Stocks — Part XI: International Funds

In Part VI of this series we looked at some portfolio ideas to build and keep your wealth. Last time, in The Smoother Path to Wealth, we did much the same and we discussed the concept of Asset Allocation a bit as well.

In keeping with the overall financial theme of the blog, we strive to keep our investments as simple as possible. Simple is not only easier, it is more effective. The most complex portfolio I suggest consists of only two funds invested in stocks and bonds, plus a little cash.

Most advisors recommend far more funds and asset classes. Indeed, many would have us invest in everything in the hopes a couple of those puppies pull though. To do this properly would require a ton of work understanding the asset classes, deciding on percents for each, choosing how to own them, rebalancing and tracking. All for what will likely be sub-par performance.

We talked about this in Part I and we’ve looked at better alternatives throughout the series.

Still, for some, even my two fund Wealth Preservation and Building Portfolio seems incomplete. The readers of jlcollinsnh are an astute bunch, and the missing asset class they ask about most frequently is international stocks. Since almost every other allocation you come across will include international, why not the Simple Path? Three reasons: added risk, added expense, and we’ve got it covered.

Added Risk:

Currency risk. When you own international companies they trade in the currency of their home country. Since those currencies fluctuate against the US dollar, with international funds there is this additional dimension of risk.

Accounting risk. Few countries, especially in emerging markets, offer the transparent accounting standards required here in the USA. Even here, companies like Enron occasionally cook their books and blow up on their investors. The weaker the regulation the greater the risk.

Added expense:

VTSAX has a .06 expense ratio for rock bottom costs. While cheaper than comparable funds, even low cost Vanguard International Funds have expense ratios at least three times that level.

We’ve got it covered:

With VTSAX you own ~3600 companies, virtually every publicly traded company in the USA. More to the point, the largest of these are all international businesses, many of which generate 50% or more of their sales and profits overseas.

The top ten holdings of VTSAX, for example, are all international in scope. Apple, Microsoft, Amazon and the like.

As are the S&P 500 which make up ~75% of VTSAX. This article has a cool graphic of showing the international exposure the S&P 500 companies have. Who would have guessed almost twice as much in Africa as in South America?

Since these companies provide solid access to the growth of world markets, while filtering out most of the additional risk, I don’t feel the need to invest further in international specific funds.

Your world view, however, may lead you to a different conclusion. If it does, and you feel the need for even more international exposure than that imbedded in VTSAX, our friends at Vanguard have some excellent options. Here are two I suggest:

VFWAX  FTSE all-World ex-US Index Fund (expense ratio .11). This fund invests everywhere in the world except the USA, which you’ll have covered with VTSAX.

If you prefer to keep things as simple as possible, look at VTWSX  Total World Stock Index Fund (expense ratio .19). This fund invests all over the world, including 50% in the USA. With it you no longer even need to hold VTSAX.  

(A less expensive .10 ER Admiral Shares version is now available: VTWAX  This would be my choice.)

It all depends on how much of the world you want and how comfortable you are with the cost in money and risk it takes to get it.

Addendum 1:  

In rethinking my position on REITS, I came across a very interesting concept: International Stock Funds as both an inflation and deflation hedge. This might just give me a reason to add them. For a full discussion as to why please see: Stepping away from REITs

But here’s my reply in response to one of the questions in the comments on that post:

As you know from this,
I don’t buy into the traditional reasons for owning international funds. Plus I see additional risks in them.

And as Paul points out international exposure “seems to correlate more and more with US performance.”

While the idea that being invested in other countries provides a hedge against inflation/deflation in the US is very intriguing, it occurs to me that the US is such a massive portion of the world economy that were it to enter either of these spirals the rest of the world would be sucked right along.

So, for now, simplicity wins and I’ll do without international.

That said, I don’t think they are a bad idea and for those who like them they can certainly be a part of a Simple Path to Wealth portfolio. If I were to add them to mine they’d be 25% along with 25% bonds and 50% VTSAX.

Further, for non-US investors, I’d say investing outside their home countries is an essential idea and the added inflation/deflation hedge very real.

Addendum 2: 

12/09/14 Jack Bogle wouldn’t risk investing internationally

12/17/14 Jack Bogle: US companies are international companies.

Addendum 3:

An excellent take from Go Curry Cracker

US vs. International Investing

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  1. Bob says

    Vanguard’s Total World ETF “VT” is 0.22, at least according to Yahoo, and trades commission free at Ameritrade. Its some combo of SPY, EFA, and EEM, or rather their Vanguard equivalents.

  2. Tara C says

    I believe the usual intl fund recommended in the Vanguard 3 fund portfolio is VTIAX – Vanguard Total International Fund (Admiral shares)… expense ratio is 0.18. It says it has 8.6% North American stocks, which I assume is Canada. I really can’t decide how much intl I want… I agree with your argument above, but then I worry about putting all my eggs in the US stock market basket. Still pondering the question.

    • jlcollinsnh says

      Hi Tara….

      VTIAX is also a good choice. But as you point out, it holds only 8.6% in North America and that’s why I didn’t include it.

      My feeling is that if your portfolio includes VTSAX you don’t need that additional 8.6%. VFWAX seems a better fit.

      If you are not including VTSAX, and you want one fund that gives you the whole world, I’m more comfortable with VTWSX and its 52% in North America. Seems a better balance of coverage based on the relative size of the various countries’ economies.

      Good luck with your decision!

      • Tara C says

        Currently my whole portfolio is an approximation of VTSAX (my 401K does not offer VTSAX, so I have cobbled together the approximate corresponding percentages of VIIIX, VMCIX, and VEXRX which are large cap, mid cap and small cap US stocks). So far this is working great for me, but I have been pondering the international question… I guess if I don’t have a strong feeling in favor of the international, I can just leave well enough alone. 🙂 It hasn’t been doing that great lately so that is making it easier for me to just leave it out…

        • jlcollinsnh says

          Nice job of putting together your funds, Tara. It is surprising to me your 401k would offer those but not VTSAX. Ah well.

          As you know, I don’t see the need for adding an international fund but….

