Exploring Vanguard's Global Stock Fund: A Smart Choice?

Overview

Vanguard's FTSE Developed Markets ETF, or VEA, is a popular choice for investors seeking exposure to international stocks. This fund acts as a comprehensive basket, holding nearly all stocks from developed countries outside the U.S.

Key Features

• Low Fees: Known for its cost-effectiveness.
• Wide Range of Holdings: Offers extensive diversification.

Index Tracking

VEA tracks the FTSE Developed All Cap ex US Index, which includes:

• Small, mid, and large companies from developed markets worldwide.
• Approximately 4,000 stocks.
• Market Capitalization Weighting: Larger companies have a more significant share in the portfolio.

Diversification Benefits

• Global Reach: Includes stocks from countries often overlooked by other funds, such as Canada and South Korea.
• Risk Reduction: With nearly 4,000 stocks, no single stock makes up more than 2% of the fund.
• Smooth Returns: Helps mitigate risk and stabilize returns.

Performance Highlights

• Past Five Years: The index returned about 10.3% annually, outperforming competitors that included underperforming emerging-market stocks.
• Past Decade: The index gained around 7.8% annually, comparable to other major foreign stock indexes.

Market Focus

• Developed Markets: Excludes emerging markets, which has contributed to its strong performance in recent years.
• Long-Term Perspective: Differences in risk and return compared to broader benchmarks tend to even out over time.

Currency Risk

• No Hedging: VEA does not hedge against currency risk, which has impacted its performance recently due to the strong U.S. dollar.
• Long-Term Balance: The impact of currency fluctuations on total return tends to balance out over time.