Vanguard’s Total World Index ETF (VT) was launched nearly two decades ago but initially faced skepticism from investors, particularly those focused on low-cost index mutual funds. One significant hurdle was its introduction during the summer of 2008, a period marked by heightened market volatility, which saw VT’s value cut by half shortly after its launch. Additionally, investors noted that VT could be recreated at a cheaper cost using its underlying components, the Vanguard Total Stock Market Index Fund (VTI) and the Vanguard Total International Stock Market Index Fund (VXUS).
Over the years, VT’s structure has become more appealing as its allocation shifted to approximately 62.9% in U.S. stocks, addressing past concerns about its international exposure. However, some investors still hesitate to invest in VT for several reasons. Many prioritize portfolio complexity, preferring to maintain separate asset classes rather than adopting a one-fund solution. Cost considerations also play a role, as VT’s expense ratio remains marginally higher than that of its component funds, making alternatives more attractive.
Moreover, tax implications limit VT’s appeal. As a mutual fund that holds less than 50% of its assets in foreign stocks, it does not allow for foreign tax credits, unlike its individual counterparts. Other investors might also find the lack of widespread availability in employer-sponsored retirement plans a barrier to accessing VT.
While some investors, particularly those seeking simplicity and aggressive growth in tax-protected accounts, have found VT beneficial, many still prefer the control and cost-effectiveness of using individual funds.
- Why this story matters: The evolving perception of ETFs like VT reflects broader trends in investment preferences and the importance of cost and simplicity in portfolio management.
- Key takeaway: Despite its growing acceptance, VT faces challenges related to investor preferences for cost, control, and availability.
- Opposing viewpoint: Some investors, particularly those favoring simplicity, find VT an effective solution for diversified stock exposure without complex allocations.
