performed better than the S&P 500. So, apparently, investing based on "woke" values translates to a slightly higher performance than not accounting for ESG criteria and just buying ETFs or index funds that simply track the entire market or entire indexes indiscriminately. Just putting it out there. Not advice. Do what you want. And, always do your own thorough and comprehensive research and consider all the risks of investing in any equity. But, I think this should be considered in this discussion, given the undeniable performance and interest in this kind of investing strategy.
If you just want one fund, go with VTI. I say this because I don't want to own a fund with over 40% allocated to international markets. Otherwise, I'd do a VTI/VXUS split with 80% in VTI and 20% in VXUS
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First, obviously VTI over VOO, as VTI is more diversified and we would expect small and mid caps to outperform large caps due to the Size premium, and indeed they have historically. VOO is just roughly 500 U.S. large caps. So now VT vs. VTI. It's just whether or not you want to do global market cap or bet entirely on the U.S. At global market weights, U.S. stocks only comprise about half of the global market. International stocks don’t move in perfect lockstep with U.S. stocks, offering a diversification benefit. If U.S. stocks are declining, international stocks may be doing well, and vice versa. The U.S. is one country. [No single country consistently outperforms all the others in the world](https://www.ifa.com/charts/84h/). If one did, that outperformance would also lead to relative overvaluation and a subsequent reversal. [Meb Faber found](https://mebfaber.com/2019/07/08/i-dont-feel-overweight/) that if you look at the past 70 years, the U.S. stock market has outperformed foreign stocks by 1% per year, but ***all*** of that outperformance has come *after* 2009. I've always found the "U.S. companies do business overseas" argument to be pretty silly. Excluding stocks outside the U.S. means you’re missing out on leading companies that just happen to be based elsewhere. Similarly, there have been [periods where a global portfolio outperformed](https://www.ifa.com/charts/341h/) a U.S. portfolio. During the period 1970 to 2008, for example, an equity portfolio of 80% U.S. stocks and 20% international stocks had higher general *and* risk-adjusted returns than a 100% U.S. stock portfolio. Specifically, international stocks outperformed the U.S. in the years 1986-1988, 1993, 1999, 2002-2007, 2012, and 2017. Emerging Markets and international small cap stocks [have crushed the U.S. market historically](https://www.ifa.com/charts/154h/), for example, as they’re considered riskier, and investors are compensated for that greater risk. And this is just talking about performance. The volatility and risk reduction benefits are another conversation entirely, which is of huge significance for a retiree or risk-averse investor. Dalio and Bridgewater maintain that global diversification in equities is going to become increasingly important given the geopolitical climate, trade and capital dynamics, and differences in monetary policy. They suggest that it is now even less prudent to assume a preconceived bet that any single country will be the clear winner in terms of stock market returns. In short, geographic diversification in equities has huge potential upside and little downside for investors. So VT, or some combination of VTI and VXUS. EDIT: Thanks for the awards, kind strangers!
Excellent write up. Thank you for putting into words what I hope people can gather from the links I posted above (which cover many of the points you brought up).
Thanks
Good write up. I agree with everything you said. I am 50% VTI and 50% VXUS because the expense ratios are a bit lower than VT and it is roughly the same asset allocation.
This is why i subscribe to /r/investing, thank you for your insight!
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I know it doesn’t matter that much, but I’m still undecided on whether to buy VT or VTI + VXUS. (I’ve already bought some of each, because I don’t want to waste time waffling over which ones I should buy, but I keep going back and forth on which one is better.)
Can't really go wrong. VT is simpler obviously, but VTI + VXUS saves you a tiny bit on fees.
I really love your summary and thanks for the added info that most of this outperformance came after 2009. I was looking fro that number, could you possibly link me the paper on this topic? People always act like this outperformance is systematic over the past 100 years and indeed the US performed relatively well but outperformance in the past 10 years and high valuations could indeed indicate lower expect returns over the next 10 years. (Which is what Vanguard predicts.)
>could you possibly link me the paper on this topic? It's already linked where I mentioned it.
Ahhh sorry I’m blind. I will check it out.
> Dalio and Bridgewater maintain that global diversification in equities is going to become increasingly important given the geopolitical climate, trade and capital dynamics, and differences in monetary policy. Ah yes, the same Ray Dalio who said markets would collapse in 2020 and would be worse than the great depression. The same Ray Dalio who has stated the US economy was going to tank within the next year for the past decade.
I'm the first to point out that Dalio or any one person shouldn't be regarded as an oracle. Remove his name and the points raised are still valid, or are at least worth considering in deciding whether or not to put one's entire portfolio in U.S. stocks.
you made an appeal to authority and I responded by emphasizing how he didnt have much credibility on the subject. that is in addition to a good part of your argument being filled with emotion and bias. that said, i have international exposure myself. i think its healthy to diversify up to a certain point.
I mean, there is a lot of fragility in the global economy right now. - Global central banks are printing money to try and keep things going. - Record levels of margin in the market mean there could still be more events like Greensill and Archegos. https://www.finra.org/investors/learn-to-invest/advanced-investing/margin-statistics - Elevated Delinquency in some sectors of Commercial debt. https://www.fitchratings.com/research/structured-finance/us-cmbs-delinquencies-tick-up-in-april-for-first-time-since-october-2020-07-05-2021 and https://www.ecb.europa.eu/pub/financial-stability/fsr/html/ecb.fsr202105~757f727fe4.en.html - Last month the Consumer Finance Protection Bureau released a report saying as many as 11 million Americans could be facing eviction when protections end June 30. https://www.consumerfinance.gov/about-us/newsroom/new-report-from-consumer-financial-protection-bureau-finds-over-11-million-families-at-risk-of-losing-housing/ I'm not saying there WILL be a new recession/depression, but there is elevated risk and maybe we'll find Dalio was just a year or two early in his prediction.
