When comparing international stock investing options, iShares Core MSCI EAFE ETF (VEA) and Vanguard Total International Stock ETF (VXUS) are two popular choices. While both funds offer exposure to foreign stocks, there are key differences to consider.
VEA tracks the MSCI EAFE Index, which includes developed markets in Europe, Australasia, and the Far East. VXUS, on the other hand, tracks the FTSE Global All Cap ex US Index, which includes both developed and emerging markets worldwide (excluding the US). As a result, VXUS offers broader diversification and potential growth opportunities compared to VEA.
Another key difference is in their expense ratios. VEA has an expense ratio of 0.06%, while VXUS has an expense ratio of 0.14%. This means that VXUS's higher expense ratio may slightly reduce its returns over time.
Ultimately, the choice between VEA and VXUS depends on your investment goals and risk tolerance. If you prefer a more diversified portfolio with exposure to both developed and emerging markets, VXUS may be a better option. However, if you are looking for a lower-cost option and are comfortable with a focus on developed markets, VEA may be a suitable choice.
It's important to note that both VEA and VXUS are passively managed funds, meaning they track an underlying index rather than being actively managed by a portfolio manager. This can result in lower fees and potentially better long-term returns.
VEA vs VXUS
When comparing international stock investing options, VEA and VXUS are two popular choices. Here are six key aspects to consider:
- Index: VEA tracks the MSCI EAFE Index, while VXUS tracks the FTSE Global All Cap ex US Index.
- Diversification: VXUS offers broader diversification than VEA, as it includes both developed and emerging markets.
- Expense ratio: VEA has a lower expense ratio than VXUS (0.06% vs. 0.14%).
- Geography: VEA focuses on developed markets, while VXUS includes both developed and emerging markets worldwide (excluding the US).
- Management: Both VEA and VXUS are passively managed funds, meaning they track an underlying index rather than being actively managed by a portfolio manager.
- Performance: Historically, VXUS has outperformed VEA due to its broader diversification and inclusion of emerging markets.
Ultimately, the choice between VEA and VXUS depends on your investment goals and risk tolerance. If you prefer a more diversified portfolio with exposure to both developed and emerging markets, VXUS may be a better option. However, if you are looking for a lower-cost option and are comfortable with a focus on developed markets, VEA may be a suitable choice.
1. Index
The choice of index is a key differentiator between VEA and VXUS. VEA tracks the MSCI EAFE Index, which includes developed markets in Europe, Australasia, and the Far East. VXUS, on the other hand, tracks the FTSE Global All Cap ex US Index, which includes both developed and emerging markets worldwide (excluding the US).
This difference in index composition has a significant impact on the risk and return profile of each fund. VEA, with its focus on developed markets, is generally considered to be a less risky investment than VXUS, which includes emerging markets. However, VXUS has the potential to generate higher returns over the long term due to its exposure to emerging markets, which have historically outperformed developed markets.
When choosing between VEA and VXUS, it is important to consider your investment goals and risk tolerance. If you are looking for a more conservative investment with a lower risk profile, VEA may be a better choice. However, if you are willing to take on more risk in pursuit of higher potential returns, VXUS may be a better option.
2. Diversification
Diversification is an important investment strategy that can help to reduce risk and improve returns. By investing in a variety of assets, investors can reduce their exposure to any one particular asset class or market. VXUS offers broader diversification than VEA because it includes both developed and emerging markets. This means that VXUS investors are less exposed to the risks associated with any one particular market or region.
For example, if the US stock market experiences a downturn, VEA investors would be more heavily impacted than VXUS investors because VEA has a higher concentration of US stocks. However, VXUS investors would still be exposed to some risk from the US market, as well as the risks associated with emerging markets. This is because emerging markets are generally considered to be more volatile than developed markets.
The key takeaway is that VXUS offers broader diversification than VEA, which can help to reduce risk and improve returns. However, it is important to remember that all investments carry some degree of risk. It is important to carefully consider your investment goals and risk tolerance before investing in any fund.
3. Expense ratio
The expense ratio is an important consideration when choosing any investment fund. It represents the annual fee that is charged by the fund's management company to cover the costs of managing the fund. A lower expense ratio means that more of your money is invested in the fund's underlying assets and less is going to fees.
- Impact on returns: A lower expense ratio can have a significant impact on your returns over time. For example, if you invest $10,000 in VEA and $10,000 in VXUS, and both funds earn the same 5% annual return, you would have $12,189 in VEA after 10 years and $12,079 in VXUS. This is because VEA's lower expense ratio would allow you to keep more of your earnings.
- Comparison to other funds: VEA's expense ratio is lower than the average expense ratio for international stock funds. This makes it a more cost-effective option for investors who are looking for a diversified portfolio of international stocks.
- Importance for long-term investors: The impact of the expense ratio is compounded over time, so it is especially important for long-term investors to consider. If you are planning to invest for 10 years or more, a lower expense ratio can make a significant difference in your returns.
Overall, VEA's lower expense ratio is an important advantage that investors should consider when choosing between VEA and VXUS. It can help to improve your returns over time and make your investment more cost-effective.
