Yes, another topic on this infamous choice between VT and VTI, sorry for that. I know there are numerous topics on the subject - here and on bogleheads, but I just wanted to check if my understanding is clear. As far as I can see, I would believe I have 3 reasons to switch to VTI rather than staying with VT:
A priori, VT is more diversified than VTI with more stocks and ex-US coverage. This is not a reason to switch per say, but I would tend to think the downside of this point is quite mitigated in a global economy where all the major stock indices are more and more correlated and US companies have a strong presence abroad anyway.
In any case, this is an endless debatable point, maybe it makes more sense for US investors than for Swiss investors, and I am not entirely satisfied with this point anyway…
The expense ratio is 0.03% for VTI and 0.07% for VT. If my calculations are correct, this represents 1.4% total expense ratio after 20 years for VT, and 0.6% for VTI. We could argue that this is a rounding error, but still, it’s one point in favor of VTI.
Last point but I think the most important one: the dividend yields seems to be lower for VTI than VT (1.5% prior 12months for VTI against 2% for VT at the moment). If my understanding of my taxes are correct, my dividends have a non-recoverable withholding tax of 15% while capital gains are not subject to any specific tax at the moment. So, as a swiss resident, it seems to me that it makes more sense to seek for low-dividend ETFs. However, I guess this can change at some point and the cost of changing from one ETF to another will incur a loss.
Could you help me understand if this is (partially ?) correct or if I am missing some (counter-)arguments with these 3 points?
Well actually that IS the key point and reason for choosing one or the other.
Do you want to invest only in US-based companies, or you want a globally diversified (company-residence-wise at least) portfolio?
Not really endlessly debatable.
Note also sector biases with much more tech in US-only. More growth, less dividend.
Arguably, that is why it was outperforming last decade or so.
The performance difference between VT and VTI can be as high as 2-3% per year in either direction. All your arguments about TER and taxes are moot. It is the next level of optimization that makes sense for the funds investing in essentially the same thing.
In the end, it is just your conviction .
On your 3rd point, if I read correctly we are talking about 75$ “lost” for every 100k invested.
I’d argue the diversification point and the performance are going to overshadow this amount.
Thank you all for you answers!
Coming back to the last point, I agree with the $75 difference for every 100k invested which doesn’t seem astonishing at first.
But doesn’t it seems high when compounded over 20 years? Presumably, it represents an additional difference of 1.5% after 20 years (with the assumption of equal returns).
Assumption of equal returns, equal and constant dividend disparity over time, etc. on two funds with different exposure to markets and currencies.
More or less the same as betting on market going up or down
Perfect is the enemy of good, but if you feel better with one fund over the other, have a dry run by investing some % in each and reassess after 2-3-4 years.
Depending on source, 60-70 per cent of S&P 500 (a reasonable equivalent to VTI) is domestic.
And while we’re at that, if you do opt for US-listed companies only…
…why not why not ditch VTI and pick QQQ outright?
Much better performing index over the long term. Little reason to believe that U.S. tech will underperform the broader U.S. market over the long term. And come a financial or political crisis, the financial services companies (absent from Nasdaq-100) are probably going to be first to suffer, i.e. will turn out to be less resilient).
Brace yourself though for Trump being put in jail, being reelected as president or, maybe worst, another presidential election where states remain too close too call long enough and he ends up losing by a small margin to claim foul play and send his supporters. marching (or worse).
To compare apples to apples, the shift would have to be from VT to a mix of VTI + VXUS.
A US broker will only withhold 15% of the dividends on a US stock, when correctly set up as a Swiss resident.
You can reclaim up to 15% back in your tax declaration. There are certain factors that will determine if you can reclaim the full 15%, less or nothing:)
Or having VTI at IBKR and VEUR+VFEM+V3PM at SwissQuote for example. Any advantages there?
Hmm yes, you are right actually.
Maybe in that case, the 3rd argument should be on the 25% (roughly) income tax on the dividends?
Which could represent as much as $125 difference per $100K per year with a dividend yield of 2.0% compared to 1.5%?
(subject to the conditions that @lowyield already mentioned)
Thank you everyone for the other answers!
As a newcomer to this forum am I right in understanding that VT is so highly regarded in the FIRE community precisely because it is so diversified (both in terms of sectors and geography) and as such it is a “safer bet” for long term investing?
Because I was having a quick look today and it seems that VT underperforms against many other ETFs in many (if not almost all) timeframes (though I did not consider dividends). So I am trying to understand the reasons why it is so highly recommended.
Lastly for someone that is not planning to retire in Switzerland, or most likely won’t be here in 10 years does a different strategy make sense? Assuming I will be moving to a EU country.
The performance you are looking at is likely taken on a recent timeframe. Historically, US stocks (VTI) have outperformed and underperformed “foreign” stocks (the other components of VT). They have consistently outperformed since VT inception, which doesn’t allow for a “fair” comparison using VT directly.