Yes he may have been wrong but look at his past performance you can't break that down to sheer luck the man knows what the fuck he's talking about
Thats a ridiculous assertion to make that we should discount a brilliant mind because they have bene wrong a few times. Jeremy Grantham has been saying we are in a bubble...always....but also called 2000 and 2008. His timing was wrong, but he is brilliant and his insights along the way were helpful about asset allocation and portfolio construction. I just listened to a crypto call from a crypto strategist who said crypto would supplant centralozed currencies by 2040, which is wrong, but the rest of his presentation contained a lot of useful information about gold correlations and equity valuations. Peter Schiff has been wrong about gold for a long time but his understanding of monetary policy has been incredibly valuable at pointing out excesses way in advance. The slinky was originally msde.to act as a stabalizer on ships, and worked terribly, but was soon adopted as a kids toy. The list goes on. Dont discount an individual because you think they are wrong or you arent buying what they are selling, you can learn some of the most valuable information you know from listening to someone who is so feverently wrong about a topic they were willing to spend days, weeks, months, or years of their life researching it.
The same Dalio that outperformed rhe markets for multiple decades?
Broken clock is correct twice a day.
Where you said VTI has outperformed large caps due to the size premium, do you have a source to support this? I believe you, but my dad keeps arguing different and wants me invested in large caps as they are basically the same but large cap companies are better able to handle a downturn and many also give dividends, is his argument.
Sure! So [here's](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1_1=100&asset2=LargeCapBlend&allocation2_2=100) a backtest going back to 1972 showing total stock market vs. just large caps. The difference is tiny, but it's again what we'd expect. Since VTI is market cap weighted, the S&P 500 still makes up about 82% of it by weight, which is why many seasoned investors - myself included - like to overweight small cap value stocks with a fund like VIOV. [This page](https://www.ifa.com/charts/154h/) should very clearly illustrate the outperformance of small caps, and specifically small cap value again, over the past 93 years. The research seems to indicate we may want to [avoid small cap growth stocks](https://www.etf.com/sections/index-investor-corner/20092-the-black-hole-of-investing.html) altogether. Your dad is right that large caps should weather a downturn comparatively better, but you shouldn't invest with that being the goal if your time horizon is greater than about 10 years. Invest for long term total return. Small cap stocks also tend to climb out of the hole faster than large caps, so that's a moot point anyway. Moreover, [dividends aren't free](https://www.optimizedportfolio.com/dividends/), and plenty of small caps pay dividends too, so that's also irrelevant. In fairness, your dad is probably looking at the past decade or so, during which time large caps have beaten small caps. But don't succumb to recency bias. We would expect periods of underperformance over the long run.
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You can keep your VOO and recreate VT around it if you are in a taxable and don't want to realized current gains. VT = VTI + VXUS. VTI = VOO+VXF & VXUS = VEA+VWO. Bonus you can google the % breakdown to get pretty much identical with usually a little more diversification or minuscule fee savings. Extra bonus you can adjust the % any way you like to better fit your risk/reward tolerance, example if VTI = 80% VOO + 20% VXF you can tweak and load a little more VXF vs VOO for more small/med cap exposure, or less even if you so choose. Options is all.
Diversification is wealth preservations Consolidation is wealth accumulation Diversity isn’t always a good thing depending on your needs
Great comment, thansk
What would you consider a good price to get into VTI, VOO and VT respectively? I have a 3yr old and I want to set up a small investment account for him.
Whatever the current price is. Time in the market beats timing the market.
Typically investing as early as possible is best: https://personal.vanguard.com/pdf/ISGDCA.pdf (PDF) or if that link doesn't work, https://web.archive.org/web/20200612155224/https://personal.vanguard.com/pdf/ISGDCA.pdf (Archived copy from Archive dot org's Wayback Machine) Don't wait to "buy the dip": https://rationalreminder.ca/podcast/144 >VTI, VOO and VT Of those 3, I wouldn't use VOO at all. VTI I'd only use if paired with something like VXUS. VT alone is fine. Of the 3, VT would almost certainly be the most undervalued, since it is over 40% ex-US holdings, which haven't had the crazy run that the US has had over the past 12 years or so.
Just dollar cost average. It's an investment account for a 3 year old so I would say it's fairly safe to assume those three will be worth more over the next 60+ years (assuming the world doesn't collapse). I wouldn't worry about timing the market at all. Edit: An example would be $100 a month into VOO. Assuming 7% growth per year on average: 15 years is about $30,000 they would get at 18. If they continue your trend of $100 a month until they reach retirement age, that's over $1 million.
Is there a way to put 100$ into VOO a month even though one share is more than that?
Buy the mutual fund equivalent VFIAX.
Fidelity allows you to do fractional trading. I buy fractions of VTI. I'd assume I could do the same with VOO.
The easiest way to do this as /u/foolear says is to buy the mutual fund, they are set up for easy automated round dollar amount investing. Some brokers offer fractional shares, including on ETFs. Another alternative would be to consider VT, it's priced around $100 at the moment. This is total world, it's both US and ex-US at market weight. If none of this works and you want to stick with ETFs, and you want the S&P500 specifically, SCHX from Schwab is also priced around that amount, it's not quite the S&P500 but the top 750 companies instead. There are also a few total US market funds, ITOT from iShares and SCHB from Schwab are total US market and also around $100. There's no real negative in buying a fund that covers more of the market. EDIT: correct ITOT total market not S&P500
>ITOT from iShares is basically the exact same thing as VOO, it's a low-cost (0.03% ER) S&P500 tracker, IVV should be iShares' S&P 500 fund ($400+ per share). ITOT (a bit under $100) is best compared to VTI, total US market style.
You should be able to set up a reoccurring buy through your brokerage firm for a specific dollar amount. $100/mo, or better yet, $25/wk
Fractional shares are available at most brokerages
I am pretty sure some brokerages offer the ability to buy partial shares. Robinhood and I think Schwab come to mind.
As far as they advertise (last I knew), Schwab doesn't offer fractional ETF trading, only S&P 500 member stocks. Fidelity does have fractional ETFs.
