Combining US (VTI) and International (VXUS) for Complete Equity Coverage

 

Introduction 

Exchange-Traded Funds (ETFs) have revolutionized investing by offering diversification, flexibility, and low-cost exposure to global markets. Among the most popular ETFs for equity investors are Vanguard Total Stock Market ETF (VTI), which covers nearly the entire US equity market, and Vanguard Total International Stock ETF (VXUS), which provides broad exposure to international equities outside the US. Together, these ETFs can offer complete equity coverage, balancing domestic and global growth opportunities.

Investors often ask: “Why should I hold both VTI and VXUS?” The answer lies in geographical diversification and risk management. VTI focuses on US companies, from large-cap tech giants to small-cap firms, capturing domestic economic growth. VXUS complements this by providing exposure to developed and emerging markets across Europe, Asia, and beyond, which can perform differently from US equities depending on global economic trends.

Combining VTI and VXUS not only broadens your portfolio but also reduces single-country risk while capturing growth opportunities worldwide. In this guide, we will explore strategies to combine these ETFs effectively, assess allocation approaches, and offer insights on portfolio rebalancing. Whether you are a beginner or a seasoned investor, mastering the VTI + VXUS combination can help you build a diversified and profitable portfolio.

For more ETF insights and advanced strategies, visit ETF Investor Insights.

Understanding VTI and VXUS ETFs 

VTI tracks the CRSP US Total Market Index, providing exposure to virtually all publicly traded US companies, including large-, mid-, small-, and micro-cap stocks. Its benefits include:

• Broad diversification: Covers over 3,500 US companies.

• Low cost: Vanguard ETFs are known for low expense ratios (~0.03%).

• Liquidity: Highly traded, making buying and selling easy.

VXUS, on the other hand, tracks the FTSE Global All Cap ex US Index, providing exposure to more than 7,500 companies across developed and emerging markets outside the US. Its benefits include:

• Global diversification: Access to international growth opportunities.

• Hedging against US risk: Reduces overexposure to the US economy.

• Cost efficiency: Low expense ratio (~0.08%) compared to international mutual funds.

By combining VTI and VXUS, investors gain global equity exposure while maintaining cost efficiency and simplicity. The combination allows investors to benefit from both US innovation and global growth trends, effectively covering the entire equity universe.

Why Combine US and International ETFs?

Diversification is the cornerstone of long-term investment success. By combining VTI and VXUS, investors achieve:

1. Geographical diversification: Spreads investments across multiple economies, mitigating country-specific risks.

2. Sector and market cap coverage: US equities may dominate technology and consumer sectors, while international markets can provide exposure to energy, materials, and emerging markets growth.

3. Currency diversification: VXUS provides exposure to foreign currencies, which can help hedge against dollar volatility.

4. Risk-adjusted returns: A blended US + international portfolio historically smooths out volatility and improves long-term risk-adjusted performance.

While US equities often drive global market returns, international markets may outperform during certain periods due to economic cycles, policy changes, or growth opportunities in emerging markets. Using VTI and VXUS together ensures that your portfolio is not overly reliant on a single region, making it resilient in changing global conditions.

Allocation Strategies for VTI + VXUS 

Deciding how much to allocate to VTI versus VXUS depends on risk tolerance, investment horizon, and financial goals. Common approaches include:

• 60/40 Split: 60% VTI, 40% VXUS — a balanced allocation suitable for long-term investors seeking growth with moderate risk.

• 70/30 Split: More US-focused for investors confident in US market performance.

• 50/50 Split: Maximum diversification, equal exposure to US and international equities.

Investors may also adjust allocations dynamically, increasing VXUS exposure during periods when international markets are undervalued or US markets are highly expensive. Periodic portfolio rebalancing ensures that allocations remain aligned with risk preferences and market conditions.

ETF investors benefit from simplicity and liquidity, allowing them to rebalance easily with minimal transaction costs. Combining VTI and VXUS also simplifies tax management, especially for long-term capital gains strategies in taxable accounts.

Portfolio Implementation and Rebalancing Tips 

To maximize the benefits of VTI and VXUS, consider the following implementation strategies:

1. Core-Satellite Approach: Use VTI and VXUS as the “core” of your equity portfolio, supplemented with sector-specific or thematic ETFs for additional growth or diversification.

2. Automatic Rebalancing: Use brokerage tools to maintain target allocations quarterly or annually, ensuring the portfolio remains aligned with your risk profile.

3. Dividend Management: Both ETFs pay dividends; reinvesting them can significantly enhance long-term returns.

4. Tax Efficiency: Consider holding international ETFs like VXUS in tax-advantaged accounts to minimize foreign tax impacts.

Investors should monitor market conditions, global economic trends, and portfolio drift to make informed allocation adjustments. Combining VTI and VXUS provides broad equity coverage with minimal maintenance, making it an ideal solution for passive investors seeking global diversification.

Advantages and Considerations 

Advantages:

• Complete Equity Coverage: Captures US and international markets in a simple portfolio.

• Low Cost: Vanguard ETFs are among the most cost-efficient options.

• Diversification: Reduces single-market risk and smooths portfolio volatility.

• Flexibility: Easy to adjust allocations as market conditions change.

Considerations:

• Currency Risk: VXUS exposes investors to foreign currencies.

• Emerging Market Volatility: Some international regions are more volatile than US equities.

• Overlap with Other Holdings: Ensure that other ETFs or mutual funds in your portfolio don’t duplicate exposure unnecessarily.

With proper allocation, the VTI + VXUS combination offers a robust foundation for a globally diversified equity portfolio, suitable for long-term wealth building.

Conclusion 

Combining Vanguard Total Stock Market ETF (VTI) and Vanguard Total International Stock ETF (VXUS) provides a complete and cost-efficient solution for global equity exposure. Investors gain broad coverage of domestic and international markets, balancing growth opportunities and risk mitigation.

Allocation depends on individual goals, but strategies such as 60/40, 70/30, or 50/50 splits provide flexibility while maintaining global diversification. By incorporating periodic rebalancing, dividend reinvestment, and tax-efficient strategies, investors can enhance returns and reduce portfolio volatility.

Whether you are a beginner seeking a simple investment solution or an experienced investor building a core equity portfolio, VTI + VXUS allows you to capture the entire global equity market with just two ETFs. Mastering this combination is a key step toward smarter, long-term investment strategies.

For more ETF insights and strategies, visit ETF Investor Insights.

3 Key Takeaways

1. Global Diversification: Combining VTI and VXUS provides exposure to nearly all publicly traded equities worldwide.

2. Flexible Allocation: Tailor VTI/VXUS splits to risk tolerance and market conditions.

3. Low-Cost Core Portfolio: Use these ETFs as the foundation for a diversified, cost-efficient investment strategy.

Further Reading on Mastering ETFs

Understanding Tracking Error and Premiums in ETFs
Passive vs. Active ETFs: Which One Wins Long-Term?
How Dividends Work in ETFs: Total Return Secrets
Index Funds vs. Individual Stocks: The S&P 500 Way
The Basics of Diversification: Why You Need More Than One Stock
Dividends: Income from the S&P 500

Disclaimer

This article is for educational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before making investment decisions.