# Vanguard VT ETF vs couch potato equity choices



## bean438 (Jul 18, 2009)

Just wanted to bounce this off some people.

Instead of 25% CDN equity, 25% US equity, 25% international equity, why not just go with VTI?

Pretty much covers the whole world, from what I can see somewhat proportionate to the country market sizes.

As a dividend growth investor I do not currently index, but I am thinking of taking a more passive role in investing.

I will enjoy a defined benefit pension indexed for inflation. There is my "bond" component.

I was thinking of simply buying 5K per year of VT for my TFSA and be done with it.
.3% MER, not too shabby. USD but I am not too worried over the long term about currency fluctuations.

If I were to switch to a VT index strategy, am I missing something?

Your thoughts please, and thank you.


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## yyzvoyageur (Apr 10, 2009)

VTI tracks the MSCI US Broad Market Index. It covers only US equities.


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## bean438 (Jul 18, 2009)

Agreed that VTI tracks US only. 

I am asking about VT


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## yyzvoyageur (Apr 10, 2009)

Sorry. You referred to VTI in the second line of your post and I, apparently, saw only that. No idea about VT.

Edit: I looked into VT. I'm actually interested in other people's responses to your question. I too have a DB pension plan so can deal with some added risk. I definitely follow your logic and would be interested to see what others say.


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## bean438 (Jul 18, 2009)

Oops. Didn't see the VTI in my second line. 

I just figure that VT could be the ultimate index investment. No rebalancing periodicaly, just buy every year.


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## FrugalTrader (Oct 13, 2008)

The MER is relatively high compared to using a combination of VTI, VEA, VWO. However, depending on the size of your account, the trading fees may cost more than the MER saved if you rebalance often.


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## bean438 (Jul 18, 2009)

Good point FT.
I calculated an average MER of .17 for the 3 ETF's saving .13 over the VT.

So if I plunk 5K per year into the TFSA and buy VT it will cost me $6.50 per year on each 5K invested.

To me it makes sense. No rebalancing as there is nothing to rebalance. Just make a 5K "bet" each year that billions of people on the entire planet are gonna get up go to work, and make things for people to buy.

I admit though indexing at yearly intervals might not be as good as indexing on a monthly DCA basis.

A mer of .3 seems reasonable to me but a small leak can sink a big ship.


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## CanadianCapitalist (Mar 31, 2009)

bean438 said:


> Just wanted to bounce this off some people.
> 
> Instead of 25% CDN equity, 25% US equity, 25% international equity, why not just go with VTI?
> 
> ...


I wrote about VT versus its components on the blog sometime back:

http://www.canadiancapitalist.com/a-tour-of-etfs-vanguard-total-world-stock-etf-vt/

I have one point to add: It may not be ideal to hold foreign ETFs in a TFSA because of withholding taxes. I think it is better to hold these in RRSPs and Canadian stocks in a TFSA.


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## bean438 (Jul 18, 2009)

CC, thanks for the link. I actually spent about an hour on your site but could not find anything on VT.

I guess you enabled the software on your site that blocks my IP from viewing VT content????? 

I agree that foreign content should be inside an RSP. I mentioned TFSA simply because it is new and I am trying to figure out what to do with it, as I doubt I can pick up BMO for 26 bucks again like I did last March.

So far I am thinking.... RSP = US and global stock, TFSA = Canadian stock that do not offer DRIP's , and a possible Smith Manouevre account with Canadian DRIP stocks.

I am debating passive vs active for myself. I just thought VT might be a total equity passive approach.

I do appreciate the input.


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## mesaana14 (Apr 4, 2009)

bean438 said:


> CC, thanks for the link. I actually spent about an hour on your site but could not find anything on VT.
> 
> I guess you enabled the software on your site that blocks my IP from viewing VT content?????


I had to look for it too.
Let's see if this works:

http://www.canadiancapitalist.com/a-tour-of-etfs-vanguard-total-world-stock-etf-vt/


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## CanadianCapitalist (Mar 31, 2009)

bean438 said:


> CC, thanks for the link. I actually spent about an hour on your site but could not find anything on VT.


