VT vs VXUS + VTI

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MortgageSlayer
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VT vs VXUS + VTI

Post by MortgageSlayer »

I was wondering if it makes sense for me to sell my VTI and VXUS holdings and replace it with VT. I have a long investment horizon and don't want to deal with buying two ETFs and trying to maintain correct ratios. If I do this, my portfolio will be greatly simplified with VT in RRSP and VAB (and maybe some VCN) in TFSA.

Any thoughts/comments are appreciated. Thank you!
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Mordko
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Re: VT vs VXUS + VTI

Post by Mordko »

My thought is: entirely up to you. You can do a bit better by saving on taxes and enhancing performance through rebalancing if you split the world but if simplicity is important then VT is a great approach,
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Re: VT vs VXUS + VTI

Post by ghariton »

I don't think it much matters. Personally, I use a three-fund portfolio of VTI, VEA and VWO. I have uncrystallised capital gains and see no reason to switch.

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Re: VT vs VXUS + VTI

Post by leoc2 »

Keep the VTI and VXUS that you have and put new funds into VT.
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Re: VT vs VXUS + VTI

Post by MortgageSlayer »

Thanks for all the responses. The general consensus seems to be that it doesn't make much difference (apart from a slightly higher MER).
leoc2 wrote: 21 Mar 2017 19:43 Keep the VTI and VXUS that you have and put new funds into VT.
What is the benefit of doing this? The funds are being held in an RRSP account so there are no capital gains to be reported.
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Re: VT vs VXUS + VTI

Post by ig17 »

I would keep VTI and VXUS. If VTI goes into a bubble territory, your allocation rules should force you to rebalance from VTI to VXUS. This rebalancing opportunity doesn't exist if you replace two ETFs with VT.
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Re: VT vs VXUS + VTI

Post by leoc2 »

MortgageSlayer wrote: 22 Mar 2017 08:30 What is the benefit of doing this? The funds are being held in an RRSP account so there are no capital gains to be reported.
To save on transaction costs. I guess they are minimal anyway so you are right, there is not much benefit.

You may find what Jim Otar has to say about re-balancing in his book "Unveiling The Retirement Myth - Advanced Retirement Planning Based on Market History" interesting. Specifically in Chapter 6.

http://www.flip4u.org/docs/Unveiling%20 ... 20Myth.pdf
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Re: VT vs VXUS + VTI

Post by MortgageSlayer »

leoc2, thanks for the link, I'll read chapter 6 shortly.
ig17 wrote: 22 Mar 2017 08:58 I would keep VTI and VXUS. If VTI goes into a bubble territory, your allocation rules should force you to rebalance from VTI to VXUS. This rebalancing opportunity doesn't exist if you replace two ETFs with VT.
That's an interesting point, so far I haven't had the need to rebalance as I buy whatever is out of band using new deposits (still a small portfolio).
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Re: VT vs VXUS + VTI

Post by gsp_ »

MortgageSlayer wrote: 22 Mar 2017 09:48so far I haven't had the need to rebalance as I buy whatever is out of band using new deposits (still a small portfolio).
That's absolutely rebalancing. There is no need to sell any asset to make it rebalancing, the fact you aren't blindly buying in proportion of your initial AA but rather constantly taking into account current market values to determine which asset to buy in order to maintain your chosen AA is rebalancing.
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Re: VT vs VXUS + VTI

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gsp_ wrote: 22 Mar 2017 15:01
MortgageSlayer wrote: 22 Mar 2017 09:48so far I haven't had the need to rebalance as I buy whatever is out of band using new deposits (still a small portfolio).
That's absolutely rebalancing. There is no need to sell any asset to make it rebalancing, the fact you aren't blindly buying in proportion of your initial AA but rather constantly taking into account current market values to determine which asset to buy in order to maintain your chosen AA is rebalancing.
Right, but you can only do that on smaller portfolios. You can't depend on rebalancing with new money in a RRSP account that's 750k+ because the annual limit is so low (~26k). Right now it works well since it's a small portfolio.
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Re: VT vs VXUS + VTI

Post by AltaRed »

There are no cap gains taxes triggered in an RRSP, so re-balancing by selling and buying is hardly a hardship.
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Re: VT vs VXUS + VTI

Post by gsp_ »

