Vanguard recently launched an index mutual fund designed to track the performance of the FTSE All-World Index, a benchmark of approximately 2,900 stocks in 47 countries. With the introduction of Vanguard’s Total World Stock Index Fund (VTWSX), investors can now mimic the world market in a single fund.
Much like the convenience of target date funds for retirement investing, VTWSX provides instant diversification with the investment in a single mutual fund.
Vanguard’s Total World Stock Index Fund (VTWSX) Details
The FTSE All-World Index includes approximately 2,900 stocks of companies located in 47 countries, including both developed and emerging markets. As of March 31, 2008, the largest markets covered in the Index were the United States (41%), the United Kingdom (9%), Japan (9%), France (5%), and Germany (4%). Thus, the fund holds approximately 59% of its portfolio in companies outside the United States.
The Fund typically holds 2,800-2,900 stocks in its target Index (covering nearly 99% of the Index’s total market capitalization) and what is called a representative sample of the remaining stocks. This means that the fund, using computer programs, picks a sample of stocks to mimic the index, which does expose the fund to index sampling risk. According to Vanguard, however, the fund “holds a broadly diversified collection of securities that, in the aggregate, approximates the full Index in terms of key characteristics. These key characteristics include industry weightings, country weightings, and market capitalization, as well as certain financial measures, such as price/earnings ratio and dividend yield.”
VTWSX’s Fees and Minimums
The initial minimum investment is $3,000, except for educational savings accounts, which has a $2,000 minimum. Additional investments of $100 or more can be added to the fund. The fund’s estimated expense ratio is 0.45%, which is relatively low given that much of the fund is invested in foreign and emerging markets. The fund also charges a 0.25% purchase fee and a 2% redemption fee for shares held less than two months. It’s important to understand, however, that the purchase and redemption fees are paid into the fund, not to Vanguard.
Vanguard also offers its World Stock Index fund in ETF shares that trade under the ticker, VT. These ETF shares charge an expense ratio of just 0.25%, but as with all ETFs, there is a brokerage fee for the purchase of these shares.
Building a Simple Portfolio with VTWSX
If constructing an asset allocation plan is not how you like spending your time, you can create a well diversified portfolio with the VTWSX fund. In fact, a simple investment strategy could consist of VTWSX for the equity portion of a portfolio, and Vangaurd’s Total Bond Market index fund (VBMFX) for the bond portion. Once you decide what percentage of your investments you want in equities and bonds, buying these two funds to achieve those percentages would result in an inexpensive, well diversified investment portfolio.
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