          …if I were going to…

          …the fact that they have been underperforming would be a plus. Buy low and all that…. 🙂

          • Tara C says

            Yes I had that thought as well. 🙂 (buy low and hope it goes up later) We do have a very odd assortment of funds in my 401K…they do offer the VG target funds though, so I assume they figure if you want VG total stock/total bond/total intl you can just invest in one of those. But I prefer the 0.02 expense ratio of VIIIX (which is the largest portion of the portfolio).

          • Rockstache says

            I am not sure if you still check these old conversations or not but…I was wondering if you could tell me where you found the distributions for VTSAX? My company offers VIGSX and VISGX (small and large cap), but not VTSAX, and I would like to use these together to try to put together a package like Tara has done. Unfortunately, I can’t seem to find the percentages of each to use. Thanks for your help….this is an excellent series.

          • jlcollinsnh says

            Hi Rockstashe…

            I’m not entirely sure what you mean by “distributions.” My guess is that you are asking what allocations VTSAX has in large, mid and small cap stocks?

            It is a tough question as Vanguard isn’t clear on this. Morningstar, however, offers a breakout you can find here:


            As you’ll see it is about

            72% large cap
            19% Mid
            9% small

            Hope that helps? Glad you like the series!

          • Rockstache says

            Yes, I meant allocations. I am still learning all the correct terminology. Thank you for your help, that is exactly what I was hoping for. So, if I have only the large cap and small cap to work with, would you recommend just using those two, or bringing in a third (non-vanguard) fund to make up for my loss of a mid cap fund? My 401K is in a (shady) high fee company, and I don’t really like having my money in their target funds, which is where I have it now.

          • jlcollinsnh says

            Unless that third fund was a low-cost mid-cap index fund I wouldn’t bother.

            Too bad about your 401k, but you are not alone.

  3. JEH says

    Sort of off topic, but…I’m having trouble figuring out the difference between VTSAX and VITSX. Their top holdings are the same, they’re both broad indexes. I only ask because this is the only Vanguard fund I can acquire through my 401k.

    • jlcollinsnh says

      Hi JEH….

      is the Institutional Shares version of VTSAX. Both are the Total Stock Market Index and they hold exactly the same portfolio.

      Institutional Shares versions of Vanguard funds are for, well, institutions. VITSX has a slightly cheaper expense ratio than VTSAX: .05 v .06. Oh, and the initial buy in is $5,000,000.

      No, I didn’t hold the zero key down too long by mistake.

      If it’s offered in your 401k plan, go for it! And thank your benefits manager.

  4. Shilpan says

    I agree with you. Most American fortune companies benefit most with global expansion. For example, Apple and Google and even Price Line are all getting sizable revenue from their international markets. Even good ole’ MCD is getting more revenue growth from foreign countries. So, why not invest in the best American fortune companies? It’s as good as or even better than risking your capital in foreign markets with currency and political risks.

  5. W says

    Do you think it makes more sense to add an international component if you think you might live internationally at some point? My wife is from Northern Europe and her parents and brothers are still there. We don’t have any plans to move but it certainly seems possible that we might end up there.

    It seems like it might make a bit more sense in out case, but I’m still invested in VASGX pretty much exclusively.

  6. Prob8 says

    Yet another enlightening post. You may have just convinced me to jettison my international fund and dump the money into my VTSAX fund.

  7. RW says

    I love your simple and effective approach to investing. They called it the KISS method in the military (keep it simple stupid) At least that’s what the Drill Sgt. called it. It works on so many levels.

  8. Joe says

    Does this advice also apply to bonds? I noticed that Vanguard now includes VTIBX (Total International Bond Index Fund) in most of their “all-in-one” funds.

    I could see it going both ways: the added risks and expenses are still there for bonds, yet wouldn’t an international bond fund diversify one’s portfolio in a way that an international stock fund wouldn’t.

    In other words, does the “we’ve got it covered” section in this article apply to bonds?

    • jlcollinsnh says

      Great question!

      In short, no.

      The difference is that the total bond fund is made up of US company issue bonds. So they are US bonds even if the companies have substantial overseas business revenue. To have exposure to the international bond markets, you really do need something like VTIBX.

      Since I only hold bonds for the deflation hedge and, to a lesser extent, for the income I don’t feel the need for international.

      Most often those buying international bonds are after higher yields. But remember, higher yields are also a barometer of higher risk.

      • Joe says

        Thanks! I already hold an international stock fund in addition to the ones you recommend (bringing my total number of funds up to a crazy unmanageable 5!), so I don’t want to make things more complicated.

  9. kyle says

    When the U.S. sneezes the rest of the world catches a cold 🙂 Let’s hope this continues to stay true for the remainder of our time here on Earth.

  10. Jimmy Mac says

    Let’s play Devil’s Advocate. If international funds truly aren’t necessarily for a diversified portfolio, why do some many financial authors recommend them? What are their best selling points on why International stocks are necessary for a balanced portfolio?

    • jlcollinsnh says

      Hi Jimmy…

      and welcome.

      If I were going to make the case for them, it might look like this:

      1. There are some great companies based in countries other than the USA and international index funds are the way to own them. (This is the one that seems valid to me, but I’m unwilling to pay the higher ERs these funds have)
      2. The USA is on a long term decline and I want some of my money outside that country. (I don’t happen to believe this, but for those that do…)
      3. Other parts of the world offer greater growth potential than the USA. (but they are also more risky and volatile)
      4. Other parts of the world offer less expensive stock valuations at the moment. (but choosing them and timing your entry and exit is the same losing game as individual stock picking)

      More cynically:

      1. International funds are very profitable for the companies that run and market them.
      2. Some FI authors fall prey to this marketing. Some, especially investment advisors, profit from recommending them.
      3. Many FI authors fail to understand the international exposure baked into a broad-based total US stock market index fund like VTSAX.
      4. Many FI authors are sheep. They read others recommending international funds and jump on board with out doing their own thinking on the subject.

  11. Jam Dough says

    Thanks for another great article !

    2014 will be me first year as an investor, and as a UK reader the closest Vangurd fund i can find here to the VTSAX is the ” Vanguard LifeStrategy™ 100% Equity Fund” (

    Do you think such fund is comparable ?