MortgageSlayer wrote: 22 Mar 2017 15:24
gsp_ wrote: 22 Mar 2017 15:01
MortgageSlayer wrote: 22 Mar 2017 09:48so far I haven't had the need to rebalance as I buy whatever is out of band using new deposits (still a small portfolio).
That's absolutely rebalancing. There is no need to sell any asset to make it rebalancing, the fact you aren't blindly buying in proportion of your initial AA but rather constantly taking into account current market values to determine which asset to buy in order to maintain your chosen AA is rebalancing.
Right, but you can only do that on smaller portfolios. You can't depend on rebalancing with new money in a RRSP account that's 750k+ because the annual limit is so low (~26k). Right now it works well since it's a small portfolio.
I'm not sure what your point is. As AR says it's a non issue in RRSPs.

The initial point brought up was that you'd lose the "buy low, sell high" rebalancing benefit by moving to a single global ETF. It remains regardless of how you put your rebalancing plan in action.

No strong opinion on the topic of this thread, it's a personal preference decision IMO. Only replied to try to clear up what seemed like a misunderstanding of what constitutes rebalancing.
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Re: VT vs VXUS + VTI

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If you want to hold the world equities in their current market weighings, why would you ever rebalance if holding VT? For example:

If US is 55% of the world equity markets today and on date X it goes up to 70%, VT will account for that.

By holding 45% VXUS and 55% VTI today and then "rebalancing" it on date X (when US equities go up to 70% of total world) wouldn't you be moving away from your original strategy and essentially betting on VXUS to outperform? Isn't that a form of market timing?

Sorry a n00b here trying to understand all of this. Thanks for your help!
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Re: VT vs VXUS + VTI

Post by InvestorNewb »

VT is too heavy in international. If you must, allocate between 15-30% to VXUS.

Warren Buffett and Jack Bogle don't believe in holding any international stocks.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
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Re: VT vs VXUS + VTI

Post by Peculiar_Investor »

InvestorNewb wrote: 23 Mar 2017 20:04 VT is too heavy in international. If you must, allocate between 15-30% to VXUS.
If it is market cap weighted, how can it be too heavy in international?
Warren Buffett and Jack Bogle don't believe in holding any international stocks.
And they are American, so their viewpoint isn't exactly objective on the matter for those living outside of the US.

Suggest the OP search the forum for discussion of home country bias.
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Re: VT vs VXUS + VTI

Post by MortgageSlayer »

Peculiar_Investor wrote: 23 Mar 2017 20:08 ...
Suggest the OP search the forum for discussion of home country bias.
I have researched home country bias and have come to a conclusion that don't need (too much of it) in my portfolio. It seems like it's a good way to reduce diversification and returns... can anyone point me to a resource that talks about how home country bias can be a good thing? :?:
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Re: VT vs VXUS + VTI

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MortgageSlayer wrote: 24 Mar 2017 13:25 I have researched home country bias and have come to a conclusion that don't need (too much of it) in my portfolio. It seems like it's a good way to reduce diversification and returns... can anyone point me to a resource that talks about how home country bias can be a good thing? :?:
According to The Stingy Investor Asset Mixer, from 1970 to 2016 (a 47-year period):
  • A 100% investment into international stocks (50% S&P500 / 50% MSCI EAFE) had an average geometric annual gain of 10.6% with a standard variation of 17.5%.
  • A 100% investment into Canadian stocks (100% TSX Composite) had an average geometric annual gain of 9.3% with a standard variation of 16.7%.
  • A 50% investment into international stocks (25% S&P500 / 25% MSCI EAFE) and 50% investment into Canadian stocks (50% TSX Composite) had an average geometric annual gain of 10.1% with a standard variation of 15.4%.
From what I see, the small reduction in returns (0.5%) of the 50/50 international/Canada portfolio, relative to a 100/0 portfolio, was generously rewarded by a 2-points decrease in standard variation. That's a 12% reduction in volatility (2.1/17.5).

It would seem that, historically, adding some home bias did improve the characteristics of a Canadian portfolio.

