Wednesday, July 9, 2008

Total World Stock Index

Recently Vanguard opened a new mutual fund, the Total World Stock Index. This is an index fund tracking the FTSE All-World Index, which is a close approximation of all the stocks in the entire world.

This is interesting for me because in general I'm a believer in allocating equities between US and foreign stocks according to their markets' capitalizations. Until now the simplest way of doing that was buying a total US fund (e.g. VTSMX) and a total ex-US fund (e.g. VGTSX) in roughly a 50/50 split. Now you can get the same effect with a single fund, and you don't have to worry about revisiting that 50/50 ratio over time.

In fact, I'm contemplating the following three-fund portfolio for my Roth IRA:
  1. Total World Stock Index, for 100% of equities
  2. Short Term Bond Index, for 50% of bonds
  3. TIPS fund, for 50% of bonds
You could carry the minimalist aesthetic even further and merge the bonds into a single fund (I'd probably use short term), but I think TIPS are worth having in there as an inflation hedge.

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