    The management fee seems to be a little higher (0.33%) with an additional (0.22%) charge on the principal but it does have international diversification (which you mentioned in a previous article was a good thing) but I am not sure if a) such fund is comparable and b) if the higher management fees will be justified.

    HAPPY NEW YEARS and thanks for such an incredible resource !

    Jam Dough

  12. Richard says

    As you say, it seems that it is most commonly recommended to hold some International funds in your portfolio, but I think you point out some really good reasons as to why it might be desirable not to go that route.

    I was thinking that there could be an additional benefit of holding both an international index fund and US index fund and re-balancing: it could help force both funds to be sold on the highs and bought on the lows (relative to each other).

    But I suppose in the end, if the international fund doesn’t grow as much, the money that would be allocated for it could’ve grown more quickly in the US fund and could very well outweigh the benefit of the re-balancing.

    And it sounds to me like you believe the US fund will grow more than the international fund anyway, and therefore it would be better to just put it all in a US index fund. (along with the 3 reasons you describe in the post of course).

    Does that all make sense? Is my thinking sound to you on all this? 🙂


    • jlcollinsnh says

      That’s the concept behind holding different investments in an asset allocation: smooth the ride and enjoy the benefit of rebalancing. Bonds play that role for me these days, but international could too. Although some contend that international and US stocks are growing steadily more correlated, reducing this effect.

    • jlcollinsnh says


      I happened to catch that today and made it an addendum above.

      But thanks for bringing it to my attention!

    • Adam says

      Interesting, but being non-US-based this quote above struck a chord:

      “Further, for non-US investors, I’d say investing outside their home countries is an essential idea and the added inflation/deflation hedge very real.”

      This is probably my last comment before I actually take the plunge!

      Jim, I know you are in favour of a US-centered aproach, but it does seem a bit silly for a non-US-based person to go all-in in a country when we never intend to live there, especially adding currency risks. I thought about doing 100% US Market but my finances being UK-based I decided to mix in 20% international funds (all my funds are from Vanguard UK – which is owned by Vanguard US). What do you think of this allocation, even though it is likely not to perform as well as 100% US (although we don’t know that)?

      80% US Whole Market (0.10%)
      10% UK Whole Market (0.08%)
      7% Developed Europe ex-UK (0.12%)
      3% Japan (0.23%)

      • jlcollinsnh says

        Hi Adam…

        Just to clarify, I favor a US centric approach for those of us in the US. We live in a country with a major part of the world economy and investing in the US market gives us international corporations that benefit from the success of the rest of the world. Plus we get to do this all with funds that have dirt cheap ERs.

        My concern for those readers in other countries is that their home markets are simply too small to provide the diversification I’d like to see.

        Were I in that situation, I would look to one of Vanguard’s world funds that included the US market. They are more expensive than VTSAX, but not too bad. In fact, if costs were equal, this would be my first choice for US investors as well.

        As for your allocation, I think it is just fine. It will track the US performance very closely and will outperform, or not, mostly depending on how the UK and Europe do in comparison. Who knows?

        I hesitate a bit over the Japan fund, simply because of the .23% ER and the narrow country focus. Is there a broader Asia fund with a lower ER?

        If there is, maybe 70/10/10/10?

        Or even, more like the world funds: 55/15/15/15

        If you haven’t already, you might also check out:

        • Adam says

          Hi Jim, thanks for the response.

          I did read the European post and comments in detail – they were very helpful, and I also posted a comment while I was still working out the allocation, but I didn’t get a reply that time. 🙂

          The fund Mrs EconoWiser suggested, the All World fund, is available, but it’s an ETF at 0.25% (compared to the 0.08 – 0.23 of the individual funds). I should note that I also have to pay 0.25% platform fees on top whatever I do, so I prefer the funds route for now as there are no trading costs to buy more/rebalance, unlike with ETFs. There are fixed-free brokers available too with no percentage charge, but the stash is still modest enough for the percentage option to be cheaper for now.

          Regarding Japan, there is a pacific-ex Japan fund available, also for 0.23%, so if I did that I’d probably need to combine it with the Japan fund. The higher cost and the sluggishness of Japan are the two reasons it’s only at 3% – but I thought you never know what will happen a decade from now! As you said it’s a shame there isn’t a combined one.

          Your suggested allocations are interesting. I’ve got a few days for my funds to clear so I’ll ponder over them before coming to a decision. Thanks!

          • jlcollinsnh says

            Clearly, Adam…

            You are thinking this thru carefully and I think you’re process is on target. Costs are critical.

            In fact, once you make your final call, please take a moment to post what you are doing and why on that European post. It will be very helpful for the next person who reads thru it.


          • Adam says

            I found this (long and dry) report from Vanguard regarding international stocks, which is relevant to this post:


            It focuses mainly on reducing ‘volatility’ rather than on increasing returns. The conclusion seems to be, as always, who knows? But 20-30% probably isn’t going to do you any harm and *may* smooth the ride. Interestingly they advise against 50% US Stocks because the costs involved of >50% international stocks outweigh the benefits.

  13. MarredCheese says

    Am I wrong to think that international funds (especially emerging markets) are riskier than US stocks and should therefore have higher returns over the long term? I would think the same thing of small cap funds compared to total US market funds. I know at least Vanguard ranks them a 5 instead of a 4 in terms of riskiness. Shouldn’t a young person who is planning to buy and hold for many decades target the most volatile yet diversified fund possible? Or is my assumption naive that the market rewards risk fairly?

    • jlcollinsnh says

      I’ve never really looked at the comparative riskiness of International and Small Cap v. Total. My guess is that they are. But this doesn’t mean you’d enjoy outsized results as a reward for accepting their volatility. The market doesn’t necessarily reward this risk fairly.

      The issue is that these sectors go in and out of favor. They can out-perform for years and then lag as long or longer.

      Personally, I’d rather own it all in a Total Market Fund.

  14. Ravis says

    Hey Jim,

    First, I’m loving your blog. Been following MMM for a couple years now and just recently came over here when he mentioned the Chautauqua, I checked it out and thought it sounds awesome! but alas it’s sold out… maybe next year for me and the Mrs. In the interim i’m tearing through your blog, super great stuff!

