Key insights
- The article discusses the Vanguard Total International Stock ETF (VXUS) in the context of recent U.S. market performance. While VXUS has outperformed the S&P 500 year-to-date, it has underperformed over the past three months. The author suggests VXUS is a good buy for diversification if less than 10% of a portfolio is allocated internationally, but recommends against adding more if the allocation is already above that threshold, maintaining that U.S. stocks remain the smarter long-term bet.
Between geopolitical events, tech stocks sliding, and overall uncertainty in the U.S. economy, it was a rough start to the year for the U.S. stock market. Through late March, the S&P 500 was down 7.5%, and investors had begun leaning more on international stocks.
Now, the S&P 500 has posted back-to-back gains. It finished April up 10.4%, May up 5.2%, and started June up 10.5% for the year.
The go-to for many investors looking to invest in international stocks was the Vanguard Total International Stock ETF (VXUS 2.89%), but with the S&P 500's current momentum, is VXUS a better or worse buy now than a month ago?
For most, the main benefit of investing in VXUS is gaining instant exposure to essentially the entire international stock market in a single investment. Its 8,770 holdings cover companies from every non-U.S. region you can think of, so it's as broad as they come.
Although it's outperforming the S&P 500 year to date -- up 13.6% to 11% as of market close on June 2 -- it has underperformed the index over the past three months.
Recent underperformance aside, VXUS's goal isn't necessarily to outperform the market (though it's greatly appreciated when it does). VXUS's main purpose is to diversify your portfolio and hedge against country-specific risks the U.S. may face. It's the best country to invest in long-term, but that doesn't make it foolproof or exempt from down periods.
If less than 10% of your portfolio is in international stocks, VXUS is still a good buy. If more than 10% of your portfolio is in international stocks, I wouldn't recommend adding more at this time. You can adjust the percentage to suit your preferences, but that's where I typically draw the line in my portfolio.
I still believe having the majority of your portfolio (around 90%) in American stocks is the smarter long-term bet.
VXUS might not be a consistent market beater, but it's an underrated dividend-paying ETF. It doesn't qualify as a dividend ETF, but it routinely pays an attractive dividend. Over the past decade, it has averaged around a 2.9% yield. Over that same span, the S&P 500 averaged a 1.6% yield.
For an ETF as broad as VXUS, its yield is impressive. Short of you investing a lump sum, it won't produce life-changing money, but it's a productive dividend for a complementary piece in a portfolio. And it's cheap, with an expense ratio of only 0.05%.