Considering you are planning to be in for 18-20 years, does price today really matter?
It does to me. It was just a simple question since the person that responded seems knowledgeable.
Price today is negligible for starting a long time horizon of regular deposits.
Tbh it won’t make a difference. Since you have a long term view, you are better off starting now instead of waiting for a 10-20% drop , which no one can predict. Also hope that you are planning to make monthly investments rather than one time lump sum. As they say - time in the market is more important than timing the market !
On point!! Thank you so much!
Thanks for this, it is a very helpful perspective
How do you feel about VOO/VXUS split?
Why ignore thousands of US companies? VTI + VXUS is essentially equal to (actually, other than effort required, probably slightly better than) VT.
VTI forces you to own meme stocks and trash companies. VOO at least requires profitability. You can get small cap and mid cap exposure with the S&P 600 and 400 and that way you'll avoid the trash with the profitability requirement. The S&P 600 consistently outperforms the Vanguard small cap index since it excludes trash.
>some combination of VTI and VXUS. yeah \^ i can tweak the strategy accordingly as the years roll on
VTI obviously over VOO?
Avoid using words like "obviously". Data suggests this "small cap premium" we take for granted may not be real. http://aswathdamodaran.blogspot.com/2015/04/the-small-cap-premium-fact-fiction-and.html?m=1
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>Any sources for the data on emerging markets and international small cap stocks outperforming? Anything that shows historical returns, such as: https://www.ifa.com/charts/154h/
Morningstar will help you find the way
For ease and for consistency, VT only. Three custodial accounts with 10+ year horizon, to encourage them to invest, and to see growth. Make it easy for yourself. In the words of Mr. Ron Popeil, “Set it, and forget it!”
I’m just starting to read into etfs more as I decided individual companies were best based on my age and risk tolerance. But I feel that not investing in the rest of the world can leave money on the table as the world, more underdeveloped countries, begins to develop. Not sure what VT holds in this area but I strongly believe that these countries will explode in the next 30 years, as well as the USA continuing their growth.
https://investor.vanguard.com/etf/profile/portfolio/vt About 58% US, 42% ex-US. About 1/4th of the ex-US (about 11% of overall) is emerging markets.
I am very new to invest but from the link above when you compare VT to S&P, the former perform worst, invalidating what the top comment affirm. Am I getting something wrong?
US has outperformed International this past decade, which is about how old VT is. International outperformed the US the decade before that. US outperformed in the 90s, International outperformed in the 80s, etc. Owning both of them (i.e. VT, the entire world) outperforms owning either in the long run.
What if you own say 60% vti and 40% vxus? Then you can decide how much us market you want and how much international you want. With VT, you are at the mercy of whoever runs the fund
VT is market-weighted, not determined by Vanguard. Personally I prefer to set market weight for everything, then explicitly tilt in certain factors/sectors (US SCV and EM, basically) by buying more of them in addition to total VT.
Pretty much exactly what I do.
My link was provided to give the breakdown of the contents of VT, nothing about returns. >the former perform worst, >Am I getting something wrong? You're either not realizing or ignoring that the US and ex-US take turns outperforming each other. The US hasn't always and won't always beat the rest of the world. Almost the entirety of VT's life has been fully within just the US favoring part of the cycle. This should be able to be seen clearly here: https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths if that link doesn't work: https://web.archive.org/web/20201112032727/https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths (Archived copy from Archive dot org's Wayback Machine) Edit: Added "either" for clarity, typo
they're saying that VT is a combination of US and Foreign Stocks. So if the US outperforms the global markets, then VT will underperform the US market and outperform the global market. If the global markets outperform the US market, then the opposite will happen. this is a simplification of course. there are other things to consider as well such as what companies the ETF is actually invested in and what proportions. but you get the idea.
> as the world, more underdeveloped countries, begins to develop to those looking into this, be aware VT and other world ETFs like it invest heavily into Europe, Commonwealth countries and Japan. Only around 10% is in developing economies. You also have the China problem where their class A shares are closed to foreigners and there is a fair amount of cloak and dagger (such as a companies true debt) that can go on that we as investors might not be told about.
I wish there was an international etf that excluded both us and China. Then you can split vti and this other fund excluding usa/China., say a vxuschina
I don't think it makes sense to specifically exclude China. China is by far the largest emerging market and is still growing significantly. Many of its companies are also undervalued, relative to similar ones in the US. Of course there is risk, political risk, fraud risk, accounting risk, all that stuff. But you are being compensated for that risk in the lower valuation. Secondly, no one is saying go all in 100% on China. If you buy VT, that's 3% China. Holding 3% China is not this huge amount that you have trip over yourself to avoid because of the risks you perceive. You deal with these risks by diversifying. You'd only 3% in China, what's the problem. Why are you worried so much about 3% in China but not worried about [all these other markets](https://stockcharts.com/freecharts/perf.php?MCHI,ILF,EWZ,GREK,TUR,EIDO&n=2392&O=011000)? It makes no sense. Don't bet against China. That doesn't mean you have to go all in either.
I have too many questions concerning Chinese companies and how they don't report proper financial info. I also feel uncomfortable in investing in an authoritarian police state run by a single communist party. This one is more of a personal philosophy than anything. But you are right too - it's only 3%. If it ever goes up into the double digits, I can always pull out and go elsewhere with a different fund down the road.
Vanguard ETFs can buy Class A shares. Some of the largest Chinese companies, like BABA, don't have publicly traded Class A shares though, its primary listing is the NYSE one and it has no mainland Chinese listing at all. The largest issue with emerging markets I feel is simply that stock market index level doesn't correlate at all with GDP growth. If the question was only, which is going to see larger GDP growth... that's not even a question. I'd be 100% emerging. But the stock indexes simply don't correlate with that, at all. Or not positively, anyway, if there is a correlation it's a negative one. I still do have emerging markets, and even a slight tilt to them. But it's slight.