4. Geography
The geographic focus of VEA and VXUS is a key differentiator between the two funds. VEA focuses on developed markets, while VXUS includes both developed and emerging markets worldwide (excluding the US). This difference has a significant impact on the risk and return profile of each fund.
- Developed markets: Developed markets are generally considered to be more stable and less risky than emerging markets. They have well-established economies, strong legal systems, and transparent financial markets. Examples of developed markets include the United States, Japan, and Germany.
- Emerging markets: Emerging markets are generally considered to be more volatile and risky than developed markets. They have rapidly growing economies, but they may also have weaker legal systems and less transparent financial markets. Examples of emerging markets include China, India, and Brazil.
VEA's focus on developed markets makes it a less risky investment than VXUS, which includes emerging markets. However, VXUS has the potential to generate higher returns over the long term due to its exposure to emerging markets, which have historically outperformed developed markets.
When choosing between VEA and VXUS, it is important to consider your investment goals and risk tolerance. If you are looking for a more conservative investment with a lower risk profile, VEA may be a better choice. However, if you are willing to take on more risk in pursuit of higher potential returns, VXUS may be a better option.
5. Management
The management style of VEA and VXUS is an important consideration for investors. Both funds are passively managed, meaning that they track an underlying index rather than being actively managed by a portfolio manager. This has several implications for investors.
- Lower costs: Passively managed funds typically have lower expense ratios than actively managed funds. This is because they do not require the expertise of a portfolio manager to make investment decisions. The lower expense ratios of VEA and VXUS can help to improve returns over time.
- Diversification: Passively managed funds are designed to track a specific index, which ensures that they are well-diversified. This means that investors who own VEA or VXUS are less exposed to the risks associated with any one particular stock or sector.
- Transparency: Passively managed funds are more transparent than actively managed funds. This is because their investment decisions are based on a predetermined index, which is publicly available. Investors can easily track the performance of VEA and VXUS and compare it to the performance of the underlying index.
Overall, the passive management style of VEA and VXUS offers several benefits to investors. Lower costs, diversification, and transparency can all help to improve returns over time.
6. Performance
VXUS has outperformed VEA over the long term due to two key factors: its broader diversification and its inclusion of emerging markets.
- Broader diversification: VXUS tracks the FTSE Global All Cap ex US Index, which includes both developed and emerging markets worldwide (excluding the US). This gives VXUS investors exposure to a wider range of stocks and reduces their risk exposure to any one particular market or region.
- Inclusion of emerging markets: Emerging markets have historically outperformed developed markets over the long term. This is because emerging markets have faster-growing economies and more potential for growth. VXUS's inclusion of emerging markets gives investors the opportunity to participate in this growth potential.
As a result of these two factors, VXUS has outperformed VEA over the long term. However, it is important to note that past performance is not a guarantee of future results. All investments carry some degree of risk, and investors should carefully consider their investment goals and risk tolerance before investing in any fund.
FAQs about VEA vs VXUS
VEA and VXUS are two popular ETFs that offer exposure to international stocks. Here are some frequently asked questions about these two funds:
Question 1: What is the difference between VEA and VXUS?
VEA tracks the MSCI EAFE Index, which includes developed markets in Europe, Australasia, and the Far East. VXUS, on the other hand, tracks the FTSE Global All Cap ex US Index, which includes both developed and emerging markets worldwide (excluding the US).
Question 2: Which fund is more diversified?
VXUS is more diversified than VEA because it includes both developed and emerging markets. This means that VXUS investors are less exposed to the risks associated with any one particular market or region.
Question 3: Which fund has a lower expense ratio?
VEA has a lower expense ratio than VXUS (0.06% vs. 0.14%).
Question 4: Which fund has performed better historically?
VXUS has outperformed VEA over the long term due to its broader diversification and inclusion of emerging markets.
Question 5: Which fund is right for me?
The choice between VEA and VXUS depends on your investment goals and risk tolerance. If you are looking for a more conservative investment with a lower risk profile, VEA may be a better choice. However, if you are willing to take on more risk in pursuit of higher potential returns, VXUS may be a better option.
Summary:
VEA and VXUS are both solid choices for investors looking for exposure to international stocks. VEA is a good option for investors who are looking for a more conservative investment with a lower risk profile. VXUS is a good option for investors who are willing to take on more risk in pursuit of higher potential returns.
Transition to the next article section:
Now that you know the key differences between VEA and VXUS, you can make an informed decision about which fund is right for you. In the next section, we will discuss some of the factors to consider when choosing an international stock ETF.
Conclusion
VEA and VXUS are two popular ETFs that offer exposure to international stocks. VEA tracks the MSCI EAFE Index, which includes developed markets in Europe, Australasia, and the Far East. VXUS, on the other hand, tracks the FTSE Global All Cap ex US Index, which includes both developed and emerging markets worldwide (excluding the US).
The choice between VEA and VXUS depends on your investment goals and risk tolerance. If you are looking for a more conservative investment with a lower risk profile, VEA may be a better choice. However, if you are willing to take on more risk in pursuit of higher potential returns, VXUS may be a better option.
Ultimately, the best way to decide which fund is right for you is to consult with a financial advisor. They can help you assess your investment goals and risk tolerance and make a recommendation that is tailored to your specific needs.
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