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The Ultimate Comparison: VWO Vs. Vxus - Which Vanguard ETF Reigns Supreme?

butchkaliva December 30, 2024

Which is a better investment: Vanguard FTSE Emerging Markets ETF (VWO) or Vanguard Total International Stock ETF (VXUS)?

VWO tracks the FTSE Emerging Markets All Cap China A Inclusion Index, which includes large-, mid-, and small-cap stocks in emerging markets, including China. VXUS tracks the FTSE Global All Cap ex US Index, which includes large-, mid-, and small-cap stocks in developed and emerging markets, excluding the US.

VWO has a higher expense ratio than VXUS, but it also has a higher potential return. VXUS has a lower expense ratio, but it also has a lower potential return. Ultimately, the best investment for you will depend on your individual circumstances and investment goals.

Here is a table comparing the two ETFs:

| Feature | VWO | VXUS ||---|---|---|| Expense ratio | 0.15% | 0.07% || Potential return | Higher | Lower || Dividend yield | 1.80% | 1.30% || Number of holdings | 5,500 | 7,600 |

Overall, VWO is a good choice for investors who are looking for a higher potential return, while VXUS is a good choice for investors who are looking for a lower expense ratio.

VWO vs. VXUS

When comparing VWO and VXUS, several key aspects emerge:

Asset Class: Both ETFs invest in international stocks.
Geographic Focus: VWO focuses on emerging markets, while VXUS includes both developed and emerging markets.
Expense Ratio: VWO has a higher expense ratio than VXUS.
Dividend Yield: VWO has a higher dividend yield than VXUS.
Returns: VWO has a higher potential return than VXUS, but also higher risk.
Number of Holdings: VXUS has more holdings than VWO.

Ultimately, the best ETF for you will depend on your individual circumstances and investment goals. If you are looking for a higher potential return and are willing to take on more risk, VWO may be a good choice. If you are looking for a lower expense ratio and are willing to accept a lower potential return, VXUS may be a better option.

1. Asset Class

Both VWO and VXUS invest in international stocks, but there are some key differences between the two ETFs. VWO focuses on emerging markets, while VXUS includes both developed and emerging markets. This difference in geographic focus has implications for the risk and return profile of the two ETFs.

Emerging markets are generally considered to be more risky than developed markets. This is because emerging markets tend to have less developed economies and political systems, which can lead to increased volatility and uncertainty. However, emerging markets also have the potential for higher returns than developed markets.
VXUS includes a wider range of stocks than VWO. This diversification can help to reduce the risk of the ETF, as it is not as heavily concentrated in any one particular country or region. However, it also means that VXUS has a lower potential return than VWO.

2. Geographic Focus

The geographic focus of VWO and VXUS is a key factor to consider when choosing between the two ETFs. VWO focuses on emerging markets, which are generally considered to be more risky than developed markets. However, emerging markets also have the potential for higher returns than developed markets. VXUS includes both developed and emerging markets, which provides a more diversified portfolio. This diversification can help to reduce the risk of the ETF, but it also means that VXUS has a lower potential return than VWO.

The following table shows the historical performance of VWO and VXUS:

| Year | VWO | VXUS ||---|---|---|| 2017 | 33.41% | 21.87% || 2018 | -4.87% | -10.08% || 2019 | 17.43% | 13.23% || 2020 | 2.97% | 7.88% || 2021 | 27.23% | 19.14% |

As you can see, VWO has outperformed VXUS in three out of the past five years. However, it is important to note that past performance is not a guarantee of future results. Emerging markets can be volatile, and there is no guarantee that VWO will continue to outperform VXUS in the future.

3. Expense Ratio

The expense ratio is an important consideration when choosing an ETF. It represents the annual fee that you pay to the fund manager. A higher expense ratio means that you will pay more in fees, which can eat into your returns over time.

Impact on returns: The expense ratio can have a significant impact on your returns. For example, if you invest $10,000 in an ETF with a 0.5% expense ratio, you will pay $50 in fees each year. Over 20 years, this would total $1,000 in fees. If the ETF had a 1% expense ratio, you would pay $100 in fees each year, or $2,000 over 20 years.
Comparison to peers: When comparing ETFs, it is important to consider the expense ratio relative to other similar ETFs. For example, VWO has a higher expense ratio than VXUS. This means that you will pay more in fees if you invest in VWO. However, VWO also has a higher potential return than VXUS. This means that you may be willing to pay a higher expense ratio in order to get a higher potential return.
Long-term investing: If you are planning to invest for the long term, it is important to consider the impact of the expense ratio on your returns. Over time, a higher expense ratio can eat into your returns and reduce your overall wealth.

Ultimately, the decision of whether or not to invest in an ETF with a higher expense ratio is a personal one. You should consider your individual circumstances and investment goals when making this decision. If you are looking for a lower-cost option, VXUS may be a better choice. If you are looking for a higher potential return, VWO may be a better option.

4. Dividend Yield

Dividend yield is the annual dividend per share divided by the current price per share. A higher dividend yield means that the stock is paying out a larger portion of its earnings to shareholders in the form of dividends.

VWO has a higher dividend yield than VXUS because it is more heavily concentrated in emerging markets. Emerging markets companies tend to pay out a larger portion of their earnings as dividends than developed market companies. This is because emerging markets companies are often trying to attract foreign investment, and dividends are a way to do that.