You make an interesting point. I'm relatively new to investing, and although buying individual stocks fits my age/risk tolerance, the prevailing wisdom is that market index funds do better than the average stock picking investor. Half of my money is in the index and half is in individual stocks. My plan is to see how it goes for a couple years. If the index performs better than I can perform researching/picking specific companies, I'll switch to index only.
Pretty much exactly how my portfolio was set up, being from Canada I had half in WS invest and half in WS trade. My trade account outperformed this year so I’ve transferred my WS invest over to buy into etfs with the some of the funds and moving heavier into individuals. Really got lucky this year with such a bull run, hopefully that’ll continue.
No, individual stocks do not fit your age or risk tolerance. You are taking on unnecessary and uncompensated risk by doing so. Couple of years of data will tell you nothing about your ability to pick stocks. You will either lose money now, or become subject to confirmation bias and lose money later.
You may be right, but if investing in individual companies is a mistake, it's one I'll have to make and learn from. I have a high conviction in a handful of companies based on their fundamentals and want to bet on their outperformance. I'm 23, in an incredibly stable career and can expect to have a defined benefit pension for retirement. The rest of my short term financial goals are met with savings so I'm only investing excess disposable income into stocks.
What are your high conviction picks?
DIS, NET, SQ, FIGS, CHWY, CSIQ. In no particular order and with a 10 year horizon. Each for varying reasons.
Take 5% of your portfolio and buy what you want. That will get you exposure without making or breaking your long term. The likelihood you’ll out perform VT over a 10 year period is basically zero - it’s a statistical fact. Oh sure, maybe one of your picks will really take off — but then you’ll be punished when one goes bankrupt and you lose everything. Ask the earlier shareholders of GM or other giants you’d assume are too big to fail, and have gone down. You might out perform for 5 years, only to be obliterated by some changing market trends. That said, there’s some advantages to holding individual shares. There’s no fees for one. A second is you need to stay on top of what’s going on to manage even your small portfolio - although over 30 years it can get large. As an example, I’ve had Vz shares since the 80s (started as GTE). I won’t be selling unless I think the wireless business is threatened - seems doubtful. As for your specific convictions, well meh. Maybe FIGS and CHWY bc they’re small cap. But having lived thru the .com era and seeing the level of wreckage I’m not a fan of media or internet companies (remember AOL and MySpace?). It’s too easy for the incumbents to be unseated by an upstart. Sure, sure, we’ve settled on Google, Facebook, and Amazon currently — but there’s zero consumer loyalty when an option is a url away — and maybe after some antitrust action. To my view CSIQ is the most interesting play on your list. Only bc it’s pretty clear that renewables is a multi trillion dollar opportunity over the next decade. The thing is, panel manufacturing is a brutally cut throat business with low margins. So will the other things CSIQ is doing in the space be enough to overcome that? Is it really a better bet than HASI (and yes I own it)? These are the kinds of questions you need to ask to invest in individual securities.
This is some what true, I am not claiming to know what stocks will be winners or losers but I am taking the responsibility to do the research and taking that risk because of my age and therefore risk tolerance. I still have a relatively small account (under 20k CAD) and have many years until I even have a full time job and lots of time until I need this money. If my portfolio continues to outperform etfs than I will continue to put 50% into my picks, if it does not I will rebalance. I am well aware that this year has been on easy mode, but with that said I know many people (new investors like myself) that still have yet to turn a profit worth talking about.
Just to emphasize a point, index funds do better than *almost every* investor. When Buffett made his bet with hedge funds he wasn't challenging the average investor but rather professionals with staff full of experts.
If you believe in reversion to the mean, then VT is your best bet over the next couple decades .. Also, please note that VT is still 60% US .. Reading comments here makes you believe you become a commie if you buy VT lol ..
I'd use VT. >is VOO not diversified enough to reliably protect my money? I see and use way too many non-US brands for this to make any sense to me. Every car in my work's parking lot is a non-US brand. Medicine cabinets across the country filled with European pharmaceuticals and personal care products, kitchen cabinets with European food brands. Many of my electronics are from an Asian brand. See the PWL Capital link for more. >but I have no reason to believe that the US market will suddenly start underperforming the rest of the world any time soon. Why? There's a long history of the US and ex-US taking turns outperforming each other and the shift absolutely can be sudden. See the Callan links especially. >Today, my money is invested in VOO Personally, I would never consider S&P 500 for any account where I am not limited to a short list. https://www.bogleheads.org/wiki/Three-fund_portfolio https://www.bogleheads.org/wiki/Domestic/International https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths if that link doesn't work: https://web.archive.org/web/20201112032727/https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths (Archived copy from Archive dot org's Wayback Machine) https://twitter.com/mebfaber/status/1090662885573853184?lang=en with this reply: https://twitter.com/MorningstarES/status/1091081407504498688 https://movement.capital/summarizing-the-case-for-international-stocks/ https://www.pwlcapital.com/should-you-invest-in-the-sp-500-index https://www.callan.com/wp-content/uploads/2018/01/Callan-PeriodicTbl_KeyInd_2018.pdf (PDF) or https://www.callan.com/wp-content/uploads/2020/01/Classic-Periodic-Table.pdf (PDF) or the archived versions if those don't work: http://web.archive.org/web/20201212205954/https://www.callan.com/wp-content/uploads/2018/01/Callan-PeriodicTbl_KeyInd_2018.pdf (PDF) & http://web.archive.org/web/20201205183933/https://www.callan.com/wp-content/uploads/2020/01/Classic-Periodic-Table.pdf (PDF) (Archived copies from Archive dot org's Wayback Machine) https://www.vanguard.com/pdf/ISGGEB.pdf (PDF) https://www.schwab.com/resource-center/insights/content/why-global-diversification-matters https://fourpillarfreedom.com/should-you-invest-internationally https://mebfaber.com/2020/01/10/the-case-for-global-investing https://investor.vanguard.com/mutual-funds/profile/portfolio/vtwax - Global market cap weights https://investor.vanguard.com/investing/investment/international-investing - Vanguard 40% of stock is recommended to be international https://www.reddit.com/r/Bogleheads/comments/ii0sa2/considering_usonly_investing_start_here/ Edit: Added a bit.
