Investors will definitely find it challenging to complain about the stock market these days. That’s because the performance speaks for itself, despite there being an elevated level of uncertainty regarding the state of the economy.
In the past 12 months, there’s one Vanguard exchange-traded fund (ETF) that has climbed 23% (as of Aug. 18). This investment vehicle has been outperforming the S&P 500 index during that time. That gain will pique the interest of investors. But history provides a clear suggestion as to what you should be doing with your portfolio.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Continue reading to learn about this ETF. And for what it’s worth, it’s not the popular Vanguard S&P 500 ETF (NYSEMKT: VOO).
Image source: Getty Images.
Look at the past, and listen to Buffett
Investors should become familiar with the Vanguard Total International Stock ETF (NASDAQ: VXUS). It’s having a moment in the spotlight, as it has outpaced the S&P 500 index over the last year.
But this outperformance isn’t a long-running trend. It’s a new development. In the past decade, this ETF has generated a total return of 149%. On the other hand, the S&P 500 index’s total return of 319% is far superior. Credit goes to the impressive success of the Magnificent Seven stocks that have made U.S. investors a lot of money.
This might indicate that the Vanguard Total International Stock ETF’s showing is a one-off development and not a durable trend that investors should bet on. History suggests that this is the case.
Warren Buffett also provides investors with some advice. “Never bet against America,” he once wrote. He has viewed the Vanguard S&P 500 ETF as the best way for most people to invest in the stock market, emphasizing its low cost (expense ratio of 0.03%) and the fact that most active fund managers produce subpar results.
Buying and holding the international ETF essentially goes against the Oracle of Omaha’s recommendation of allocating capital to the U.S. economy. But investors shouldn’t completely write it off.
Consider ways to diversify the portfolio
One of the core philosophies of successful long-term investing is to build a diversified portfolio. This is textbook advice that any investor who’s new to the stock market will quickly learn. Owning many businesses in various industries that serve different end customers can lower single-stock risk, smooth out the volatility, and make it much easier to stay invested and let compounding work.
However, investors might not have put much thought into geographic diversification. Naturally, domestic investors favor companies in the U.S., as there is a familiarity with these names. You might even be a customer of many of these businesses.
It’s important to at least consider gaining international exposure. This is precisely where the Vanguard Total International Stock ETF comes into the picture. Even with a track record of notable underperformance relative to the S&P 500 index, it deserves some attention.
There are high-quality companies in other countries, with Taiwan Semiconductor Manufacturing, Samsung Electronics, and ASML Holding being the top three positions in the ETF. Their combined weight is tiny, but these businesses play a crucial role in the artificial intelligence revolution. Japan is the nation most represented in the international ETF.
Concentration risk is a major topic when it comes to the S&P 500 index, as is the overall market’s valuation. Ever-expanding U.S. federal debt, now approaching $40 trillion, is another concern. And the White House’s aggressive tariff tactics have aggravated trade partners. These headwinds at least make owning foreign stocks somewhat more interesting.
This supports the perspective that the Vanguard Total International Stock ETF is a worthy investment candidate. It may or may not outperform the S&P 500 index in the coming five or 10 years. However, allocating 5% to 10% of your portfolio here is an effective way to diversify.
Should you buy stock in Vanguard Total International Stock ETF right now?
Before you buy stock in Vanguard Total International Stock ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Total International Stock ETF wasn’t one of them. The 10 stocks that made the cut are built for long-term growth and could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $432,621!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,335,314!*
That performance is why people listen. With a track record of beating the S&P 500 by nearly 5x, Stock Advisor offers a distinct advantage. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built for the long haul.
Neil Patel has positions in Vanguard S&P 500 ETF and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends ASML, Taiwan Semiconductor Manufacturing, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