Sorry about that. I find it much easier to simply search through the Archives page:

http://www.canadiancapitalist.com/sitemap

One of these days, I'll get around to organizing the content to easily navigate the site.


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## Sampson (Apr 3, 2009)

bean438 said:


> Instead of 25% CDN equity, 25% US equity, 25% international equity, why not just go with VTI?
> 
> Pretty much covers the whole world, from what I can see somewhat proportionate to the country market sizes.
> 
> If I were to switch to a VT index strategy, am I missing something?


The main reason I choose not to is precisely because the index is weighted according to the size of the corresponding country's economy. I prefer selecting geographic weightings based on an assessment of growth potential in those regions. For example, 10% weighting in Japan just seems way to high for my preference giving how their economy has been so slow growing over the past long while.

Another reason. Some arguments for over-weighting your own country suggest residents might have additional insights on a particular market - I'm guessing many ETF index investors in the States have little insight on the changes to the royalty payments/schedules the Alberta government will impose and ultimately the effects on exploration, and development of oil and gas.

p.s. Just FYI, if you google "vanguard vt" - CC's site is number 2  - not sure if extra traffic from this thread may be related.


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## bean438 (Jul 18, 2009)

Sampson great points.

But if you dont like the weighting based on the countries economy size, and focus on what you think will be a higher growth area, doesnt that defeat the purpose of indexing?

Why look for the needle when you can buy the whole haystack?

I suppose you are doing the same thing you describe when you do the couch potato. Keeping an even balance of your index funds allows you to buy low and sell high each segment (bond, cdn equities etc)

Not sure if I am making any sense or not?


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## Sampson (Apr 3, 2009)

bean438 said:


> doesnt that defeat the purpose of indexing?


Not at all. In my wife's portfolio (fully indexed) for example, I'm still not selecting individual securities - so I get broad market diversification (within the specific country's economy).



bean438 said:


> Why look for the needle when you can buy the whole haystack?


Although the recent worldwide economic recession showed how correlated different countries have been, I still believe that countries will typically follow their own economic cycles. By having such a heavy weight in the US economy, the VT fund is in fact largely determined by how the US economy will fair. Most places in the world are technically out of recession, but not the US yet, so VT should lag the other portfolio you originally mention.

Another reason - market cap diversification.

Within each country's allocation (say 41% for US) - that 41% largely follows the S&P 500. I don't like to invest all my US focused assets into large-cap holdings because I feel mid- and small-caps play a very significant role in the growth potential of my portfolio.



bean438 said:


> Not sure if I am making any sense or not?


Perfect sense.

Caveat, I really haven't gotten to the point in my knowledge where I'm comparing the beta of various scenarios - I'm very comfortable and have logical reasons for selecting specific allocation weightings - I'm not against investing in Vanguard VT either. It sure would keep things simple and that counts for a lot.


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## Rickson9 (Apr 9, 2009)

Sampson said:


> Caveat, I really haven't gotten to the point in my knowledge where I'm comparing the beta of various scenarios


You're doing fine without that kind of knowledge IMO.


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## Sampson (Apr 3, 2009)

Rickson9 said:


> You're doing fine without that kind of knowledge IMO.


Nothing wrong with being a bit overly academic 

I'm not saying I'd actually build a portfolio based on some fellas' mathematical reasoning. Just how geeky I am


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## yyzvoyageur (Apr 10, 2009)

Please excuse my ignorance here as I've never dealt with US equities.

If I were to load up my RRSP with VT, I understand that the currency fluctuation I have to consider is the Canadian dollar vs. the "basket" of various currencies making up VT (including, of course, the US dollar). The Canadian dollar is currently quite high. If it were to fall in value relative to the other currencies, am I right to conclude that that would likely have a positive effect on the value of my VT units?

Also, what do you all think of this:

http://www.taxtips.ca/stocksandbonds/currencyrisk.htm

This tax tip concludes by saying: "Diversify your currency risk by investing in stocks from different countries." It seems to me that VT would be a perfect vehicle for this.

