Key Points
It can be a great idea for investors to add international exposure to their stock portfolios — especially if they’re currently invested in mostly U.S.-based companies. And a great way to do it is with a low-cost index fund like the Vanguard Total International Stock ETF (NASDAQ: VXUS).
What does the Vanguard Total International Stock ETF invest in?
As the name suggests, this is an index fund that invests in international stocks. As a quick note, a global ETF invests in stocks worldwide, including U.S. stocks. International stock ETFs specifically exclude the U.S.
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The Vanguard Total International Stock ETF tracks a broad index. It owns nearly 8,800 different stocks. Companies of all sizes are represented, as are both developed and emerging markets. It is a weighted ETF, meaning larger companies carry more weight, but it certainly isn’t top-heavy. Only three companies make up more than 1% of the fund’s assets.
Also, don’t assume that because it’s an international ETF that it’s filled with companies you’ve never heard of. Top holdings include tech heavyweights Taiwan Semi (NYSE: TSM) and Samsung, and you’ll also find AstraZeneca (NYSE: AZN), Alibaba (NYSE: BABA), and other household names among the largest holdings.
Like most Vanguard ETFs, the Vanguard Total International Stock ETF is an inexpensive way to invest. It has a 0.05% expense ratio, which means that for every $10,000 in assets, your annual investment costs will be just $5. (Note: This isn’t a fee you have to pay. It will simply be reflected in the fund’s performance.)
A smart time to buy?
There are two big reasons to consider the Vanguard Total International Stock ETF right now. The first is to diversify your portfolio, as international stocks can protect against currency fluctuations, U.S.-specific economic headwinds, and more.
The second reason is that international stocks, as a group, trade at a significant discount to their U.S. counterparts. For example, the average stock in this ETF trades at about 17 times earnings, compared to an average price-to-earnings multiple of more than 25 for the U.S.-based Vanguard Total Stock Market ETF (NYSEMKT: VTI).
See also <!DOCTYPE html><html lang="en"><head> <meta charset="UTF-8"> <meta http-equiv="X-UA-Compatible" content="IE=edge"> <meta name="viewport" content="width=device-width, initial-scale=1.0"> <title>Wealth Tax: Debating the Top Tax Bracket</title></head><body> <h2>Debate Over the Wealth Tax</h2> <p>Are the wealthy getting away with not paying their fair share of taxes, or are they carrying an unfair burden? The debate over the top tax bracket rages on as concerns about income inequality and the concentration of wealth at the top of the economic ladder continue to make headlines. Senators Bernie Sanders and Elizabeth Warren have both proposed a wealth tax on the ultra-rich, while even multi-billionaire Warren Buffett has vocally expressed support for the idea, suggesting that it is fair for wealthy Americans to be taxed at a higher rate.</p> <p>Currently, the top federal income tax rate stands at 37%, applicable to incomes of $539,000 and higher for single taxpayers and $647,850 and higher for couples filing jointly. However, historical data reveals that the top marginal tax rate has been significantly higher in previous eras. In 1944 and 1945, it peaked at a staggering 94%, and in the late 1980s, it hit a low of 28% under former President Ronald Reagan.</p> <h2>Historical Context and Present Day</h2> <p>The taxation of the wealthy has fluctuated significantly throughout U.S. history, demonstrating both higher and lower levels of taxation than the current status. This historical perspective adds complexity to the ongoing debate regarding whether the rich are paying their fair share of taxes. Despite the disputes, recent data from the IRS sheds light on the current tax scenario.</p> <h2>Top 1% Tax Contributions</h2> <p>In 2020, the top 1% of taxpayers—those earning $561,351 or more—contributed a significant 42.3% of the total tax revenue collected. This translates to the top 1% paying more income taxes than the bottom 90% combined. Astonishingly, the top 1% paid a staggering $723 billion in income taxes, while the bottom 90% collectively contributed $450 billion.</p> <h2>State-Level Analysis</h2> <p>Examining the tax burden on the wealthiest individuals at the state level yields interesting findings:</p> <h3>Alabama</h3> <ul> <li><strong>Minimum income to be considered 1%</strong>: $404,560</li> <li><strong>Average income of the 1%:</strong> $1,107,769</li> <li><strong>Average income tax paid by the 1%:</strong> $263,845</li> <li><strong>Average tax rate of the 1%:</strong> 23.82%</li> </ul> <h3>Alaska</h3> <ul> <li><strong>Minimum income to be considered 1%</strong>: $466,905</li> <li><strong>Average income of the 1%:</strong> $999,772</li> <li><strong>Average income tax paid by the 1%:</strong> $253,754</li> <li><strong>Average tax rate of the 1%:</strong> 25.38%</li> </ul> <h3>Arizona</h3> <ul> <li><strong>Minimum income to be considered 1%</strong>: $485,146</li> <li><strong>Average income of the 1%:</strong> $1,464,848</li> <li><strong>Average income tax paid by the 1%:</strong> $369,426</li> <li><strong>Average tax rate of the 1%:</strong> 25.22%</li> </ul> <h3>Arkansas</h3> <ul> <li><strong>Minimum income to be considered 1%</strong>: $387,666</li> <li><strong>Average income of the 1%:</strong> $1,483,925</li> <li><strong>Average income tax paid by the 1%:</strong> $313,266</li> <li><strong>Average tax rate of the 1%:</strong> 21.11%</li> </ul> <h3>California</h3> <ul> <li><strong>Minimum income to be considered 1%</strong>: $726,188</li> <li><strong>Average income of the 1%:</strong> $2,430,790</li> <li><strong>Average income tax paid by the 1%:</strong> $655,180</li> <li><strong>Average tax rate of the 1%:</strong> 26.95%</li> </ul> <h3>Colorado</h3> <ul> <li><strong>Minimum income to be considered 1%</strong>: $609,919</li> <li><strong>Average income of the 1%:</strong> $1,799,148</li> <li><strong>Average income tax paid by the 1%:</strong> $465,284</li> <li><strong>Average tax rate of the 1%:</strong> 25.86%</li> </ul></body></html><!DOCTYPE html><html lang="en"><head> <meta charset="UTF-8"> <meta name="viewport" content="width=device-width, initial-scale=1.0"> <title>Analysis of Minimum Income of the Wealthiest 1% and Average Tax Rates by State</title></head><body> Analysis of Minimum Income of the Wealthiest 1% and Average Tax Rates by State
In a nutshell, the Vanguard Total International Stock ETF provides diversification at an attractive price. If you don’t yet have enough non-U.S. exposure, it could be worth a closer look. Investors have nearly $600 billion allocated to this index fund, and there’s a good reason why.
Should you buy stock in Vanguard Total International Stock ETF right now?
Before you buy stock in Vanguard Total International Stock ETF, consider this:
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Matt Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AstraZeneca Plc and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
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