When it comes to investing in international stocks, two popular options are Vanguard FTSE Developed Markets ETF (VEA) and Vanguard FTSE All-World ex-US ETF (VEU).
As someone who is passionate about personal finance, I have often been asked about which one is the better option.
While both ETFs have their advantages and disadvantages, there are certain factors that can help determine which one is the right fit for your investment portfolio.
VEA vs VEU: it’s important to note that VEA focuses solely on developed markets, while VEU has exposure to both developed and emerging markets. If you’re looking for a more diversified portfolio, VEU might be the better option.
It’s worth noting that VEA has historically provided higher returns than VEU over the past ten years. Additionally, VEA has a lower expense ratio than VEU, which can make a difference in the long run.
As always, it’s important to do your own research and consult with a financial advisor before making any investment decisions.
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What is VEA vs VEU?
VEA
VEA is an exchange-traded fund (ETF) that tracks the FTSE Developed All Cap ex US Index.
This index consists of large, mid, and small-cap stocks of companies located in developed markets outside of the United States.
VEA’s objective is to provide investors with exposure to the international equity market.
VEA has a low expense ratio of 0.05%, making it a cost-effective option for investors.
The fund has a dividend yield of 2.68% and has a total net asset value of $130.3 billion.
VEA is a passive ETF, meaning that it is not actively managed but aims to replicate the performance of the underlying index as closely as possible.
VEU
VEU is another ETF that tracks the FTSE All-World ex US Index, which includes large and mid-cap stocks of companies located in developed and emerging markets outside of the United States.
VEU’s objective is to provide investors with exposure to the global equity market. VEU has a slightly higher expense ratio of 0.07% compared to VEA, but it also has a higher dividend yield of 2.83%.
The fund has a total net asset value of $31.8 billion and is also a passive ETF. Both VEA and VEU have similar holdings, with VEU having a slightly higher exposure to emerging markets.
However, VEA has a lower exposure to the financial services sector and a higher standard deviation.
VEA and VEU are both solid options for investors looking to diversify their portfolio with international exposure.
The choice between the two ultimately depends on the investor’s personal preferences and investment strategy.
Comparison between VEA vs VEU
VEA vs VEU Performance
When it comes to performance, both VEA and VEU have shown impressive returns over the years.
VEA has provided higher returns than VEU over the past ten years.
This can be attributed to VEA’s focus on developed markets and investment in all types of companies – large, mid and small.
VEU, on the other hand, invests in all-cap stocks, making it more diversified but also potentially less profitable.
VEA vs VEU Expenses
One of the biggest factors to consider when choosing between VEA and VEU is expenses.
VEA has a lower expense ratio than VEU (0.03% vs. 0.08%).
This may seem like a small difference, but over time, it can add up and significantly impact your returns.
VEA vs VEU Diversification
Both VEA and VEU offer diversification benefits, but they differ in their approach.
VEA focuses on developed markets, while VEU invests in all-cap stocks from both developed and emerging markets.
This means that VEU may offer more diversification, but it also comes with higher risks.
VEA vs VEU Geographic Exposure
VEA invests solely in developed markets, while VEU invests in both developed and emerging markets.
This means that VEU has a wider geographic exposure, but it also comes with higher risks. It’s important to consider your risk tolerance and investment goals when choosing between the two.
VEA vs VEU Risk and Return Profile
Both VEA and VEU have shown impressive returns over the years, but they also come with risks.
VEU has a higher risk profile due to its exposure to emerging markets, while VEA is more focused on developed markets.
It’s important to consider your risk tolerance and investment goals when choosing between the two.
Both VEA and VEU are great options for investors looking to diversify their portfolio and gain exposure to international markets.
However, when it comes to choosing between the two, it’s important to consider your investment goals, risk tolerance, and expenses.
When to Choose VEA
Investment Goals
If your investment goal is to gain exposure to developed markets outside of the US, VEA may be the better option.
VEA tracks the FTSE Developed All Cap ex US Index, which includes companies from Europe, Asia, and Australia. This can provide diversification benefits to your portfolio and potentially higher returns.
Risk Tolerance
If you have a lower risk tolerance, VEA may be the better option. VEA has a lower exposure to the financial services sector, which can be more volatile than other sectors.
VEA has a higher standard deviation, which means it can experience more price fluctuations. However, over the past ten years, VEA has provided higher returns than VEU.
Market Conditions
If you believe that developed markets outside of the US will outperform US markets, VEA may be the better option.
However, if you believe that US markets will outperform developed markets, VEU may be the better option.
It’s important to consider your investment thesis and market outlook before making a decision.
When choosing between VEA and VEU, it’s important to consider your investment goals, risk tolerance, and market conditions.
VEA may be the better option for those looking to gain exposure to developed markets outside of the US and have a lower risk tolerance.
It’s important to do your own research and consult with a financial advisor before making any investment decisions.
When to Choose VEU
Investment Goals
If your investment goals include exposure to a broad range of non-U.S. equities, VEU may be the better option for you.
VEU provides exposure to more than 3,800 non-U.S. stocks from developed and emerging markets, while VEA only provides exposure to developed markets.
If you want to diversify your portfolio with emerging markets exposure, VEU is the better choice.
Risk Tolerance
VEU may be the better option for investors with a higher risk tolerance.
VEU has a higher standard deviation and a higher exposure to volatile sectors such as technology and healthcare, which can lead to higher potential returns but also higher potential losses.
If you are comfortable with higher risk and volatility, VEU may be a good choice for you.
Market Conditions
When global markets are performing well, VEU may be the better option as it provides exposure to a broader range of equities.
During times of market uncertainty or volatility, VEA may be the better choice as it has a lower exposure to volatile sectors and a lower standard deviation.
If you are unsure about market conditions, it may be wise to consult with a financial advisor before making a decision.
The decision between VEA and VEU ultimately depends on your investment goals, risk tolerance, and market conditions.
Consider your personal circumstances and do your own research before making any investment decisions.
Verdict: VEA vs VEU
After comparing VEA and VEU, I believe that both ETFs are excellent options for investors looking to diversify their portfolios with international equities.
Which one is the better option ultimately depends on your investment goals and risk tolerance.
If you are looking for a broader exposure to international equities, VEU may be the better option for you as it includes emerging markets and small-cap stocks.
If you prefer a more conservative approach with a focus on developed markets, VEA may be the better option.
When it comes to expenses, VEA has a slightly lower expense ratio than VEU, which may be a deciding factor for some investors.
However, it’s important to note that both ETFs have very low expense ratios compared to other international equity ETFs.
I recommend that investors carefully consider their investment goals and risk tolerance before choosing between VEA and VEU.
Both ETFs offer excellent opportunities for diversification and long-term growth, and the decision ultimately depends on your personal preferences and financial situation.
