Photo by siamak poorjam on Unsplash
Sometimes we do things that seem minor to us but somehow create a stir in others. So it seems with a couple of, to me, minor adjustments I recently made to the Collins portfolios.
If you care, here’s the scoop.
Adding International
A couple of weeks ago I recorded an interview with Jack, a podcaster in Poland. In it I gave the investing advice that I have always given my international audience:
Choose a World Fund
My specific recommendation is Vanguard’s Total World Stock Index Fund VTWAX or the ETF version VT, as it has been since this post in 2012.
This is in contrast to my traditional recommendation for US investors (like my daughter): Vanguard’s Total Stock Market Index Fund VTSAX, or VTI for the ETF version. Fund or ETF, the portfolio is the same.
What I tell my international readers/listeners is that the US is the only economy in the world that is large enough and dominate enough that we Americans can get away with investing only in our own country. Anywhere else in the world investors are better served with a world fund. I also say that the time will come when US investors will be better served doing so as well.
My guess was this was unlikely to happen in my lifetime, but that it is something my daughter and other younger US investors should watch for. Turns out this past year may have accelerated the timeline.
A little bit of history
At the end of World War II, the US was the only country not in ashes. We were essentially the world economy. But then, with the help of the US Marshal Plan, the rest of the world began to rebuild. Obviously good for them, but also good for the US. Robust economies flourish best with robust trading partners.
The pie that represented the world economy began to see explosive growth. Where it used to be over 50% US, that percentage began to shrink as the rest of the world recovered. While the US share shrank, the pie grew dramatically such that our economy grew much larger and stronger as well.
By 1960 the US share of global GDP was ~40%. Currently it is ~25%. The the US GDP in 1945 was ~2.5 trillion. In 1960, ~3.5 trillion. Currently it is ~32 trillion. If you are curious, China comes in at #2 with ~21 trillion and Germany is a distant 3rd at ~5 trillion
Smaller share, but a much, much larger world GDP. A great trade.
Looking at equities, companies we can easily invest in, the US accounts for about ~46% of global equity market capitalization. China is again #2 at ~14% and the EU is #3 with between 8-12%.
In 1945 the US had ~80% of the global equity market capitalization. By 1960 it was ~65%. So you can see the slow but steady trend, and you can see why I figured there would be time before the US share dropped below, say, 40% where I’d begin considering going to a world fund for US investors.
So what changed?
I try hard to avoid politics on this blog, and I could be wrong, but in short here’s my take:
The economic policies of this administration have me concerned.
Tariffs, and especially the erratic implementation of them, are teaching our allies and enemies alike that the US is no longer a reliable trading partner. In response they are turning to each other to form new and stronger trading bonds and to diminish the dominance of the US on the world stage. These tariffs are also likely to be very inflationary once companies are no longer willing or/and able to absorb them.
The US dollar has been the world reserve currency since the end of World War II, but more and more other countries are seeking to trade in other currencies. Many would dearly love to displace the dollar as that reserve currency, just as the dollar replaced the British Pound after WWII. We are fortunate that now, unlike then, there is no obvious, viable alternative. So far.
Last year the dollar dropped in value against other currencies by ~10%, the largest drop in 50 years. Oh, and there is that pesky little issue of our debt, currently soaring toward 40 Trillion Dollars ($40,000,000,000,000).
2025 was an exceedingly robust year for stocks worldwide. The US as measured by the S&P 500 returned 16.4%. The average over the last 50 years has been ~12% making this exceedingly strong return. As long as you don’t look at the rest of the world that is.
Of the 30 top performing countries, the worst performer was still up ~11%. That was India. Second worst, the US with that 16.4%.
Most of Europe was over 30% and not a single EU country was less than 20%. China returned ~30%, as did Canada. Mexico came in at only #10 on the list, good for ~55%. Against this backdrop, 16.4% is embarrassing.
For these reasons, I see that declining trend of the US share of the world economy described above accelerating.
What have I done?
To be clear, I remain very bullish on America and it has only been one year. As I used to say about adding international, if you want to remain 100% in US stocks you’ll get no push back from me. My equity exposure remains predominantly US although it is now in VTI rather that VTSAX. (more on this below)
However, in the Collins IRAs we are now in VT (Vanguard’s Total World Stock Index ETF). By making the change in the IRAs, we avoid it being a taxable event and the capital gains tax that would otherwise apply.
Since the IRAs are only part of our net worth and since I am unwilling to pay the cap gain tax to move anything else, you can see my concern here is still fairly small. This is not the end of America.
Further, as a world fund and the US being the dominate equity source in the world, fully 62.5% of VT’s stocks are US companies.
In short, I have moved a part of our holdings into an ETF that has mostly US stocks and a modest 37.5% in international stocks. Moreover, these percentages will automatically adjust as the world changes over time. Whether that change is fast or slow.
Not a big dramatic deal, at least in my eyes. Especially if you actually understand what I’ve said about international investing all along.
What was my position on international investing before this?
Way back in 2012 I posted this piece:
Stock Series Part XI: International Funds
In it I lay out my reasons for not feeling the need for international. I’ll let you read it for yourself.
If you do you’ll hear me say, “I don’t feel the need to invest further in international specific funds. Your world view, however, may lead you to a different conclusion…”
From there I go on to recommend the very fund/ETF, VTWAX/VT, I just bought. Fortunately it has gotten cheaper since then when its ER was .22%. It is now only .06%.
I have never been strongly opposed to having international exposure, I just felt the need had yet to come. But things change and that change seems to be coming sooner than I would have guessed in 2012.
Yeah, but Mr. VTSAX is now buying ETFs???
This is an even smaller deal than the international move, so feel free to remain in VTSAX if you like. Indeed, I would have if I wasn’t already making changes to the portfolio. Which I almost never do.
ETFs first burst on the scene in the early 1990s, and VTI (Vanguard’s Total Stock Market Index ETF version of VTSAX) was introduced in 2001.
One of the key reasons they were created was to facilitate trading, which of course in the polar opposite of The Simple Path approach. Plus they frequently entailed the extra cost of trading commissions when they were bought and sold.
For these and other minor reasons I won’t bore you with, I have always been cool toward them.
As the trading costs faded away and their ERs dropped, my opposition softened. It became, “They are fine as long as you resist the urge to trade.”
When it came time to look at a World Fund, the ER of VTWAX was .09% while VT was .06%. So VT got the nod. Cheaper is better.
Then, while I was in the Vanguard website anyway, I figured I might as well switch from VTSAX (.04%) to VTI (.03%). That difference is tiny and I wouldn’t have bothered otherwise (and indeed hadn’t for years) but Vanguard makes it stupid easy and it is not a taxable event.
So, there you have it
These are the rare and small changes I’ve personally made. You can join me, or not. You’ll be fine either way.
Don’t lose sight of what is important than these minor adjustments:
Acquiring shares in low-cost, broad-based stock index funds/ETFs, staying the course through the inevitable market drops, and holding forever.
The only thing is, you might want to replace your…
VTSAX and Chill
shirt with
VTI and Chill
or
VT and Chill
…depending on whether you follow me into ETFs and/or overseas or not. 😉
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