    My question is related to that I see you recommend the VFWAX and I saw another comment where you said you recommended it over VIAX because VIAX had a higher % in North America. That post was from a year or two ago and I just double-checked (because I’m currently using VIAX) and I didn’t really see much difference between the two anymore… just wondering if you had looked at them recently and maybe they’ve grown closer together? Or maybe I’m missing something?

    I’m already following the vanguard strategy, mostly in VTSAX but I do have some REITs and international, so you got me rethinking some of this… lots of good ideas to ponder!

    really appreciate what you’ve done here!

    • jlcollinsnh says

      Welcome Ravis…

      Glad you found your way here and are enjoying it.

      Can you point me to the comment to which you refer? I am unfamiliar with VIAX and think this might be a typo.

      In the post above I do say this:

      “VFWAX FTSE all-World ex-US Index Fund (expense ratio .14). This fund invests everywhere in the world except the USA, which you’ll have covered with VTSAX.

      “If you prefer to keep things as simple as possible, look at VTWSX Total World Stock Index Fund (expense ratio .27). This fund invests all over the world, including 50% in the USA. With it you no longer even need to hold VTSAX.”

      In both cases the ERs have come down and I’ve updated the post to reflect this. They used to be .18 and .40

      These are very low for these types of funds and for those who seek international these are still the way I’d go. But VTSAX is only .05

      Does this help?

      • Ravis says

        Hi Jim — Thanks for the quick response… sorry about that, yes that was a typo… I mean to say VTIAX (left out the “T”). My question/comment was in regards to another posters comment (posted by Tara C on September 26, 2012 at 2:13 pm). Where she mentioned that VTIAX was the usual international Vanguard fund, which is why I have it. You two had an exchange about perhaps the % in VTIAX of North America was greater than that of VFWAX. However, when I compared VTIAX and VFWAX, they seemed to have the same % not just in North America, but also in other locations. Even most of the same top holdings. So my question was whether they have grown closer and there is no longer a significant difference? or am I missing something and would you still recommend VFWAX over VTIAX?

        Thanks and sorry again for the confusion!

      • jlcollinsnh says

        Got it.

        Both funds are international ex the US and their performance is just about equal.

        VTIAX: “… employs an indexing investment approach designed to track the performance of the FTSE Global All Cap ex US Index, a float-adjusted market-capitalization-weighted index designed to measure equity market performance of companies located in developed and emerging markets, excluding the United States. The index includes approximately 5,550 stocks of companies located in 46 countries.”

        VFWAX: “… employs an indexing investment approach designed to track the performance of the FTSE All-World ex US Index, a float-adjusted, market-capitalization-weighted index designed to measure equity market performance of international markets, excluding the United States. The index includes approximately 2,364 stocks of companies located in 46 countries, including both developed and emerging markets.”

        As you’ve observed, they are very similar and both invest across 46 countries. The difference is they track different indexes and one holds twice the number of stocks.

        Both have the same ER these days and so I think either would work fine as a companion to VTSAX.

        • Ravis says

          Thanks for the clarity! Since I’m already in VTIAX I think I’ll stick with that for now.

          Oh yeah, looks like maybe my typos rubbed off on you, you listed VFWAX as FFWAX in your response above!

  15. Dan says

    Hi Jim,

    I have come to agree with you about not needing international stocks. I have about 16% of my equities in international. Over what time period do you think I should transfer my funds from total international to total stock market?

    • jlcollinsnh says

      Hi Dan…

      My take is, once you decide on an asset allocation that works for you and/or you think is better than what you have, why wait? Make the change and get on with your life.

      The only exception is if you have to sell appreciated shares in a taxable account that will generate a capital gains tax. Then you’ll want to look closely at your tax bracket and what your cap gain rate will be. For instance, in the 10% & 15% the cap gain rate is 0 and so is not a issue.

      If you will be hit with large cap gains you might want to transition more slowly.

      Good luck!

  16. Kalergie says

    Hi Jim,

    First of all, thank you for sharing your ideas and thoughts with like-minded people. I believe you have an easy to understand, very no-BS way of explaining your investment approach.

    If I may, I would like to add an additional point to your list of risks when investing internationally. It’s tax risk. More specifically, foreign holdings are subject to dividend withholding taxes from their respective home countries.

    For example, looking at the iShares MSCI EAFE ETF (EFA), the foreign withholding taxes were averaging at 7.5%. The current dividend yield of EFA is 3.5%. This results in a much higher real cost for the investor:

    Total cost = MER + (withholding tax% * dividend yield%)
    Total cost = 0.33% + (7.5% * 3.5%)
    Total cost = 0.56%

    Another example would be Vanguard’s Total International Stock ETF (VXUS). withheld dividends amounted to roughly 10.5% last year and the current dividend yield is 2.75%. Let’s run the numbers:

    Total cost = MER + (withholding tax% * dividend yield%)
    Total cost = 0.14% + (10.5% * 2.75%)
    Total cost = 0.29%

    I am not an accountant or by any means a professional investor. But if I am correct, this is a strong argument against international investing.

    Total cost comparison:
    VTI: 0.05%
    EFA: 0.56%
    VXUS: 0.29%

    In a nutshell, I believe international diversification has its justification depending on individual factors. However, one has to understand the true cost of going down that road and assess for themselves if it is worth it.

    I hope I could help add some value to this discussion.

    Sources: Ishares annual report, Vanguard annual report

    • Jack says

      In a taxable account, some of that foreign tax can be reclaimed, but not in tax-deferred accounts.

      Additionally, in a taxable account, you’ll have to pay taxes on 31% (currently) of your dividends. The rest of the dividends are qualified and may be tax free. Most of VTSAX’s dividends are qualified which is very nice to see at tax time–at least for me. One more item, the higher amount of dividends on the foreign stocks (currently) adds more to your modified adjusted gross income and that may increase the taxes due on your social security income–if that applies to you.

      I currently have exposure to foreign stocks via VTIAX but I’m questioning the added complexity it brings versus the wisdom and simplicity of using only VTSAX for stock exposure.

    • jlcollinsnh says


      Very cool graphic in the article. Who would have guessed they have almost twice as much exposure to Africa as South America? 😉

      I just added a comment and link to the post

  17. David says

    I’m still trying to decide on VFWAX or not.

