YOU MUST AVOID THESE 3 VANGUARD INDEX FUNDS: Why VTSAX is Best

YOU MUST AVOID THESE 3 VANGUARD INDEX FUNDS: Why VTSAX is Best


hey guys welcome back to my channel in
today’s video I’m we talked about the three Vanguard index funds that you
should avoid to grow you of wealth and to achieve early financial freedom and
also I’m going to add a fourth fund that you should absolutely avoid so be sure
to stick around till the very end if you guys have seen my other videos you guys
know that I’m a big fan of Vanguard and there’s really two big reasons why the
first reason is that the interest of the company itself is aligned with the
investors of their fun and this is because Vanguard is owned by the funds
that it manages and the funds are owned by the investors like you and me the
second reason why I love Vanguard is because they have the best selection of
diversified a low-cost index funds and they’re really the leader in the passive
index investing space some of the best Vanguard funds for growing wealth
passively is VTSAX VFIAX and their ETF cousins VTI and VOO and if you
don’t know anything about investing or you’re just getting started those four
funds are gonna be your key to growing your wealth and so I have several videos
that are created based around these four funds and I linked them down in
description below so be sure to check those out if you’re new to investing and
you want to know how to get started and while you’re down there be sure to like
this video and subscribe to my channel if you haven’t already so that you can
grow your wealth and achieve early financial freedom but this video is not
about those good funds though so just like a lot of other financial companies
all over the world not all Vanguard funds are worth investing in so I’m
gonna share in my honest opinion the for worse the Vanguard index funds that you
should avoid based on their performance their investing strategy and their
expense ratios and why you should really focus on VTSAX or it’s it’s smaller
cousin VFIAX Vanguard has a hundred thirty mutual funds subset of which are
index funds which is the one that we’re gonna focus on but they also have 59
ETFs currently now if you’re not familiar with what a mutual fund is or
an index fund is or an ETF is be sure to check out this video right here which I
also linked at the top and down in description below that will help you
tell the difference and the similarities between all these three and even give
you just a sense of which one might be better for you giving your own financial
circumstances for this video focus on those index funds that Vanguard
has and compare those with VTSAX and the thing is there’s a lot of index
funds in there as well and so what we’re gonna do is narrow it down to those that
are a hundred percent invested in stock just like VTSAX those that are not
close to new investors just like VTSAX and then those of all risk levels
whether it’s a high-risk fund or a low-risk fund and so by doing that we
were able to properly compare which ones are the really the worst Vanguard index
funds compared to VTSAX I’m also gonna be including funds to have all sorts of
minimum requirements from zero dollars to a thousand dollars to all the way up
to $50,000 so all those funds are fair game now you may be wondering why am I
so focused on VTSAX and really it’s because it’s the benchmark it’s the gold
standard especially for the financial independence retire or the community and
just investors in general who want to get some kind of benchmark to compare
different investments and I have a whole lot of videos on VTSAX as well as VFIAX which is the smaller cousin and that one follows the S&P 500 I have a whole
bunch of videos down in the description below so be sure to check those out to
get more details and more information if there’s any confusions or you have any
questions but for now I’m gonna focus this video on comparing the worst funds
with VTSAX and really show you the difference in performances between these
index funds so the first worst Vanguard index fund
that out of point out is VTMGX which is the Vanguard developed market index
fund and this one is the annual shares there’s also the investor shares which
are as VDVIX that one is closed to new investors and in case you’re not
familiar with Vanguard tier structure there’s the animal shares
there’s the investor shares and institutional shares they’re just
different ways that Vanguard has tiered share classes and more recently Vanguard
has been shifting out of investor shares and moving people into Admiral shares
and so just thing you know that you probably see VTMGX more frequently than
VDVIX moving forward one of the biggest differences between animal shares and
investor shares is the minimum required to invest if you have a hard time
finding $3,000 to invest in any of vanguards and more share class of funds
then you can always go to the ETF which if there is an etf version you can
always buy one share of those to get started so going back to VTMGX I’m
gonna swing over to the screen and point out some details about this fund that I
think should be of interest to us so here I am on Vanguard website and this
is the overview page for VTMGX first thing you’ll notice is that the expense
ratio is pretty low at 0.07% which is pretty good for an index fund minimum
required to invest is $3,000 as I mentioned before but if we go down