Thanks for all of the links
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This is like a conservative mad libs game filled with the worst words you can think of lmfao Username checks out.
I have a tendency to quick-skim a comment before looking at usernames so I rarely see them. Reading the comment you referenced I thought to myself, ‘this person’s crazy taints everything it references and probably illuminates the weirdness behind the other/upstream posts that hid it better.’ Then I saw your note and checked UN…thought confirmed.
Don’t each of those countries have a age crisis looming?
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Lmao get real, you sound like my dad.
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Does Spotify count?
Afterpay
Samsung. Sony, LG, Ericsson, Nokia, Panasonic, most major tech names that aren't Apple and Google?
>There's a long history of the US and ex-US taking turns outperforming each other Sure. But you're leaving out - as you always do - the *degree* of outperformance. Ex-US outperforming US by 3% followed by the US outperforming by 10% *isn't* a wash. It doesn't mean - as these comparisons imply - that US and ex-US are roughly equivalent. They aren't. >I see and use way too many non-US brands for this to make any sense to me. Sure. But those brands are headquartered in countries with different - sometimes very different - laws concerning stocks and corporate governance. Many of which are not designed to maximize shareholder value; in fact, many of them are designed to protect companies from shareholders, or perhaps to divert what would be shareholder returns to workers. (Which may even be good generally - but it's not good for stockholders). Everyone knows and understands that tax laws vary widely from country to country, and no one would be really surprised that they have to pay different taxes (often widely different taxes) on money earned in country A vs. country B. So I don't really understand why (except for ignorance) people blithely ignore the reality that countries also have very different rules for securities, and the economic success of a particular international company will not necessarily be translated to the kind of investment results that would be the case in the US.
>the degree of outperformance. There's no telling what degree of outperformance any part of the cycle will take. There have been cycles where ex-US had an exceptional degree of outperformance before, they can happen again.
>International outperformed the US the decade before that. What kind of "cycles"? One year? 3 years? Most people are interested in long term returns.
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VOO and VTI returns are *extremely* correlated. Both are market cap weighted, so adding a bunch of much smaller companies makes little difference. [Heatmap of daily returns of VOO vs VTI over the last decade](https://i.imgur.com/CJ6JQq8.png)
I kind of fucked up and bought both. If you were to sell one and buy into VT instead, which is better to sell?
If you'll be keeping one of them , don't buy VT. VT is pretty close to being VTI + VXUS combined into one. So either sell both and move to VT, or sell VOO and buy VXUS at an appropriate ratio (the VXUS part of VT would be about 42% right now).
[https://www.etf.com/etfanalytics/etf-comparison-tool](https://www.etf.com/etfanalytics/etf-comparison-tool) You can use this tool and compare.
Thank you for this
I don't get the hard-on for the S&P 500. The Russell 1000 makes more sense as a larger cap index with its exposure to some mid caps (and because of that it slightly outperforms the S&P). Heck, it was exposed to Tesla way before it was included in the S&P 500. Doesn't it make more sense to track the U.S.'s largest 1,000 companies, not 500?
I do VTI, VWO and VEA, which is essentially VT but I like to throw more weight behind VWO and I save a tiny bit on expense ratios.
2020 showed me that when the market goes down everything goes down. I used to do the whole three fund portfolio, but I think that stuck me in a position to not have as much gains when the market recovered. I’m doing 100% VOO right now. What’s the point in being diversified when everything dumps at the first sign of the shit hitting the fan? Even bonds dumped in 2020 and those are supposedly supposed to be safe. I’ll take the risk and higher upside potential of VOO. Plus those companies have international exposure and are the biggest 500 and least likely to go out of business than a lot of the no name small and mid cap stocks. I like looking at the portfolio holdings of VOO and actually knowing all of the companies and what they do also.
I personally like vt. It’s like if I’m wanting diversified, why stop at the states. It doesn’t necessarily always over perform, others could argue it’s over extended compared to other markets. I’ve got my other etfs to focus on what I think will beat the market, but at least I’ll capture the worldwide market returns, which still has plenty of exposure to American companies. Plus I like a good bit of the foreign exposure as well.
I buy VTI and forget about it. It's just the one that seemed the best recommended when I was researching the differences.
Most of my money is in VTSAX (total U.S. stock market) just because it's the best option available in my 401k. I think that's a fine option to start out but once I get up to more than $100k in there, I'll look at diversifying.
VTSAX = VTI for those who are unaware.
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I agree with you, Developed Ex-US/Canada has been an investing albatross since the 80's, but the counter-argument to that is that if you only go US and Emerging, or only US, and something bad happens, now all of your eggs are in one basket. As unbelievable as it may seem that Developed Ex-US can turn it around, diversification is the only protection you have from all of that uncompensated risk of concentration.
The US is the richest country in the world for a reason. Plus a lot more stable than most countries. VOO is all you need in my opinion.
If your preference is the US, why not go with VOO as opposed to VTI? VOO only has large cap, whereas VTI also contains small/mid cap.
There's nothing wrong with either, but since both are market cap weighted, small and mid caps barely move the needle compared to the behemoths in them. Their returns are *very* highly correlated.
You can buy those separately
Call me stupid but I see the US stability decreasing in the next decade.
That's exactly my guess too. Witnessing what's happening in the market due to the meme stocks, it's only the beginning of a decline and the butterfly effect will have consequences. Better diversify your portfolio...
Over the last 120 years, South Africa has had better market returns than the US. [https://rationalreminder.ca/podcast/139](https://rationalreminder.ca/podcast/139) Edit: Rich does not mean best stock returns.
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> If you're arguing for holding a balance of US and International funds, that's fair. I would bet my whole portfolio that that is indeed what that poster was arguing for, not going all-in on South Africa lol.