    I’m 44 in age and most of my portfolio is in VFIAX (S&P 500) in a 401k since I don’t have access to a total stock market there.

    OVerall Breakdown looks like this:
    28% VTSAX taxable account
    6% VTSAX Roth
    19% VTSAX Traditional IRA
    47% VFIAX 401k

    Over time, my taxable account will grow the fastest as I save more after maxing out my 401k. I have no good international options in my 401k.

    Given that I have nearly half (and growing) in VFIAX instead of VTSAX, am I still covered in international or should I consider adding some? If adding some, it would have to come from my IRA and Roth which the percentages of those compared to my total portfolio will shrink dramatically over time.


    • David says

      Oh, and I’m 100% in equities at 44. I am now saving 60% after tax income while maxing out my 401k so I thought this would not be so bad. If I add a total bond to the mix It has to come from my traditional IRA too because I have no good Bond options in my 401k. I have federal capital preservation and federal treasury obligations. That’s it for bonds in my 401k which I plan to have until 60 when I retire and move my 401k to vanguard.

      Any opinion on this as well?

    • jlcollinsnh says

      The S&P 500 makes up ~75% of VTSAX.

      So with both VTSAX and VFIAX you are well covered internationally in my view per the reasons outlined in the post. To see how well covered, click the link in the post:

      “This article has a cool graphic of showing the international exposure the S&P 500 companies have. Who would have guessed almost twice as much in Africa as in South America?”

      Or in the comment directly above.

      If you decide to add bonds your IRAs are the place for them. This post might help you decide:

  18. Alex says


    Thank you very much for your effort trying to make us more independent from money and therefore enjoying the freedom that we as humans were meant to have.
    I have one question. If you were an European investor able to invest in growing ETF’s, wich of the following alternatives would you consider? (the purpose being growth/accumulation for a long 15+ period of time)

    1. 90% SP500 (TER 0.07)+ 10 % European bonds

    2. 60% world fund (TER 0.2)+ 30% SP500 (TER 0.07) + 10% emerging markets (TER 0.2)

    3. 100% SP500 (TER 0.07)

    I would like to know your thoughts on this.

    Thank you very much

  19. Jerome says

    thanks for your site.
    I would like to know, if you were a European investor, you would have the same composition of the portfolio.

  20. Felipe says

    Hi Mr. Collins,

    Aside from being an inflation hedge, don’t international stocks also add some safety margin in case the US becomes decoupled from world markets-ie- trade tariffs on importing US goods or other countries stop letting our companies sell so many goods in their country?

    Thank you.

    • jlcollinsnh says

      Hi Felipe…

      In the unlikely event that the US became decoupled from the rest of the world economy, it would be every bit as bad for the rest of the world. Maybe worse.

      Let’s hope it doesn’t happen.

  21. Delecia Segree says

    Hi Jim,

    I came across your site about a month ago and read an earlier post about VTSAX and I decided to put most of my cash there. I did put a small amount in VBLTX but I did put Some money in VTIAX because I talked to someone who really seemed convinced I should buy int’l while it’s still cheap. After reading this post I’m not so sure that’s the right move. The ER Spread didn’t seem unreasonable btwn VTIAX and VTSAX either. However I did also read your post about the effects of fees over time and I think I’d prefer to be in VTSAX for the lower ER.

    My question is that I’m about 90% in VTSAX and wondering if I should sell VTIAX to buy more VTSAX. I’m 34 and have a lot investment horizon so I’m ok with the risk.

  22. Terje says

    Hi Jim. You give excellent advice. And I was wondering what I should do as a norwegian living in Norway. Do you still recommend 80% US stocks and 20% bonds for a norwegian?
    What I am concerned with is currency risk, especially if the dollar weakens or the norwegian kroner strengthens. This photo shows my current asset allocation:
    Im thinking about selling the funds that has 0,3% in annual fees.

    And I want to reinvest that into one of the cheaper index funds that I already own a small part of. Vanguard is not available at a reasonable price in Norway, but there are cheap alternatives. Investors can invest with 0,00% annual fees in index funds that contains approximately the 300 largest companies in scandinavia. An S&P 500 indexfund is available at 0,07% in annual fees, the largest 50 companies in the EU is also available at 0,09%. I also have a s&p500 fund where the currency risk is mitigated/insured, but the annual fees are 0,3%.
    If you were me, how would you change the portfolio?


  23. Andy says

    Hi Jim,

    I’m a huge fan of simplicity and diversification. I had used VTSAX for my equities portion but over time it really bothered me. I had done my research with Vanguard and read the endless arguments in the boglehead threads regarding international allocation. There are so many good arguments against and for international. I do believe one can do well with or without international just as long as they stay the course over the long term. I finally decided to stick with simplicity and diversification. I chose Vanguard Total World Index. I’ll buy the entire haystack and find a few needles in there somewhere. The cost of this index is reducing so it will be fun watching the cost go down over time.

    • jlcollinsnh says

      Hi Andy…

      Should the time ever come when I feel a need for international exposure, I might just follow your lead. Especially if they get those ERs down a bit more. 😉

  24. Branden says

    The link to the article about Jack Bogle wouldn’t risk investing internationally is broken. The same article can be found by google searching the article title.

    P.S. Really glad the stock series exists.

  25. marshall says

    I have found that investing in international to be a good approach (VWO, and more recently(5 years ago) shift to VWGIX). Certainly, these are active versus passive..but I was looking for a non correlated investment. It’s interesting that you are leading everyone done the “passive” index approach, and I do think there is some justification behind that recommendation. However your readers need to understand that capitalization weighting is a form of active stock picking, IMO. I look for superior performance over extended periods aka Berkshire Hathaway (unfortunately it’s a bit rich for me.). I follow a bucket approach using Vanguard funds that automatically rebalance.
    Correlations versus cause are two different discussions. I do enjoy your blog..but it does strike me like Snuffy Smith selling pick axes when your thoughts get monetized.
    Best Regards

      • JD Shea says

        Hi Jim – I suppose this becomes a yearly tradition every time the Expense Ratio’s are lowered, so i’ll oblige and ask it again 🙂

        As of March 2019, how are you feeling about the introduction of the Total World Stock Admiral Shares (VTWAX) at an ER of 0.10% and the ETF (VT) ER of 0.09%?

