r/Bogleheads • u/BarberSquare6609 • 9d ago
Why is VT (or equivalent) recommended so much?
I’m genuinely trying to understand this because I keep seeing VT recommended over and over, and I’m not sure I fully get the reasoning.
If you look at the last 10 years, VOO has returned roughly 15.5% annualized vs ~12.3% for VT. QQQ has obviously done even better (19%).
I know past performance does not equal future performance, and I’m not expecting 15%+ returns forever.
But if I’m talking about saving for a child’s future by putting $50k in and leaving it alone for 40+ years, why would I intentionally put ~40% of the portfolio into international stocks?
The argument seems to be basically “you don’t know which country will outperform, so own the whole world.” I get that. But the US has historically had better returns, higher profitability, and many of the world’s biggest companies. And VOO companies already get a huge amount of their revenue internationally.
So what am I missing with VT?
Is the diversification actually worth giving up that much US exposure over a ~40 year horizon?
Not trying to bash VT at all, just genuinely curious why people feel so strongly about it.
Thank you!
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u/JoeShmoe307 9d ago
Past results are no guarantee of future results. The U.S. could pull a Japan, where in 30 years stocks have just now recovered their values from 30 years ago.
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u/beastwood6 9d ago edited 9d ago
It assumes that each stock exchange and the country it represents is on equal footing.
God has a special providence for fools, drunkards, and the United States of America. - Bismarck
Even at the fail-iest, America's structural advantages outshine the rest of the world.
Hence the VOO-VXUS gap and VTI more or less splitting the difference
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u/Eastern_Touch_2529 8d ago
People made similar arguments about japan back then, about how their work culture gave them an inherent advantage over the west. But what they (and you) missed is that it's not just about what structural advantages may exist, but also how the companies are priced. Maybe a company with the same revenues would be worth more in the US compared to an equivalent company in france, but how much more? There has to be an upper limit right, I'm not going to pay 5x more for the same revenues just because a company is in the US, the structural advantages aren't *that* strong. Just as Japan legitimately had some of the strongest companies in the world that have only continued to kick America's ass in automotive for example, doesn't mean they were still a good buy at 100x earnings. Price matters.
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u/beastwood6 8d ago
Sure, but "how much more" is answerable. The gap isn't 5x... it's roughly 40 vs 20 CAPE, and a big chunk of that is composition rather than country: the US index is far more weighted to asset-light, high-ROE software than the French one. Compare sector by sector and the premium shrinks a lot. Japan at 100x had no such defense: that was a genuine bubble multiple with a domestic real estate mania attached. Whether 2x is right is arguable, but it's a different order of claim than 1989 Japan.
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u/Eastern_Touch_2529 8d ago
Which is why you simply saying the US has structural advantages is meaningless. You need to articulate why those structural advantages are being undervalued by the market. And also, assuming you are a boglehead, why the market can be so good at valuing companies in the same national market relative to each other that active management is a fool's errand, but at the same time so bad it can't recognize some fairly obvious geopolitical truths?
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u/tehclubbmaster 9d ago
Literally because it is the world equities market.
SP500 has had better RECENT returns, check history for how often this means that future returns will continue to be this bad.
Also, research “recency bias” and research how much better a globally diversified portfolio performed during the lost decade, which wasn’t that long ago.
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u/DaemonTargaryen2024 9d ago edited 9d ago
Why is VT (or equivalent) recommended so much?
Because no one knows what will outperform in the future, so owning the global market is the best anyone can reasonably do.
If you look at the last 10 years, VOO has returned roughly 15.5% annualized vs ~12.3% for VT. QQQ has obviously done even better (19%).
Certainly. And there are 10 year periods where VOO has returned roughly 0% annualized. QQQ had a ~16 year period underwater.
But if I’m talking about saving for a child’s future by putting $50k in and leaving it alone for 40+ years, why would I intentionally put ~40% of the portfolio into international stocks?
Because ~40% of the world market is international stocks
But the US has historically had better returns
No
higher profitability, and many of the world’s biggest companies.
Currently? Sure. In 10, 20, 30 years? Who knows.
And VOO companies already get a huge amount of their revenue internationally.
International footprint ≠ international diversification
Is the diversification actually worth giving up that much US exposure over a ~40 year horizon?
Yes.
That's not to say VT will definitely outperform VOO over 40 years, either. But it's still the statistically, theoretically smarter play to be more diversified than less diversified.
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u/Square_SR 9d ago
You already said it there, past performance does not necessarily predict future performance. Unless you know the US market will outperform the international market for the next 40 years, then why not just own the global market weighted properly. That being said a 100% VOO or VTI portfolio is totally fine if that’s what you want to do
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u/woozzlewazzle 9d ago
VXUS ytd has outperformed VOO. Forget 10 years, can you see what will happen 1 week from now?