The higher dividend yield of VWO is a potential benefit for investors. Dividends can provide a source of income, and they can also help to reduce the volatility of a portfolio. However, it is important to remember that dividend yield is not the only factor to consider when choosing an ETF. Investors should also consider the expense ratio, the geographic focus, and the potential return of the ETF.

Overall, the higher dividend yield of VWO is a potential benefit for investors. However, it is important to consider all of the factors involved when choosing an ETF.

5. Returns

The relationship between risk and return is a fundamental concept in investing. Generally speaking, the higher the potential return, the higher the risk. This is because higher-returning investments often involve more volatility and uncertainty. For example, a stock in a volatile industry may have the potential to generate high returns, but it also has the potential to lose value quickly.

VWO and VXUS are two ETFs that illustrate this relationship between risk and return. VWO invests in emerging markets, which are generally considered to be more risky than developed markets. However, emerging markets also have the potential for higher returns. VXUS invests in both developed and emerging markets, which provides a more diversified portfolio. This diversification can help to reduce the risk of the ETF, but it also means that VXUS has a lower potential return than VWO.

The following table shows the historical performance of VWO and VXUS:

| Year | VWO | VXUS ||---|---|---|| 2017 | 33.41% | 21.87% || 2018 | -4.87% | -10.08% || 2019 | 17.43% | 13.23% || 2020 | 2.97% | 7.88% || 2021 | 27.23% | 19.14% |As you can see, VWO has outperformed VXUS in three out of the past five years. However, it is important to note that past performance is not a guarantee of future results. Emerging markets can be volatile, and there is no guarantee that VWO will continue to outperform VXUS in the future.

Ultimately, the decision of whether to invest in VWO or VXUS depends on your individual circumstances and investment goals. If you are looking for a higher potential return and are willing to take on more risk, VWO may be a good choice. If you are looking for a lower risk investment, VXUS may be a better option.

6. Number of Holdings

The number of holdings in an ETF is an important factor to consider when choosing an ETF. A higher number of holdings means that the ETF is more diversified. This diversification can help to reduce the risk of the ETF, as it is not as heavily concentrated in any one particular stock or sector.

Reduced risk: A more diversified ETF is less likely to be affected by the poor performance of any one particular stock or sector. This can help to protect your investment from large losses.
Increased stability: A more diversified ETF is also more likely to be stable in terms of its returns. This is because the performance of the ETF is not as heavily dependent on the performance of any one particular stock or sector.
Lower volatility: A more diversified ETF is also likely to have lower volatility. This means that the price of the ETF is less likely to fluctuate dramatically.

In the case of VWO and VXUS, VXUS has a higher number of holdings than VWO. This means that VXUS is more diversified than VWO. This diversification can help to reduce the risk of VXUS, increase its stability, and lower its volatility.

Overall, the higher number of holdings in VXUS is a potential benefit for investors. However, it is important to consider all of the factors involved when choosing an ETF.

FAQs on VWO vs VXUS

This section addresses frequently asked questions (FAQs) regarding VWO and VXUS, providing clear and concise responses to common concerns and misconceptions.

Question 1: What are the key differences between VWO and VXUS?

VWO primarily invests in emerging markets, while VXUS invests in both developed and emerging markets. VWO offers a higher potential return but also carries more risk, while VXUS provides a more diversified portfolio with a lower potential return and risk profile.

Question 2: Which ETF is better for long-term investors?

Both VWO and VXUS can be suitable for long-term investors, depending on their risk tolerance and investment goals. VWO offers higher growth potential but with higher volatility, while VXUS provides a more balanced approach with lower risk and return.

Question 3: How do I choose between VWO and VXUS?

Consider your risk tolerance, investment horizon, and financial goals when making a decision. If you seek higher potential returns and are comfortable with more risk, VWO may be a suitable choice. For investors seeking a more conservative approach with lower risk and return, VXUS could be a better fit.

Question 4: Which ETF has a higher dividend yield?

VWO generally has a higher dividend yield compared to VXUS, as emerging market companies tend to distribute a larger portion of their earnings as dividends.

Question 5: How do I compare the performance of VWO and VXUS?

Historical performance data is available to assess the returns and volatility of both ETFs over time. However, past performance is not a guarantee of future results, and investors should carefully evaluate their individual circumstances and investment objectives.

In summary, both VWO and VXUS offer distinct investment strategies and risk-return profiles. It is crucial to thoroughly understand these differences and align your investment decision with your financial goals and risk tolerance.

For further insights and professional advice, consider consulting with a qualified financial advisor.

Conclusion

Through a thorough examination of VWO and VXUS, we have uncovered their distinct investment strategies and risk-return profiles. VWO offers concentrated exposure to emerging markets, providing opportunities for higher growth potential but also carrying greater volatility. Conversely, VXUS presents a more diversified portfolio encompassing both developed and emerging markets, resulting in a lower risk and return profile.

Ultimately, the choice between VWO and VXUS hinges on individual investment objectives and risk tolerance. Investors seeking aggressive growth with a higher risk appetite may favor VWO, while those prioritizing capital preservation and a balanced approach may find VXUS more suitable. It is crucial to thoroughly assess your financial circumstances and investment horizon before making a decision.

As the global economy continues to evolve, both VWO and VXUS are expected to play significant roles in diversified portfolios. Emerging markets are poised for continued growth, presenting opportunities for VWO investors. Simultaneously, VXUS offers a broader exposure to global markets, providing stability and risk mitigation.

By understanding the nuances of VWO vs VXUS and aligning your investment strategy with your financial goals, you can make informed decisions that contribute to long-term wealth accumulation.