        What ER would you need to see in order to seriously consider deviating your recommendation from VTSAX in favor of Total World Stock?

  26. Darrick says

    I don’t entirely agree with your thoughts about international stock market exposure by buying US stocks.

    You mention that many of the US companies generate a significant amount of their sales/profits overseas and for this reason, buying US stocks (VTSAX) provides enough international exposure.

    What if you were to look at this argument in the reverse? Many international companies also make a big part of their sales inside the US. Would you say that investing in international stocks (VTIAX) provides you with plenty of US exposure?

    From that perspective, I’d imagine you would say international stocks doesn’t give you enough US exposure, so why is it okay when we look at it in the reverse?

  27. CR or BZ Bound says

    Hey Jim!

    Your attention to detail and follow-up on your series are both impressive. Thanks for all that you do. I came across your information through Sam @ the Financial Samurai about 6 months ago and have been slowly going through the series (including comments).

    We are ready for an International adventure in either Costa Rica or Belize…
    My wife (46 years old) and I (44 years old) are DINKS with 2 cars and motorcycle that are all paid off. We have no debt besides a primary home of 180K left and 150K investment condo. We have also been fortunate to be able to more than double the mortgage payments and have less than 5 years left to pay it off. During the last 5 years as a landlord, we have only paid one month of the mortgage on the condo and are lucky to have 4-6 tenants to choose from during each flip in tenant contracts. We have about 14 years left to pay this one but only have an outlay of 2-2.5K annually for operating expenses.

    Last year around this time, I consolidated 5 retirement accounts from old jobs into direct and indirect rollovers into the taxable 401K. I did not exceed the 60-day window for a few indirect, so no taxable events. I also moved the non-taxable Roth account into a direct rollover.

    Now all of my accounts are in Vanguard.
    Roth untaxable- 150K Current allocation: VFIAX-25%, VBIAX-30%, VTIAX-10%, VDC-10%, BLV-25%. I will move VTIAX and VDC into VTSAX and adjust BLV into VBTLX after a long-term capital gain tax sets in.
    Cash- 25K
    401K taxable- 210K Current allocation: VSIAX-21%, VTSAX-23%, VMRGX- 19%, VGHCX-17%, VGT-20%
    Brokerage taxable- 48K. Current positions: VTSAX-%, VIGAX-%, VFIAX-%

    My wife just transferred everything to Vanguard earlier this year as well! Current positions: VTSAX-80%, VBTLX-10%, VTIAX-10%.
    Roth untaxable- 17K
    Cash- 10K
    403B taxable- 190K
    Brokerage taxable- 16K
    SEP taxable- 17K

    Combined Subtotal: 683K

    We are planning on selling our primary residence to semi-retire and move overseas to a new $2,500 a month budget. If we liquidated today into VFIAX ({VTSAX@60%/ VBTLX@40%} to have a smoother ride), we should have a near-term brokerage account of about 280K-325K to use during the gap period till 70 years old if needed. That could give us just over $925 a month (280K x 4%= 933). If we wait 5 years, we would have approx. 460-500K which is about $1,500 @ 4% per month on the low end. We can achieve this without touching Roth or 403B/401K in either scenario. This account would be used as a backup for approx. 25 years till about the year 2044.

    We will continue to earn income through her remote work and my scuba diving instruction but in a different tax bracket of 15% for a combined monthly earning of $2,900 till we get bored of working but till at least we are 50 years old which is in 4-6 years. We want to show earning of at least 11-13K a year to continue to fund both our Roths up until our RMD’s in our 70’s. During our semi-retirement years, we will each put in 10K into our SEP and Brokerage Account annually.

    Given our blessed circumstance, is there an advantage of doing a SEPP 72/ Roth conversion ladder from SEP, 503B, and 401K to Roths at 59.5 years old as MadFIentist suggests?

    In 2032 (ages 58/60), the condo net income starts to come in at $1,100-$1,200 a month since her mortgage is then paid off. My wife’s pension could start at 2041 (age 70) of $600 per month. If SS is still available at age 70 for both of us, hers could be at $1,881 per month and in 2043 my SS could be $2,059 per month.

    We have a period of minding the reduced income gap when we initially leave stateside until 2032 to rely upon the proceeds of the primary home sale, liquidated vehicles, and part-time post-retirement jobs. Without reducing principal at a 4% withdraw rate, the brokerage investments could be up to $925+ part-time earned income up to $2,900 totaling approx. $3,825 per month. With our scenario, we will not have to touch our Roths, SEP and 401K’s and our RMD’s start in 2044/2042. We presently have a combined total of 683K currently invested.

    LONG, LONG TERM PLAY Eventually roll into the following:
    VTSAX — Total Stock Market Index Fund- 8o%
    VTI-.04(1share), VTSMX-.14(3K), VTSAX-.04(10K), VITSX-.04(5M), VITNX-.035(5M), and VITPX-.035(100M) are all the same fund, just different share classes. VTSSX-.05(closed)

    VBTLX — Total Bond Market Index Fund- 10%
    BND-.05(1share EFT), VBTLX-.05 (0 Min), VBMFX-.15(3K), VBTLX-.05(10K) are all the same fund, just different share classes.

    VTIAX — Total International Index Fund- 10%
    VGTSX-.17(3K), VTIAX.11(0 Min), VTSNX-.09(3M) and VTPSX-.07(100M) are all the same fund, just different share classes.

    When the stock market drops, we will rebalance my allocation between stocks and bonds. This typically means selling part of VBTLX to add to VTSAX.

    In your part VII series in one of your responses, you wrote regarding “VTSAX – I keep outside the IRA”. Why is that?

    Are we closer to FIRE or FI that we may think? Based on the information, are we ready to execute our plan now?

    I know, long post that took me over an hour and a half to write. In attempts to share a layman’s point of view; I wanted to be detailed to show others how much long-range planning is needed… besides, you have taken months off of your life over the years to help your readership base. Keep up the outstanding work!
    Regards, Patient but ready

  28. Jordan says

    Thank you for your stock series. It’s the first thing I’ve read that has made investing make any sense to me.