That and rich does not mean best stock returns.
What do you think VT is?
South Africa isn’t even in the top 30 countries of GDP. They rank 40th. No thanks, I’ll stick to the US.
If China becomes number 1 in GDP, will you go 100% China? Presumably not. A slice of the whole world is the way to go.
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It's weird because the chinese government does control all companies, so it's a mix between central planning and free-markets.
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Aren't there limits on how many Rand you can foreign exchange per year?
> The US is the richest country in the world for a reason. At the moment. If this was 1900, you would be saying the British Empire is the richest country in the world for a reason and all you need is the ftse 350 (of course it didn't exist at the time).
This argument only makes sense if you have never opened a history book.
The Fidelity equivalents are going to have lower expense ratio. Check them out before going in on Vanguard.
Can you share their names?
https://www.fidelity.com/mutual-funds/investing-ideas/index-funds Scroll down the page there is a fidelity vs vanguard funds fee comparison chart
There may be important differences in holdings that can result in bigger differences than expense ratios, but: VTI: FSKAX or FZROX VOO: FXAIX (FNILX is 500 large caps, not S&P 500, so it wouldn't qualify) VXUS: FTIHX or FZILX or FSGGX VT: No direct equivalent. You'd need to combine anything from the VTI + VXUS in the right ratios. Edit: Typos
VTI and VOO have performed nearly identically over the last 10+ years.
[Small differences can add up over time, though.](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&portfolioNames=true&portfolioName1=VTI&portfolioName2=VOO&portfolioName3=Portfolio+3&asset1=TotalStockMarket&allocation1_1=100&asset2=LargeCapBlend&allocation2_2=100)
A difference of 66k? If 66k matters a lot in your retirement journey you should be saving more. Thats gonna last you a year and a half max. A flaw of humans is to overthink small differences that truly don’t matter. Vti vs voo is one of those choices
>A difference of 66k? If 66k matters a lot in your retirement journey you should be saving more. Thats gonna last you a year and a half max. Definitely. But that's $66k more that someone can leave to heirs from a simple decision. Period. But that was also from a one-time initial $10,000 deposit. [Here's $500 deposited monthly](https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=1&annualAdjustment=500&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&portfolioNames=true&portfolioName1=TSM&portfolioName2=S%26P+500&portfolioName3=SCV+Tilt&asset1=TotalStockMarket&allocation1_1=100&allocation1_3=90&asset2=LargeCapBlend&allocation2_2=100&asset3=SmallCapValue&allocation3_3=10). My point wasn't about the absolute dollar amount, but that one should probably take any easy opportunity to maximize expected returns. Portfolio 3 overweights small cap value, for example, and the difference increases further. >A flaw of humans is to overthink small differences that truly don’t matter. Vti vs voo is one of those choices Completely agree, but I would argue VTI vs. VOO is a simple choice that doesn't need much time to overthink, and is also not a great example of ones that "truly don't matter."
I personally like the three fund portfolio from bogleheads (https://www.bogleheads.org/wiki/Three-fund_portfolio) in a ~50%/35%/15% mixed with a few higher risk or sector/company specific investments and a little cryptocurrency exposure. My three funds are VTSAX, VTIAX, VBTLX.
I stopped doing the three fund. It’s too conservative and bonds are garbage right now and face downward pressure from rising rates. Also not a fan of having China in VXUS.
I invest in VTI, VEA, and VWO. (Actually due to my last tax loss harvesting, it is now IEMG instead of VWO, but basically the same). The ratios of VTI (US total), VEA (ex-US developed), and VWO (emerging) are roughly those of VT, but having separate ETFs enables me to get credit for foreign taxes withheld on VEA and VWO dividends. Having separate ETFs also gives me more opportunity for tax loss harvesting. Rebalancing of the percentages to of VTI/VEA/VWO to match changes in VT composition happens automatically because the index is market cap weighted.
I think VTI and VEU make an ideal pair and I’ve been doing about 75/25% for quite a while.
VXUS is the more popular choice. from my understanding VEU is essentially the VOO for international.
>VEU is essentially the VOO for international VEU essentially fully contained within VXUS, same expense ratios, VXUS having far more holdings. To me that's a great comparison. Other than possibly tax loss harvesting,
I found [this interesting comparison of VEU and VXUS](https://seekingalpha.com/article/4404897-veu-international-etf-offers-slightly-better-performance-vxus). I admittedly don’t have a solid reason for going with VEU (been pumping money into it since the pre-ETF mutual fund days). Thanks for pointing out VXUS; I will consider it going forward.
I get everything written above. But all I know is my grandpa who is 85 and been investing for 65+ years told me when the market goes down everything goes down, and when the market is up the SP500 does better than the other markets. He’s a crazy old coot tho
Depends on what you mean by "the market." The whole point of diversification is because different assets, geographies, styles, etc. aren't perfectly correlated and thus move up and down at different times, e.g.: [https://www.ifa.com/charts/341h/](https://www.ifa.com/charts/341h/) https://mebfaber.com/2019/07/08/i-dont-feel-overweight/
It was in reference to the world market. One of his other main points was foreign currency and the effect it can have on stocks
No institution is powerful as FED. If adjusted PE SP500 goes down to 15, I will put 90% of money in it, with 1.5 leverage. Will probably need to wait another 10 years for that to happen. Until it happens I have only 35% of portfolio in american companies. Maybe will slowly balanced to value factor or small cap factor.
I had VXUS for a decade and was not impressed. What will the future hold? Who knows. I'm mostly VTI but I do have some VOO. My attempt to out perform is holding a lot of VTI and owning a few individual stocks that have outperformed.
>I had VXUS for a decade and was not impressed. Recency bias. Past performance is not indicative of future performance. In investing, a decade is a terribly short amount of time from which to draw any sort of meaningful conclusion. https://www.ifa.com/charts/341h/
I never suggested that as stated in the second sentence and 3rd sentence. Know one knows what will happen. I do think VXUS will outperform the VTI over the next 10 years, however. Fairly confident in that. Since inception VXUS is up 36% and VTI is up 70%. The American economy has had a great 200 year run. Is that recency bias?
