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