Tony Dong
5 min read
Quick Read
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From Dec. 31, 1999 through Dec. 31, 2007, an S&P 500 index fund lost 9.30% cumulatively after inflation. International and emerging-market stocks performed substantially better.
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VT owns roughly 9,000 stocks across the U.S., developed international, and emerging markets. Its market-cap weighting automatically increases or decreases each country’s allocation over time.
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The U.S. currently represents roughly 62% of VT, so investors still get substantial exposure to American stocks without betting everything on them, and at a cheap 0.06% expense ratio to boot.
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Two of the most popular ETF investing strategies on the internet have their own catchphrases: “VOO and chill,” referring to the Vanguard S&P 500 ETF (VOO), and “VT and chill,” referring to the Vanguard Total World Stock ETF (VT).
Which is better depends on whom you ask. Warren Buffett, who famously advised investors to “never bet against America,” would probably be comfortable with the U.S.-heavy approach. Spend enough time in the Bogleheads community, though, and you’re more likely to encounter an emphasis on maximum diversification across U.S., developed international, and emerging markets.
I think a lot of today’s investors are inevitably influenced by what they’ve experienced. Over the past decade, U.S. stocks have dominated, with growth stocks and especially large technology companies accounting for much of that leadership. Owning international stocks frequently felt like unnecessary baggage.
But there have been extended periods when the opposite was true. One particularly useful example is the period from the beginning of 2000 through the end of 2007, part of what investors commonly call the “lost decade” for U.S. stocks. Here’s what happened, and why a globally diversified portfolio resembling VT would have sidestepped much of the problem.
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What the Lost Decade Looked Like
Imagine investing $1 million in U.S. stocks on Dec. 31, 1999. The timing could hardly have been worse. Technology stocks had soared during the dot-com boom, valuations were elevated, and enthusiasm surrounding the internet was everywhere.