Note that past returns do not predict future returns.
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Re: VT vs VXUS + VTI

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longinvest wrote: 24 Mar 2017 14:16
MortgageSlayer wrote: 24 Mar 2017 13:25 I have researched home country bias and have come to a conclusion that don't need (too much of it) in my portfolio. It seems like it's a good way to reduce diversification and returns... can anyone point me to a resource that talks about how home country bias can be a good thing? :?:
According to The Stingy Investor Asset Mixer, from 1970 to 2016 (a 47-year period):
  • A 100% investment into international stocks (50% S&P500 / 50% MSCI EAFE) had an average geometric annual gain of 10.6% with a standard variation of 17.5%.
  • A 100% investment into Canadian stocks (100% TSX Composite) had an average geometric annual gain of 9.3% with a standard variation of 16.7%.
  • A 50% investment into international stocks (25% S&P500 / 25% MSCI EAFE) and 50% investment into Canadian stocks (50% TSX Composite) had an average geometric annual gain of 10.1% with a standard variation of 15.4%.
From what I see, the small reduction in returns (0.5%) of the 50/50 international/Canada portfolio, relative to a 100/0 portfolio, was generously rewarded by a 2-points decrease in standard variation. That's a 12% reduction in volatility (2.1/17.5).

It would seem that, historically, adding some home bias did improve the characteristics of a Canadian portfolio.

Note that past returns do not predict future returns.
Thanks for this, I have been looking for something like this for a while. Maybe I'll add some (~10%) XIC into my TFSA although I am not entirely convinced, can't argue with the math though. :D
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Re: VT vs VXUS + VTI

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longinvest wrote: 24 Mar 2017 14:16 From what I see, the small reduction in returns (0.5%) of the 50/50 international/Canada portfolio, relative to a 100/0 portfolio, was generously rewarded by a 2-points decrease in standard variation. That's a 12% reduction in volatility (2.1/17.5).
Could it be the case that you are simply measuring the volatility of CAD itself? In other words, perhaps there is nothing intrinsically better in the 50/50 mix other then 1/2 of it is in the same currency the returns are being measured in. The volatility you see in the 100/0 portfolio might be it trying to protect you from the ups and downs of CAD. I haven't looked at the numbers myself but isn't the TSX fairly volatile due to commodities/cyclicals?
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Re: VT vs VXUS + VTI

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I see it the same way (CAD volatility mostly) plus spreading it more equally over geographical regions should reduce volatily in itself. Doesn't make it necessarily correct.
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Re: VT vs VXUS + VTI

Post by kumquat »

Do any of you consider holding the Vanguard Canada versions of these to avoid possible US Estate Tax problems?

I've been selling my VTI to buy VFV and VUN. I just can't bite the bullet to get rid of US ETFs and pay the cg tax.
I don't intend to offend anyone, that part is just a bonus.

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Re: VT vs VXUS + VTI

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My US Vanguard holdings have too much unrealized cap gains to take the hit, but I mitigated the risk the last several years by byying Canadian equivalents. The key is to stay on top of any changes in how US estate law impacts Canadians and do just enough to stay below the radar. Right now, the thresholds are pretty high so not a problem, and unlikely to be for the rest of the current US Administration.
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Re: VT vs VXUS + VTI

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InvestorNewb wrote: 23 Mar 2017 20:04 VT is too heavy in international. If you must, allocate between 15-30% to VXUS.

Warren Buffett and Jack Bogle don't believe in holding any international stocks.
Bogle - yes. He is wrong on this one.

Buffett - no. Buffet routinely buys international stocks from companies outside the US. He has made huge investments in companies all over the world - from Germany to Israel.
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Re: VT vs VXUS + VTI

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AltaRed wrote: 24 Mar 2017 19:21 My US Vanguard holdings have too much unrealized cap gains to take the hit, but I mitigated the risk the last several years by byying Canadian equivalents. The key is to stay on top of any changes in how US estate law impacts Canadians and do just enough to stay below the radar. Right now, the thresholds are pretty high so not a problem, and unlikely to be for the rest of the current US Administration.
Agree. My holdings are VTI, VEA and VWO. I like the extra liquidity as well. That way I can use market orders. I'm far from the U.S. estate thresholds, and see no need to hold any Canadian wrappers.

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Re: VT vs VXUS + VTI

Post by AltaRed »

The formula is complicated enough to give folks headaches. An issue is the prorated percentage of US to total worldwide assets.

http://www.taxtips.ca/personaltax/usestatetax.htm
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