    I had a question about investing in ETFs vs mutual funds. I am just starting out and don’t have enough money to invest in VTSAX and won’t have enough for several years as I am beginning medical school next month.

    I currently have $3,000 invested in VTSMX (ER: 0.14%) in a Roth IRA. However, VTI (the ETF version of VTSAX/VTSMX) had an ER of 0.04%. Obviously the ER of VTI is significantly better than that of VTSMX. However, at the time of writing this, the cost of a single share of VTSMX is $68.55, while the cost of VTI is $140.85. I currently own about 43 shares of VTSMX. If I converted the VTSMX to VTI, I would only be able to purchase about 21 shares of VTI.

    So long story short, is owning more shares of VTSMX the better play or should I convert to VTI for the lower ER? I will not contribute much over the next 4 years due to being in school.

    Also, is there an advantage to investing in mutual funds vs ETFs? I know traditionally ETFs had commission charges but vanguard just announced the ability to purchase over 1800 ETFs commission free.

    Thank you again for all your work on this stock series and my apologies if you have already answered this same question somewhere else on your blog. If you have, please just point me there and I will read what you’ve already written.

  29. Ben says

    Hi Jim

    Great blog and glad I found it when I did. Very few experts cut the crap and tell it straight these days so it’s good when you find one. Haven’t left my office chair all day as every topic I have been finding interesting except the 401k stuff as I’m Australian and it’s not really relevant to me.

    My question is this. You talk about not needing exposure to international companies as it brings added risk due to currency fluctuations. Being Australian my position is in reverse. I want greater exposure to US Companies and Vanguard offer VTS over here which is the closest thing I can find to your VTSAX however I’m concerned about how the currency fluctuations will affect me as it’s not hedged. There are other funds that offer hedging however the exposure is less at about 50% US Companies, Australian around 40% and the rest is bonds and fixed interest. I realise you probably don’t have much interest in international Vanguards funds but was just curious if there were any negatives to investing in this fund or if there might be a more suitable Vanguard fund for an Australian investor. Thanks for your time and love your blog. Cheers mate. Quite new to investing so sorry if it’s not worded correctly.

  30. Eric says

    Hi Jim, can you write an article (or update this one) on your take on the Total International Bond Market index? Vanguard includes that in their target date funds. I know your POV on international stocks, but curious of your thoughts around international bonds. Thank you!

    • jlcollinsnh says

      No need for a post, Eric.

      My take on international bonds is the same as for stocks:

      I don’t see the need, but I have no great objection to those who do.

  31. Amy says

    Does Fidelity’s new zero fee international index fund (FZILX) sway your thinking on whether having an international index fund in your portfolio is a good idea?

    • jlcollinsnh says

      Not at all, Amy.

      Those zero fee funds have come up in the comments on other posts here.

      My take:

      There is, in my view, zero chance these new funds will maintain a 0% ER for 60 years (as one reader suggested). Or even six. These are loss leaders and loss leaders are short term hooks to lure in the suckers, er, investors.

      Vanguard is structured to seek ever lower costs for its shareholders.
      Fidelity is structured to seek maximum profits for its owners, which means raising ERs whenever possible.

      Plus, FZROX and the other zero fee funds still have operating expenses. Fidelity is just shifting those expenses to the holders of their other funds. I have an ethical issue with that. Not to mention a practical one if I owned one those other funds.

      One last thing that likely no one but cranky old geezers like me even know or care about:

      Back in the 1970s and early 1980s, when indexing was new and struggling for acceptance, Fidelity led the effort to strangle the concept in its crib. They recognized the threat indexing represented to their very profitable (to them) traditional high fee mutual funds. Those are where their hearts still lie. They’d kick indexing to the curb the moment they thought they could get away with it.

      Something to think about when making a long-term investment.

      I have been surprised that anyone would care about these, and I have been wrong about that. Seems this has been a very successful move for them.

      This is the post I should have written…

      …but Jim wrote it first, and better. 🙂

      • Amy says

        Thank you!

        I currently have a 401k with an employer and an old Roth IRA with Fidelity that I’m not currently contributing to. I had been planning on opening and funding a traditional IRA with Vanguard based in part on your work, but when I heard about the new zero fee funds, I was considering saving myself the hassle of dealing with another company and just sticking with Fidelity.

        The long term risk of Fidelity’s zero fee funds you describe makes a lot of sense to me, and it’s probably worth taking a few extra steps to get set up with Vanguard. Once I have fully funded the traditional IRA, I’m hoping to open my first taxable investment account, and having that at Vanguard is probably a good move as well.

        As for the Roth IRA sitting at Fidelity, it’s all in FSGDX, an international index fund with an expense ratio of 0.06. (The bulk of my portfolio is in my 401k and in a total US stock index fund, so this allocation isn’t as extreme as it sounds.)

        I’m considering a few options:

        1) Keep the Roth IRA at Fidelity, but move it into one of the zero fee funds (international or total stock index).

        2) Move the Roth IRA to Vanguard and invest in VTSAX or VFWAX.

        Your writings have made me question the traditional advice of having a dedicated international index fund, and I am still mulling over how to proceed on that front.

        But in the meantime, my question for you is: Are there any fees or taxes triggered by rolling over a Roth IRA from Fidelity to Vanguard? Or is rolling over to Vanguard a no-brainer since I’m planning on opening new accounts there anyway?

        Many thanks for all of the knowledge you have shared with the community. It has been truly life-changing for me. 🙂

        • jlcollinsnh says

          Hi Amy…

          One of the beauties of 401K and IRAs is that you can switch investments in them without it being a taxable event. So, if you hold yours at Fidelity and are happy so far you can just keep them at Fidelity knowing you can aways switch if you choose.

          Were you doing that with a taxable account, you could find yourself sitting on taxable capital gains that would be triggered in the switch, making it a trap.

          So you can take advantage of those new zero ER funds as long as they last. 🙂

  32. Clark says

    From reading your stock series I see you have changed your mind before. Let me try to convince you that you should change your mind here 🙂

    There is essentially a universal preference for domestic stocks no matter what country you are in-often known as a home country bias. This is usually for the reasons you stated above: 1) perceived risk, 2) higher cost, 3) you already have exposure through large US internationals and 4) international markets are increasingly correlated with US markets anyways.