One last thing: What other considerations do I have to factor in before purchasing US-based securities? I understand there would be a small loss in value due to forex when buying or selling. I also understand that there are issues regarding US estate tax, but have read that that would not be a concern unless one had investments totalling in the millions. Any other concerns?

Thanks.


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## yyzvoyageur (Apr 10, 2009)

It looks like distributions on VT are annual, with the last distribution being $0.203. At the current price of $42.68, isn't that about 0.475%? Why so low?

https://personal.vanguard.com/us/funds/distributions?FundId=3141&FundIntExt=INT


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## leoc2 (Dec 28, 2010)

I'm interested in resurrecting this old thread. Any comments on using only VT for equity portion of couch potato? No re-balancing. Easier to teach spouse how to manage the portfolio. Great for non accumulation stage?


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## eulogy (Oct 29, 2011)

I'm curious about it too. I couldn't fault anyone for doing it. I'd like to hear some people's objections to it because I've never actually heard anyone actually push it out as a strategy. I imagine there with be tax distribution withholdings that might need to be looked into.

Edit: So I did some reading and VT really isn't discussed that much from a Canadian perspective. There is some discussion on the US Bogleheads forum.

The big argument against VT, is that it is _essentially_ VTI and VXUS, but with a higher MER. I get that.

VT is _essentially_ 50% US equities and 50% the rest of the world. So with VTI and VXUS you're essentially at a MER of (0.05+0.16)/2 = 0.105%.

But I still think there's a pretty decent argument that could be for VT because you don't have to deal with making sure you have VTI and VXUS weighted properly. Also that it prevents tinkering and tilting (for us that would like to be pure passive index investors). I'm actually intrigued.


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## leeder (Jan 28, 2012)

Many index investors may have read John Bogle’s _The Little Book of Common Sense Investing – The Only Way to Guarantee Your Fair Share of Stock Market Returns_. He offers his wisdom in a simple arithmetic (page 126), “Do your best to diversify to the _n_th degree; minimize your investment expenses; and focus your emotions where they cannot wreak the kind of havoc that most other people experience in their investment programs. Rely on your own common sense. Emphasize all-stock-market index funds. Carefully consider your risk tolerance and the portion of your investments you allocate to equities. Then stay the course.”

To me, diversifying to the _n_th degree means to hold the broadest products that hold the most variety of stocks. VT currently holds more than 5000 names. VTI and VXUS combined hold more than 9100 names. Therefore, I believe the latter is more diversified.

In terms of minimizing investment expenses, it has already been established in previous posts that VTI and VXUS are generally cheaper products. The only time when VT may be cheaper is when the investor’s portfolio size is small or the commission per trade is extremely high.

Finally, focusing one’s emotions is important for investing. Many traders exhibit the behaviour of buying high and selling low because the stock market volatility has compromised their emotions. VT does offer an advantage because it doesn’t require investors to think about portfolio percentage weights. However, the idea behind passive index investing is that passive approach will perform well in the long run. All people need to do is hold until they need access to the money for whatever reason. If investors sell their investments when there is a 10% drop in a particular index, then they have very low risk tolerance. As Bogle suggested, investors should increase their fixed income % to the extent that they can sleep well at night regardless of what happens in the markets. Being comfortable with their portfolio would reduce the emotional buying high and selling low phenomena, imo; therefore, investors would not need to buy VT.


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## james4beach (Nov 15, 2012)

CanadianCapitalist said:


> I wrote about VT versus its components on the blog sometime back:
> 
> http://www.canadiancapitalist.com/a-tour-of-etfs-vanguard-total-world-stock-etf-vt/
> 
> I have one point to add: It may not be ideal to hold foreign ETFs in a TFSA because of withholding taxes. I think it is better to hold these in RRSPs and Canadian stocks in a TFSA.


As CC wrote in his article, I think VT's Canadian exposure is way too low.

And due to tax consequences (and your particular tax situation) different indexes fit well in different kinds of accounts. For instance plain old XIU or ZCN can be great in a taxable account with all those eligible dividends for tax credits.


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