further you’ll see that this fun is about 118 billion dollars in fun title
net assets which is about 1/7 to 1/8 of VTSAX so it’s it’s definitely smaller
the number of stocks is comparable where VTSAX is about 3,600 companies this
one has about 3,900 companies and you’ll see that based on the portfolio
composition that most of the fund is invested heavily in Europe and the
Pacific and some one in North America and that
makes sense since most of the developed markets Europe Japan Canada those are
the basic of the countries that this fund focuses on and go really quick go
to the prospectus and show you what this fund is tracking you’ll see it under
principal investment strategies that this fund employs an indexing investment
approach designed to track the performance or the FTSE developed all
cap excluding u.s. index a market cap weight index that is made of
approximately 3,800 common stocks of large mid small cap companies locating
Canada and the major markets of Europe and the Pacific region now we want to
know how this fund compares to VTSAX so we’re going to go to the performance tab
so we’re going to go to compare ad VTSAX you’ll notice that the VTMGX has
definitely performed a lot worse than VTSAX so if you had invested $10,000
into the fund ten years ago compared to VTSAX which would have grown to about
thirty thousand dollars you will be at about I say about sixteen thousand
dollars now as any good investor would recognize that past performance is no
guarantee of future results but in this case I think there’s some really good
reasons why VTMGX is likely to continue underperforming VTSAX and that has to
do with the market that’s invested in and develop markets like Europe Japan
Canada there’s just not growing as much because there’s not as much room to grow
with populations either stable or declining softens the demand for goods
and services that businesses and companies provide and so there’s less
growth for companies and businesses and just economy in general but the United
States is a particularly interesting exception to that rule where we’re still
continuously a lot of growth and even though we’re developed there’s still a
lot of economic expansion that’s been happening over the last ten years
now I think this one will continue to underperform VTSAX simply because
there’s a lot of political turmoil uncertainty in the European Union with
brexit and just everything that’s happening in the political theater
that’s gonna continue to dampen the economic growth in Europe but you may be
thinking well okay well weapons if I’m wrong and there’s a lot of growth that
happens in these develop markets eventually down the line well this is
the key takeaway that I want you to get away from this comparison is the fact
that 43% of all revenue from the S&P 500 companies are from overseas markets and
that means that VTSAX is in position to capture that growth whenever
it does occur because VTSAX is invested in those 500 S&P companies and
additional mid-caps and small caps as well by investing in VTSAX you’re
already exposed to the overseas market and I think if there’s any growth that
were to occur you’ll be able to capture that in VTSAX and speaking of
international market the second-worst Vanguard index fund that outer bring up
to you is VTIAX which is Vanguard total international stock market fun
animal shares there is also an investor share class of
this which is called VGTSX but that is also closed
now again I’m gonna jump back to the screen to point out some details about
this fund as well so here back on the Vanguard page we’re looking at VTIAX
and you’ll see here that the expense ratio is 0.7 percent the minimum
investment again is three thousand dollars required going further down here
you’ll see that this fund is about four hundred billion dollars in total and net
assets which is about half the size of VTSAX and the number of stocks is in
seventy five seventy four hundred companies that are in europe emerging
markets and the pacific now we’re gonna look at the prospectus to see what index
it’s exactly tracking here under principal investment strategies we see
that this index fund is designed to track the performance the FTSE Global
all cap excluding US index a float adjusting market cap weight index
designed to measure equity market performance of companies okay and
developed emerging markets excluding the United States now let’s quickly look at
the growth chart for this fund just like what we did with the last fund we don’t
compare with VTSAX and you’ll see down here with a $10,000 investment ten years
ago that VTIAX has been performing a lot worse than VTSAX if you had
invested $10,000 into VTIAX right now you’d be at close to maybe about $15,000
whereas with VTSAX you would be it closer to north of $30,000 so you may be
wondering well why is VTIAX underperforming aren’t emerging markets
supposed to grow faster than develop markets frankly in the last ten years or
so that has just not been the case there’s been a lot of volatility perhaps
a lot of instability uncertainty and so you see that the US market has just been
doing really well over the last 10 years or so compared to rest of the world then
that includes the developed markets as well as the emerging markets and so the
key takeaway here though is that the US continues to be a safe haven for global
