Author Topic: Vanguard Total Stock Market VTI vs VTI-cash  (Read 3040 times)

GeorgeRO

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Vanguard Total Stock Market VTI vs VTI-cash
« on: July 31, 2016, 10:30:26 PM »
Hello everyone,

My name is George and I am an aspiring Mustachian living in Romania (Eastern Europe). I have been shadowing the forums for a little while in search for information in order to better my financial life.

I am planning to invest in the US and after some research, I think I found an index fund from Vanguard that I like: VTI (Vanguard Total Stock Market).

After finding an online trading platform, I noticed that they have two VTI funds: VTI and VTI-cash. Below is the information from the platform regarding the two funds:

VTI - Index Fund
- Country: United States
- Currency: USD
- Margin: 10%
- Is shortable: Yes

Interest (annually):
- Long position: 3.5%
- Short position: -2.5%

VTI-cash - Index Fund (Cash)
- Country: United States
- Currency: USD
- Margin: 100%
- Is shortable: Yes

I used their demo account with 10k EUR and bought a couple weeks ago 103 units of the VTI-cash fund and I saw a nice profit of 371 eur (my equity is 10 371 EUR at this time) but I see that I have two counters: used margin (10 264 EUR) and free margin (107 EUR) and I don't understand these.

From what I researched, the margin is something of a loan that the broker offers you so that you can purchase more at a fraction of an upfront cost.

My issue is that I don't know which one would be more appropriate for me.

My plan is to go slowly, buying one unit per month and then more when I have more savings.

My take is that the VTI-cash fund is riskier but can have a nicer reward. I can handle the risk long-term (~10 years as my plan is to try to retire at 40 - I am 29 the moment) as a more conservative approach might hurt my earnings because of the taxes, conversion fees and what have you.

What do you think? For now, I will wait a couple more days, then withdraw the virtual funds to see what happens and then go with the other VTI fund for a better idea of how it works.

Thank you for your time reading this message and I am looking forward to your valuable input.

Cheers!

GeorgeRO

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Re: Vanguard Total Stock Market VTI vs VTI-cash
« Reply #1 on: August 04, 2016, 01:48:34 AM »
As an update, I think I will go with the VTI-cash fund because:
- it is easier to manage (I have better control of my finances)
- no purchase or selling fees (except when I actually transfer the money to my bank account)

forummm

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Re: Vanguard Total Stock Market VTI vs VTI-cash
« Reply #2 on: August 05, 2016, 12:25:51 PM »
I have no idea what VTI-cash is.

Do not base your decisions based on how they perform recently. That's a recipe for disaster.

VTI is a safe fund from a great company, has low cost, etc. I would not invest in VTI-cash without knowing exactly what it is. But since you have access to VTI, there's no reason to monkey around with whatever VTI-cash is.

GeorgeRO

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Re: Vanguard Total Stock Market VTI vs VTI-cash
« Reply #3 on: August 05, 2016, 11:42:11 PM »
Thank you for your reply.

Hmm, in that case, I would need to understand more about the 10% margin thing. To be ok, if I have 10k eur, should I only purchase 10k eur worth of units?

Interest Compound

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Re: Vanguard Total Stock Market VTI vs VTI-cash
« Reply #4 on: August 06, 2016, 12:09:09 AM »
To be ok, if I have 10k eur, should I only purchase 10k eur worth of units?

Yes! Yes! 1000x yes!

If you have X, only purchase X. Under no circumstances should you be using margin.

"Leverage is the only way a smart guy can go broke." - Warren Buffett

That said, even us Americans on the forum typically advise against going against 100% USA stocks. Why? When it's so easy to go 100% World stocks? Or when it's so easy to add bonds? Let us know what your index fund options are at your broker, along with the fees involved (both the expense ratio, and the transaction fees), and we'll help out as much as we can :)

GeorgeRO

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Re: Vanguard Total Stock Market VTI vs VTI-cash
« Reply #5 on: August 06, 2016, 12:49:33 PM »
Hello Interest Compound for your valuable insight.

I checked my broker's fees and I saw:
- for US trades with a volume up to 10000 EUR: 0.10% of the trade value, min 1.00 EUR
- for trades with a volume over 10000 EUR: 0.05% of the trade value
- Intrest Rates for CFDs on US shares - long position: FED OVernight Rate plus 3% annually

As for the available funds, I checked Vanguard's website and used their tickers to search through the interface as I am only interested in their products.

Bond ETFs
- Treasury/Agency: Extended Duration Trasury (EDV)

Stock ETFs
- Large-cap: Dividend Appreciation (VIG), Total Stock Market (VTI)
- Mid-cap: Extended Market (VXF)

International ETFs
- International: FTSE Emerging Markets (VWO), Total International Stock (VXUS)

Interest Compound

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Re: Vanguard Total Stock Market VTI vs VTI-cash
« Reply #6 on: August 06, 2016, 01:38:54 PM »
Don't buy bonds denominated in US dollars if you're living in a Euro country. The currency fluctuations alone will negative the value of keeping your money in bonds.

I'd go with either:

VTI
VWO
VXUS
(insert Euro denominated bond index here that you have access to)

or more simply

VT
(insert Euro denominated bond index here that you have access to)

Kalergie

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Re: Vanguard Total Stock Market VTI vs VTI-cash
« Reply #7 on: August 06, 2016, 01:54:55 PM »
Two things come to mind:

1) General: Based on what you're saying, I have the feeling that you are still in the very beginning of your learning curve. I really would suggest to do some further reading to be a bit better prepared before you spend your hard earned money. Start with http://jlcollinsnh.com/stock-series/

2) Specific: investors domiciled outisde the US, have to pay withholding tax at source to the US. Every time you get dividends or interest paid, you'll end up having your income reduced by the applicable withholding tax. The usual rate is 30%. I.e. If you get 100$ in dividends by owning VTI on dividend pay date, you would only get 70$. This means that non US investors would choose ETF that aren't from the US but domiciled in Ireland. The Irish domiciled Funds (such as all world ETF from Vanguard VWRD) would only get taxed 15%. Hence, usually that's better than going for the US based funds.
But you live in Romania. What's awesome about Romania is that the dividend withholding tax at US source is only 10% rather than 30%. This means you would be better off going for the US based funds like VTI, VXUS etc.
As for bonds, if you decide to add bonds to your portfolio. (Again please do some reading to make an educated decision on your strategy) Should you chose to have US government or corporate bonds, I'd highly suggest to go for an Irish-domiciled bond fund. Why not a US based Fund? Because you'd get your interest payments taxed by the withholding tax (in your case just 10%). But the Irish domiciled bond funds aren't taxed at all. so you get to keep all your interest.
Update: and yes, I agree with Interest Compound. If you go for bonds, go for Eurozone bonds available at global.vanguard.com
« Last Edit: August 06, 2016, 02:01:49 PM by Kalergie »