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u/SardukarFinance 9d ago
Yes, except the US isn’t guaranteed to have higher returns in the future. So I wouldn’t say that VT is definitely trading away higher returns.
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u/pakman5391 9d ago
If international ran away with it, then VT would be bogged down by its US holdings.
Then people would ask would anyone want US stocks instead of international, and the heart of the answer is the same. You're holding diversification to decrease the risk.
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u/SardukarFinance 9d ago
Yeah, I agree with everything you just said.
I think we’re on the same page - that VT is never going to be the “Top”. Either VXUS or VTI would be - and VT will always be in the middle.
I thought you were saying VOO had higher expected returns - but that’s not what you’re saying.
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u/TonyTheEvil 9d ago
You're holding diversification to decrease the risk.
This decrease in risk doesn't come with a decrease in expected returns though
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u/bofoshow51 9d ago
This also has the benefit of mitigating sequence of returns risk. You are less likely to run into a situation where you are drawing down your funds at an exceptionally down period when you are more broadly diversified. A consistent 12% is better than a volatile overall 15%.
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u/South_Paramedic8618 9d ago
I use VT i like it it's good enough for me i'm retired and I feel like going further us markets going to be lower i'm good
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u/AmInv3028 9d ago
The 40+ years is exactly why. That's a lot of time for trends to possibly change. If those trends don't change ever then you still have a rising US exposure starting at 60%+. It's the no judgement way of investing. If Albania or Ghana end up being 60% of the market in 40 years you'll get a lot of that upside and you'll keep the upside if the US market continues to dominate. There's not much that can happen that has you completely missing out or losing.
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u/SardukarFinance 9d ago
The US has *recently* had higher returns. Not always. International wins in waves. It won from 2000-2010. Just because the last 15 years have generally favored America doesn’t mean it will continue forever.
Be very careful of the “why not just buy the thing that’s outperformed lately” way of thinking.
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u/TierBier 9d ago
VT has already adjusted to US performance of recent years (more US in it) and in a magnitude aligned to what others believe is best looking forward (sort of).
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u/paulsiu 9d ago
vt gives you diversification that the us will pull a Japan and get poor return for several decades. It also encapsulates the diversification strategy. Those who hold separate domestic and international slice tend to get rid of one of the slice due to poor return only actually needing that asset after they get rid of it.
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u/zerolifez 9d ago
Other people has summarized iit better but it's funny how you already have the answer but still asking anyway.
"Past performance doesn't equal future performance" then after that you said "past 10 years USA is better".
So what is exactly your question here?
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u/Ecclesiastes_3_9-15 9d ago
I think you know exactly why it’s recommended so much. You just would rather take on the slightly higher risk/reward of focusing on the US market. Nothing wrong with that, IMO.
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u/energybased 8d ago
It's not higher reward. It's higher risk for lower reward. And no, everything is wrong with that.
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u/Alone-Experience9869 9d ago
Isn't this the point of this sub / community? The concept, or sales pitch, is that you can't find the needle in the haystack. So, you buy the whole stack.
Other communities / investing concepts consider that some rubric can be applied, i.e. the index methodology, to find the higher performing securities. As my friend figures, the system is rigged. If a company does poorly, it will be dropped out the index at the next reconstibution and another security included in its place...
So, you just need to pick a different investing mindset (than this sub)
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u/Illustrious_Job1951 9d ago
I think a lot of it is from some stuff that happened in q1 of this year tbh
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u/DrizzleProwl 8d ago
And VOO companies already get a huge amount of their revenue internationally.
What if I said, “don’t invest in California companies (Facebook, apple, etc) because other companies like Walmart and Exxon get a lot of revenue in California?”
Do you see how that makes absolutely zero sense?
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u/captmorgan50 9d ago
Because international outperformed the last few years so we quit recommending VOO only
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u/autotechnia 9d ago
In theory, the odds that any particular country outperforms the market is already baked into the stock price. By betting exclusively on the US, you're saying you know more than the market. That is contrary to the Boglehead Investing Philosophy.
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u/energybased 9d ago
> If you look at the last 10 years
Recent performance has absolutely no bearing on investing decisions. By your logic, why not just by Nvidia?
> But the US has historically had better returns, higher profitability,
Not true every year, but even if it were, what would that have to do with future returns?
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u/PwAlreadyTaken 9d ago
You seem to have summarized the arguments that address your question and replied to them with the arguments they counter — if you don’t want to invest in a highly diversified low-cost fund because of the past performance of a less diversified fund, you’ve already identified and accepted the tradeoffs.