    I’ve considered all of these reasons (see below) and just can’t agree with your conclusion. Obviously it adds a tiny bit of complexity, but holding 3 or 4 securities instead of 2 is still incredibly easy.

    1) International equities and bonds are riskier. Agreed, they are. Stocks are riskier than bonds, but that doesn’t stop us from holding stocks. The market is aware of these risks (accounting risk, governmental risk, etc.) and they are priced into the securities. You get more risk, but also a higher expected return. (Note, there may be more risk on the security level, but because of diversification the total risk is actually lower from holding international securities. See point 4).

    2) Higher cost. This is real, but the difference is decreasing quickly. Exposure to most/all international equities can be had for ~.11% (VXUS) compared to .04% (VTI). 7 cents on $100 is pretty cheap for the diversification these assets provide. Or if you are lazy you can just get a total world fund (VT) for .1%, but that is more expensive than a blend of VXUS and VTI.

    3)Yes there is some exposure through large US companies, but it is partial. If it’s valuable to get that diversification, why not get more of it?

    4) Although international assets are increasingly correlated with US assets, there are enough idiosyncratic differences across the world (various governments, central banks, etc.) that holding these assets will give you diversification. Suppose U.S. stocks have a down decade, or more? This isn’t unprecedented-I’m sure many in Japan wished they had international exposure during the lost decade of the 90’s. If/when that happens it will sure feel good to have international exposure.

    In conclusion, looking at the past it would have been a wise decision to hold only US stocks and bonds. But I don’t see a compelling case for favoring any one region of the world over the other going forward.

    • jlcollinsnh says

      As I’ve said many times here on the blog, for those in any country other than the US a total world fund is the way to go. The reason is simply that no other country’s economy is dominate and diverse enough to serve alone.

      However the US is. For now anyway.

      At some point that will change and when it does expanding beyond the US markets will make more sense to me. But we are not there yet.

  33. Mike says

    Hi jim!

    After reading a lot of posts and almost finished your book, I’m 90% sure I will use Vanguard’s total market ETF because I’m from Mexico and seems like a better decision due to currency and inflation/deflation hedge.

    I have two questions I hope you can answer:

    1. Looking at the daily traded volume of the ETF VT of vanguard’s total market in my country, they are small, like 962. Yes. Not the 6 million like in the US .. but only 962, without any more zeros.

    Is this normal?? Does ETFs only are traded locally? And, more important, is this an obstacule for my plans of FIRE and the 4% withdrawal rate (bc the lack of liquidity/bursatility)?

    2. When time comes, and I’ll allocate my assets into stocks and bonds, being not a US citizen and with no plans on living there, does the ETF BND apply to us, non USA citizens? Or its better to search for local bond ETF?

    Thanks Jl.

  34. Rex says

    I finally pulled the plug on the international portion of my portfolio (VGTSX), and I was someone who held a pretty significant part of my portfolio in it (it was about 40% total). I had been considering doing this for a long while, in large part because of the currency risk as you mention, and after reading this post for like the 10th time this year I just said, “you know what, just do it already. Why are you even fighting it?”

    The only reason I went with that large a chunk of international was because of some body of research that Vanguard had put together that talked about how 40% international and 60% domestic was the so-called “sweet spot” because it reduced volatility and what-not. I guess that’s why a lot of their target date funds went with that level of exposure. But then I was like, volatility doesn’t even really bother me, and I like US companies prospects better than international ones so… yeah, it feels good to finally just go with the gut.

    Long story short, thanks, Jim, for another well-written article. This is a great Stock Series you have going here, and I look forward for more great nuggets of information in the future

    – Rex

    • jlcollinsnh says

      Welcome to the dark side, Rex.

      As you may have gathered from the comments here and elsewhere, I am the odd one out on this position.

      Of course you know international stocks will now strongly outperform the US. 😉

  35. Tim Ewert says

    Hi there, Loving this blog!
    I’m 17 and currently researching where to put my inheritance.
    I am based in Switzerland and was just wondering whether you can recommend opening a Vanguard brokerage account for purchasing ETFs and International Indice.
    and whether you can recommend any long terms I should own.
    I have around 20 000 swiss francs available.
    Appreciate it

  36. Jane says

    Thanks for a great series. The point you made about avoiding currency fluctuation and unknowns is very important, but for me it’s the other way around. I’m a US citizen living abroad (my entire life). I can’t invest in local mutual funds etc. because those are considered PFICs and are subject to draconian taxes by the IRS. I’ve come to understand my best alternative is to invest in the US (either locally or through a broker in my country). The problem is this exposes me to the fluctuations in currency which you advised to be ware of. I’m wondering if in my situation it would be wiser to invest in a Vanguard international index in order to lower this risk. Does that make sense to you?

    • jlcollinsnh says

      Hi Jane,

      Thanks for your comment!

      Mr. Collins is currently traveling and unable to respond just now.

      We find for most questions, he has already covered the topic. Using the Search button might very well provide your answer. If not, please post your question again after October 15, 2019.

  37. Matt says

    Hi Jim –

    Can I ask what is your opinion of IEFA? The expense ratio is only .07 and it is balanced between large, mid and small-cap equities. Would you advise against investing in this index fund for international exposure? Are there negatives with iShares index funds? Thanks so much in advance for your reply Jim. By the way, your blog has been ENORMOUSLY helpful and educational for me. Thank you so very much for your blog.


  38. Jake says

    Thank you JL. This gave me much to consider. Most people I talk to recommend having international exposure. My portfolio has less than 5% international stocks. I fully concede that VTSAX gives you plenty of international exposure. What I’m chewing on is how long will the American economy have the type of world economic dominance it currently has? I wonder if the American piece of the world economy pie will shrink. If so, I want to have more international exposure. I have looked closely at VTWAX for this reason but always shy away when I see expense ratio. I am going to continue to chew on this and maybe add more international stocks at some point.

  39. Samuel says

    Hi Collins, have you added international funds (VTIAX) in 2022 considering the inflation rates?

    What’s your thoughts?



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