investors and by investing in VTSAX you get good exposure to the united states
and the growth that could potentially be experienced here but you also get a lot
of overseas exposure that you can get with VTIAX but why not just get
everything with VTSAX because that’s gonna simple fire investment strategy
and frankly it’s just a really good well-rounded fund
for both developed markets and emerging markets overseas all right the third
worst of Vanguard index fund is VENAX which is Vanguard’s energy index fund
admiral shares let’s jump to the screen real quick and let me just show you some
details of this fund all right back on Vanguard’s page we’re looking at the
overview of VENAX and you’ll see that this is a very sector specific stock
fund the expense ratio is at 0.1% this has an interestingly minimum
investment of $100,000 and that’s probably going to dissuade a lot of
investors to put that much money into a single fund-but Vanguard does make it
known that there is an etf version of this which you could buy at the price of
one share now let’s move down a little bit further and let me show you real
quick so this index fund has 134 stocks so it’s invested 134 companies which is
not a lot I think it’s a little bit too low for most investors the funds total
net assets at 3.5 billion which is definitely a very small compared to VTSAX and you can see down here that the ten largest holdings are oil and gas
companies which are as expecting now looking at the prospectus let’s quickly
take a look at what exactly this is tracking going down to the principal
investment strategy so this phone is tracking the MSCI u.s. investable market
index and index made up of stocks of large midsize and small US companies
within the energy sector has classified under the global industry classification
standards and then we want to look at the performance of this one compared to
VTSAX real quick and there you go and so here we will see then growth chart of
a ten thousand dollar investment and you see here that this energy index fund has
not really grown much at all over the course of ten years I’d say it probably
hasn’t even been inflation for sure and while I’m not an expert in the energy
industry by any means I suspect that this has something to do with the
stagnation of oil prices energy prices worldwide now is this a really fair
comparison comparing a diversified total stock market fund with a sector specific
fund and it to be honest it might not be but I think it just reiterates my point
that unless you have some expertise in any particular sector or you know
something that Street doesn’t you are probably better
off investing into total stock market index rather than trying to beat the
market in specific sectors like energy because it’s risky and you might be
missing out on growth in other areas of the economy all right and the fourth
worst Vanguard index fund that you should avoid is called VMMSX and the
name of this is called Vanguard’s emerging markets select font stock fund
that’s a long name but actually this is not an index fund
it’s an actively managed fund but I bring it up because I think this is a
textbook example of a fun that you should always avoid because of the
expense ratio so let’s jump into a screen real quick and let me show you a
details of this one all right here we are back on Vanguard and the VMMSX
overview webpage and here you’ll see that this expense ratio is a whopping
0.94% that tells you that this is definitely not an index fund looking
down at the fun advisors you can now tell why the expense ratio is so high
because you have quite a number of fun advisors here who need to get paid if we
move down further below here you’ll see that the fund is pretty small it’s less
than a billion dollars and it’s invested in 279 companies mostly in the merging
markets if you see to the left and you’ll see at the ten largest holdings
here are mostly looks like they’re mostly Chinese there’s like a Russian
company Korean company so it’s mostly in emerging markets and let’s quickly look
at the prospectus and see what exactly they’re doing in this fund all right
here we go the principal investment strategies the fund invests a small mid
and large cap companies that expect to diversify its assets among companies
locating emerging markets around the world so 80% of funds assets will be
investing common stocks looking emerging markets yada-yada yada-yada yada-yada
alright and as before we’ll compare this fun with VTSAX
so you’ll see here looking at the ten year growth chart of a ten thousand
dollar investment this VMMSX fund has basically not made you any returns at
all over the last ten years and that’s not surprising given the expense ratio
there’s not really much commentary to add here other than avoid costly
actively managed mutual funds and stick with low-cost index funds to see your
wealth grow and just to sum everything up I put
together a chart here a hypothetical growth chart that shows you all five
funds mapped over the last ten years if you enjoyed this video be sure to hit
that like button down below and share with a friend if you think it will help
them in any way and be sure to subscribe to my channel if you haven’t already to
get more videos on how to grow your wealth and achieve early financial
freedom thanks for watching guys and I’ll see you guys at the next video

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