VT vs VTI+VXUS

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Kaione
Posts: 157
Joined: Sun Aug 07, 2022 10:57 pm

VT vs VTI+VXUS

Post by Kaione »

I've read before that even if your intention is to generally follow a global market weighted index like VT for your asset allocation, you should still purchase them separately with VTI+VXUS because of some tax reasons. Can someone help explain to me what that reason is more specifically?
Silk McCue
Posts: 8951
Joined: Thu Feb 25, 2016 6:11 pm

Re: VT vs VTI+VXUS

Post by Silk McCue »

That would only apply if you were holding the funds in a taxable account as it would allow for tax loss harvesting of the individual components.

Holding them separately anywhere would also allow for allocations other than market weight.

Cheers
muffins14
Posts: 5528
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: VT vs VTI+VXUS

Post by muffins14 »

Silk McCue wrote: Sat Jun 03, 2023 8:36 am That would only apply if you were holding the funds in a taxable account as it would allow for tax loss harvesting of the individual components.

Holding them separately anywhere would also allow for allocations other than market weight.

Cheers
Not only tax-loss harvesting, but also the foreign tax credit.

You cannot claim it for VT, but can get it for VXUS. Thus holding VXUS + VTI will save you some money. Perhaps 0.1-0.2% annually? I’d have to redo the math
Crom laughs at your Four Winds
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: VT vs VTI+VXUS

Post by retiredjg »

In a taxable account, I would hold them separately. This allows you to

1. Take the foreign tax credit.
2. Sell one without selling the other.
3. Two different opportunities to tax loss harvest.
4. Used to be a very slightly lower cost, but I'm not sure if this is true anymore.

In a tax-advantaged account, these points are not very important. I would still hold them separately, but it is easy enough to hold together with no problems.
Trance
Posts: 361
Joined: Sun Jun 12, 2022 12:11 am

Re: VT vs VTI+VXUS

Post by Trance »

:mrgreen:
Kaione wrote: Sat Jun 03, 2023 8:26 am I've read before that even if your intention is to generally follow a global market weighted index like VT for your asset allocation, you should still purchase them separately with VTI+VXUS because of some tax reasons. Can someone help explain to me what that reason is more specifically?
When you hold foriegn stock you pay taxes in those country's when you get dividends. American law is written so that you can write that off. If you hold ETF's that hold international stock, if the amount of international stock is over 50% you get to do it as well. VT holds less than 50% so you can't.

Now how much? VXUS pays out about 3%. And of that in 2022 8.5% of it was taxed. So multiplied together that's 0.25%. So if you held a $1,000,000 in VT, about 40% of that would be international. So that meant you'd be missing out on about $1000 annyally for every $1,000,000 dollars. With that $1,000,000 of VT paying out a dividend of $20,000 a year total.

For myself personally, I don't have anywhere near $1,000,000 and so its worth it to just be able to buy one fund for all stocks and let the market decide the allocation of domestic/international. Also if there's ever a major downturn don't forget about tax loss harvesting. Let's say you hold VT and then theres a stock market crash. You can sell VT and then pick up VTI/VXUS at the market weighting ratio and write off your loss. And when it happens again in the future in another year you can swap back.
60% VT 40% BNDW (no bonds in Roth)
Topic Author
Kaione
Posts: 157
Joined: Sun Aug 07, 2022 10:57 pm

Re: VT vs VTI+VXUS

Post by Kaione »

Trance wrote: Sat Jun 03, 2023 1:11 pm :mrgreen:
Kaione wrote: Sat Jun 03, 2023 8:26 am I've read before that even if your intention is to generally follow a global market weighted index like VT for your asset allocation, you should still purchase them separately with VTI+VXUS because of some tax reasons. Can someone help explain to me what that reason is more specifically?
When you hold foriegn stock you pay taxes in those country's when you get dividends. American law is written so that you can write that off. If you hold ETF's that hold international stock, if the amount of international stock is over 50% you get to do it as well. VT holds less than 50% so you can't.

Now how much? VXUS pays out about 3%. And of that in 2022 8.5% of it was taxed. So multiplied together that's 0.25%. So if you held a $1,000,000 in VT, about 40% of that would be international. So that meant you'd be missing out on about $1000 annyally for every $1,000,000 dollars. With that $1,000,000 of VT paying out a dividend of $20,000 a year total.

For myself personally, I don't have anywhere near $1,000,000 and so its worth it to just be able to buy one fund for all stocks and let the market decide the allocation of domestic/international. Also if there's ever a major downturn don't forget about tax loss harvesting. Let's say you hold VT and then theres a stock market crash. You can sell VT and then pick up VTI/VXUS at the market weighting ratio and write off your loss. And when it happens again in the future in another year you can swap back.
Thanks for the explanation! So it seems reasonable to consider it as an implied additional 0.1% expense ratio then right?
User avatar
arcticpineapplecorp.
Posts: 15080
Joined: Tue Mar 06, 2012 8:22 pm

Re: VT vs VTI+VXUS

Post by arcticpineapplecorp. »

retiredjg wrote: Sat Jun 03, 2023 11:13 am In a taxable account, I would hold them separately. This allows you to

1. Take the foreign tax credit.
2. Sell one without selling the other.
3. Two different opportunities to tax loss harvest.
4. Used to be a very slightly lower cost, but I'm not sure if this is true anymore.

In a tax-advantaged account, these points are not very important. I would still hold them separately, but it is easy enough to hold together with no problems.
vti .03%
vxus .07%

assuming a weighting of 60% US and 40% International (?)

(.60 X .03) + (.40 X .07) = .018 + .028 = .046% or 4.6 basis points/year. Dirt cheap to own the world.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: VT vs VTI+VXUS

Post by retiredjg »

Apparently VT is 0.07%, higher than the combination of the two funds. However, the difference is so small, I would not pay it much attention. But some people here might. :twisted:
Trance
Posts: 361
Joined: Sun Jun 12, 2022 12:11 am

Re: VT vs VTI+VXUS

Post by Trance »

Kaione wrote: Sat Jun 03, 2023 7:38 pm
Trance wrote: Sat Jun 03, 2023 1:11 pm :mrgreen:
Kaione wrote: Sat Jun 03, 2023 8:26 am I've read before that even if your intention is to generally follow a global market weighted index like VT for your asset allocation, you should still purchase them separately with VTI+VXUS because of some tax reasons. Can someone help explain to me what that reason is more specifically?
When you hold foriegn stock you pay taxes in those country's when you get dividends. American law is written so that you can write that off. If you hold ETF's that hold international stock, if the amount of international stock is over 50% you get to do it as well. VT holds less than 50% so you can't.

Now how much? VXUS pays out about 3%. And of that in 2022 8.5% of it was taxed. So multiplied together that's 0.25%. So if you held a $1,000,000 in VT, about 40% of that would be international. So that meant you'd be missing out on about $1000 annyally for every $1,000,000 dollars. With that $1,000,000 of VT paying out a dividend of $20,000 a year total.

For myself personally, I don't have anywhere near $1,000,000 and so its worth it to just be able to buy one fund for all stocks and let the market decide the allocation of domestic/international. Also if there's ever a major downturn don't forget about tax loss harvesting. Let's say you hold VT and then theres a stock market crash. You can sell VT and then pick up VTI/VXUS at the market weighting ratio and write off your loss. And when it happens again in the future in another year you can swap back.
Thanks for the explanation! So it seems reasonable to consider it as an implied additional 0.1% expense ratio then right?
Yep! That's a good way of thinking of it
60% VT 40% BNDW (no bonds in Roth)
Post Reply