Boglehead/Vanguard way to retire.

Thanks @Redwing

I have VTS, VEU and VGS. I like the lower expense ratios of the first 2 and the ability to buy US and Europe when one appears better value. However, I generally only buy VGS now for international ETF exposure. In addition the yield of VGS is significantly higher which I am unable to explain. Is it because VGS is invested in larger higher yielding companies?

 

Currently it looks as if

VGS yield is 3.93%
VTS yield is 1.52%
VEU yield is 2.36%

VTS is the broader US Market, the good the bad and the ugly, VEU is large caps and VGS large caps also, as to the why, who knows, funds, fees, turnover, spread, taxes etc...I got no idea

 

I was actually wondering the same today. I was comparing MSCI World ex Australia (benchmark for VGS) vs US total stock market index (benchmark for VTS). The difference in historical outperformance of US market is significant.

Apart from diversification, are there any other reasons to buy VGS over VTS?

 

VGS domiciled in Australia, VTS not.

 

Tax considerations, DRP, bid/ask spread, fees

Location, location, location! Is your ETF Australian domiciled?

Just a thought, maybe @Terry_w or someone else can answer, would long term capital gains for VTS/VEU be considered foreign sourced income, and not subject to the 50% CGT discount?

 

Be aware of US Estate Taxes if investing in VTS in "own name". From memory best done through Trust / Coy / SMSF.

 

This is a complex area, much more complex than it looks at first glance.

There is some good stuff on Bogleheads which might assist thinking about this ;

Why invest in International Index Fund? - Bogleheads.org

Why invest in international? - Bogleheads.org

Now, if I was forced to choose US market OR World ex US market only, for long term hold...then US market would get the nod. But I don't have the make that choice.

 

Hmmmm @Redwing long term capital gain is not income.

For mine the exposures of VTS and VEU are superior to VGS.

VEU is world market ex US, holds about 18% in Emerging markets and that will ebb and flow in line with capitalization..and it's the cheapest EM exposure you'll ever get (if you want it), at 11bps it's worth having I think...vs 50bps+ a different story.

Unfortunately you do get 5% Oz with no franking . It's a trade off, the US exposure being total market is superior in VTS vs VGS too, but there is the theoretical estate tax issue for individuals.

You could make a case to go either way.

 

Are the SPDR ETFs domiciled in Australia? I was looking at increasing my small cap and international exposure. How can I tell?

 

I don't know the answer to this. I don't hold either of these shares, although have considered them in the past but the lack of franking credits put me off.

Since they are traded on the ASX I would think that it is not foreign sourced income for the individual, but internally there would be foreign sourced income for the fund.

 

I think for a more risk adverse retiree the omission of small caps and emerging markets is not much of an issue. But for an accumulator that could be a worthwhile addition.

With VGS there is also the "simplicity" factor with not having to submit W-Ben form, only a single product for International exposure and not having to worry about rebalancing thus also reducing behaviourial issues.

I haven't looked into it but In the case of VTS is the small cap allocation really substantial enough to make a significant difference?

VGS is more than just large caps, it also includes some of the mid cap stocks.

But there's no doubt VTS and VEU are an awesome combination.

 

Small is currently c.7% , obviously it's a much deeper exposure.

Of course the benefit is only theoretical....nobody knows the future

 

No, but most are. Click on the ETF in question on this linked page and read the factsheet. It clearly tells you if it's domiciled in Australia or not:
SPDR ETFs Australia - View All Funds

 

Here is an article that purports to list the internationally listed ETFs:
Which ETFs are cross-listed and what does it mean?

 

Sorry by long term cap gains and 50% deduction, foreign income, I was talking about when selling

I would assume same as Terry

 

I'm lost. Income isn't capital? There are seperate definitions. The income is treated as foreign source and foreign tax offset is claimed with W8-Ben in place (30% reduced to 15%, offset claimed on 15%).

 

I would only go 5-10% emerging markets max, but that's just me, who knows, its a long distance race and they may gain ground at any time

 

Vanguards International index has had a good run YTD in comparison to the US index and may still have some gas in the tank

 

Charles Ellis: Three rules for investment success.

Cheers,
Oracle.

 

I really enjoy reading and listening to Ellis. Unlike a number of other indexing greats such as Bogle / Malkiel he tends to be more equity focused relative to bonds. Note in the video he said to own zero bonds when working as employment income serves as a bond equivalent! He also favours a high level of equities even in retirement.

Here’s a quote from Ellis in “Elements of Investing”:

Buffet’s view on indexing is probably more in line with Ellis in terms of high allocation to equities.