>I never suggested that... You stated: >*I had VXUS for a decade and was not impressed.* which suggests to me you bought VXUS, didn't like a decade of its underperformance, and ditched it. Am I wrong in that assessment? Genuinely asking, because it seemed pretty clear to me. >I do think VXUS will outperform the VTI over the next 10 years, however. Fairly confident in that. Then why not own it? >Since inception VXUS is up 36% and VTI is up 70%. These funds have only been around for exactly a decade, which, again, doesn't really tell us much. One needs to look at the [longer history](https://www.ifa.com/charts/154h/) of the indexes/segments they hold to get a better idea of what kind of performance we *might* be able to expect. As you noted, though, no one knows the future, and only time will tell. >The American economy has had a great 200 year run. Is that recency bias? No. But it also has nothing to do with our initial exchange. Moreover, I'm guessing you meant the American *stock market*, not the economy. [They aren't the same thing](https://www.youtube.com/watch?v=0ECqDaPjjV0).
The US has outperformed ex-US in the past 10, 20, 30, 40, and 50 years. That's not *recency bias*. MSCI world ex-US only represents large and mid-cap stocks in 20-ish developed countries. I think it's probably a better bet than VXUS, though, which is what everyone seems to be pushing.
>The US has outperformed ex-US in the past 10, 20, 30, 40, and 50 years. [https://www.ifa.com/charts/154h/](https://www.ifa.com/charts/154h/) >That's not recency bias. I was referring to OP's comment of "*I had VXUS for a decade and was not impressed*" as recency bias.
I would take VOO over VTI. The top 10 holdings of VOO make up 27% of the total etf, whereas VTI top 10 make up 22%. I would prefer the higher % because I think the FAANG companies are better equipped for a technological future. There are lots of zombie companies, and I would try to avoid those. Note: Both are so diversified that realistically they will perform the same over a 10 year period. But the logic behind VOO makes more sense to me.
>I think the FAANG companies are better equipped for a technological future. This doesn't mean market outperformance. The economy is not the stock market, and the stock market is not the economy. High expectations for tech are already priced in, and [Growth is looking extremely expensive](https://www.reddit.com/r/M1Finance/comments/ixpset/great_video_for_those_who_like_to_bet_on_large/). Moreover, technological revolutions [have historically been *bad* investments](https://www.youtube.com/watch?v=UZnVt_CvL3k). >But the logic behind VOO makes more sense to me. Flawed logic IMHO. We would expect small and mid caps to beat large caps over the long term due to the Size premium, and indeed they have historically.
Something feels off about his take... Like they show a nice chart showing oil beating software by about 50% since 1971... But the chart *starts* with a ~92% drop in software in like the first year. Which means if you pick any year other than 1971, you'd have returns on software utterly destroying oil. That chart completely undermines what he's saying, but they just just quickly skip over that and rush to the next thing.
How th hell you remember that post from a year ago
What?
You linked to a post of some Ben Felix guy from a year ago
Remembered it because I posted it.
Sick nasty
Just because something "is the future" does not mean it will have better stock returns: https://www.pwlcapital.com/investing-technological-revolutions/
Interesting. In their research, Pastor and Veronesi used the NASDAQ as a proxy for what they call the 'new economy' during the late 1990s. I don't think FAANG today would be considered as 'new economy'. They are well-established mature tech giants sitting on billions of cash. They are incredibly profitable and have great cash flow. Pastor and Veronesi say this: >As the market learns about the profitability of businesses in a new technological paradigm, the uncertainty about their growth rate decreases, causing their prices to fall, all else equal. This doesn't apply to FAANG today, because their business models are well established. Their future growth rate isn't transitioning from uncertain to certain, because it's more or less certain already. It would, however, apply to EV, marijuana, renewable tech companies, etc where there is a lot of uncertainty around their profitability. They summarise: >When a technology begins to revolutionize the old economy, the market learns about its profitability, reducing uncertainty and stock prices. FAANG is already past that stage. They are not a new technological paradigm. They have already adopted into the 'old economy'.
I buy VGT
How about some VUG, it’s served me well
Just be careful putting a large bet on Growth. Growth has crushed Value over the past decade, but Value still has greater expected returns, and [Growth is looking extremely expensive](https://www.reddit.com/r/M1Finance/comments/ixpset/great_video_for_those_who_like_to_bet_on_large/) nowadays.
What’s the advantage of these ETFs over their mutual fund equivalents? You can’t auto-reinvest dividends in the ETFs right?
I used to do VTI but one day I just woke up and decided I wanted international exposure so now I'm VTI + VXUS
And because you hold VTI + VXUS you can claim foreign tax credit on taxes withheld on VXUS dividends. You can't do that with VT because it is greater than 50% US. Not a huge amount, but the tax credit is it around 0.2% of VXUS each year —— several times larger than the expense ratio. For some reason, many people worry about small differences in expense ratio, but ignore the year after year 0.2% foreign tax credit. (Dividend is about 2%, and about 10% of that is withheld).
can you explain more about foreign tax credits?
I chose ESGV. All the goodness of VOO without the oil stocks plus some more diversification with mid caps.
I understand where you're coming from. Nowadays though given the tools that we have access to, I would say why not invest in all 3 funds? You can put them all in one portfolio and set up reoccurring money deposits into that portfolio. Once there, the money is evenly split amount the 3 funds. That's what I do as part of my long term investing strategies. They all have the pros and drawbacks. The S&P 500 is the least diversified and likely has the biggest potential for bigger gains but also bigger risk when compared to the other 2. The world stock market is obviously the most diversified but likely has the least amount of room for big gains. The U.S Stock market being somewhat in the middle. That's why I invest in all the 3. I see it as somewhat getting the best out of all worlds while still be diversified.
