One of the biggest advantages of ETFs is that they make building a portfolio very simple. With a single stock fund, you could own hundreds, if not thousands, of different companies in one investment. And if you wanted the simplest possible solution, you could own the entire global equity market in just one ETF.
That's what the Vanguard Total World Stock ETF (NYSEMKT: VT) is. It includes more than 10,000 stocks in total, covering companies of all sizes from the United States, developed foreign markets, and emerging markets. If you want the broadest possible coverage of global stocks, it's ideal. But it's not the ideal choice for everyone.
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If easy investing is your primary goal, there might not be a better ETF to use than this one. You don't have to chase what's hot at the moment or worry about what sector is leading the market. And you don't need to think about whether it's time to diversify internationally. You already own it all — nearly every investable stock, industry, and region of the world.
Because it's market cap-weighted, you're still more heavily invested in the global economy's giants, including Microsoft, Apple, and Taiwan Semiconductor Manufacturing. There's no concern that you're missing out on the giants driving economic growth right now. But you're also able to capture performance in case the economy changes or other areas of the world begin to lead.
In practice, the Vanguard Total World Stock ETF is just a combination of the Vanguard Total Stock Market ETF (NYSEMKT: VTI), which invests in U.S. stocks, and the Vanguard Total International Stock ETF (NASDAQ: VXUS), which targets overseas equities.
Owning those two ETFs separately means you can better control what percentage is invested in each region. The Vanguard Total World Stock ETF, on the other hand, generally maintains a fixed allocation of two-thirds U.S. stocks and one-third international.
If you're not comfortable with that allocation and want something more suited to you, you may want to pass on the Vanguard Total World Stock ETF and pair the other two instead. But I wouldn't use that as a reason to shy away from international stocks altogether, because they play an important role in a diversified global equity portfolio.
It really comes down to your personal investment goals. If you're comfortable with that two-thirds/one-thirds split in your portfolio, I see no reason not to invest. You get everything for an expense ratio of just 0.06%. It's perhaps the simplest, most diversified portfolio you could own.
If, for example, you're nearing retirement and the one-third allocation to international stocks is too aggressive, then the Vanguard Total World Stock ETF probably won't work. Again, a combination of the other two ETFs might be better, allowing you to maintain more flexibility.
But this is unquestionably a great ETF option for investors. It really just depends on whether the allocation is right for you.
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