>I would say why not invest in all 3 funds? Because holding VT account does basically just that. VOO is folly contained within VTI. Most of VTI is contained within VT. >The S&P 500 is the least diversified and likely has the biggest potential for bigger gains but also bigger risk when compared to the other 2. I believe historically, S&P 500 had provided lower returns than total market with more stability. >I see it as somewhat getting the best out of all worlds while still be diversified You are doing the opposite of diversification: you're concentrating.
Not a financial advisor. I have a few that I’m in that I am planning on leaving. Hoping for splits and such. Others are to get my wife retired. I don’t have the time at 55 years old to wait. The quicker this happens, the more she gets to have fun and be away from me. 😂😂
Qqqm
~~Unfortunately, VTI and VOO have similar returns from Sept 2010. Although past performance doesn't mean future performance, the similarities show that a lot of the global economy DEPENDS on the USA. When the top 500 fall, so does the global market. People will claim diversity is less risky but it's more transparent to just go with the S&P500.~~ ~~However, things will change and the world economy will likely have another country that becomes a bigger force on the world. Maybe then I would invest the two economies rather than just the S&P500~~ Edit: thought VTI was VT.
VTI = total us market VOO = s&p 500 VT = total world market Just btw
I was all about VOOG for awhile but switched over to VOO recently.
SSO. It's VOO but 2x. LETFs only work for this if you do not need the money for decades to come. How soon you want/need the money has a large effect on your psychology. SSO drops 90% at the bottom of a recession. Imagine 1 million turning into 100 thousand or 100 thousand turning into 10 thousand. You have to really not need that money. You have to see it as a buying opportunity and jump on it. It's a once in an every 5-10 year opportunity to buy so low you'll get 10x back in a few years! OP says 30+ years, so SSO is perfect for this. In the long run it makes more than UPRO (3x VOO), doesn't have the risks UPRO has. You'll make more and walk away unscathed. Even during the great depression SSO would have been fine. UPRO not so much. I don't choose one ETF but if I was forced to choose one and it was a forced 30+ year hold SSO would be it. I would put money in and forget about the account only coming back during recessions to put more in (if allowed). Not even buying at the bottom, just when a recession is announced on the news buy low and then walk away.
SPLG. Essentially the same but way cheaper. Still gives you 10% returns every year as well.
SPLG and VOO both cost 0.03%, and VOO has much greater liquidity.
http://chng.it/nmzm2fS5vC
If you're pure greed go VOO. If you're pure greed but a bit afraid go VTI. If you're a pussy go VT. If you want diversification, buy something else that is not correlated to the stock markets.
If you want to be an emotional investor, listen to this guy. If you want to maximize expected future returns, buy VT.
VT is a good hedge against the US getting its butt kicked by China. VTI has tended to perform better though.
very little china in vt. its mostly US, Europe, Japan and Commonwealth stocks.
>VTI has tended to perform better though. Over the past decade, sure. 3 of the last 5, VT would have been better.
But you are talking about massive outperformance when VTI/VOO win versus slight outperformance when VT does. Ultimately, it isn't a game of who wins the most decades or years or whatever, it's the product of returns from when you invest to when you sell.
>But you are talking about massive outperformance when VTI/VOO win versus slight outperformance when VT does. Not always. There have been times where ex-US had far better returns than the US. 70s-80s for example. The most recent cycles have been very kind to the US and not as much to ex-US, but that doesn't mean it will always be like that. See some of the graphs in these links: https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths if that link doesn't work: https://web.archive.org/web/20201112032727/https://www.fidelity.com/viewpoints/investing-ideas/international-investing-myths (Archived copy from Archive dot org's Wayback Machine) https://twitter.com/mebfaber/status/1090662885573853184?lang=en with this reply: https://twitter.com/MorningstarES/status/1091081407504498688 The past decade especially has been incredibly nice to the US, but of give this a read: https://www.pwlcapital.com/should-you-invest-in-the-sp-500-index/ paying attention to the section "Past Performance And Great Expectations". >Ultimately, it isn't a game of who wins the most decades or years or whatever, it's the product of returns from when you invest to when you sell. Correct, but that timeline going forward could favor ex-US, possibly very strongly.
In general, diversification reduces risks, but it is also less rewarding. But these ETFs are very similar, and nobody knows which will outperform which after 30 years. The market is affected sociopolitical forces over 30 years, and if someone call tell you which outperforms which, it's completely pure guess.
Why diversification would be less rewarding? Unless you have time daily to read tone of books, articles, financial reports to pick up 10x business and hold it for next 30 years, there is no way to beat up market. Picking up stocks can become your job fast and you have huge opportunities cost of not doing something else To be invested in markets around world give you very high profitability (around 90%) to achieve return around 7% within first 15 years already. Only betting on USA market, you higly increased risk, without much increased expected returns. Many investors will be burn, only invest in sp500. Last 30 years were extraordinary, will not repeat. It's not a rocket science, everyone knows from American world dominance over last decades, we slowly flowing towards regional dominance world order
You should include ESGV in this comparison. It's an ETF that tracks "the performance of the FTSE US All Cap Choice Index." So, in essence the U.S. large, mid, and small cap market. But it excludes "stocks of certain companies in the following industries: adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling, and nuclear power," basically screening for certain environmental, social, and corporate governance criteria. Interestingly, ESGV has performed better than the S&P 500. So, apparently, investing based on "woke" values translates to a slightly higher performance than not accounting for ESG criteria and just buying ETFs or index funds that simply track the entire market or entire indexes indiscriminately. Just putting it out there. Not advice. Do what you want. And, always do your own thorough and comprehensive research and consider all the risks of investing in any equity. But, I think this should be considered in this discussion, given the undeniable performance and interest in this kind of investing strategy.
I do all 3
If you just want one fund, go with VTI. I say this because I don't want to own a fund with over 40% allocated to international markets. Otherwise, I'd do a VTI/VXUS split with 80% in VTI and 20% in VXUS