Is the Whole Better than the Parts?

Every Basis Point Matters

The table below lays out the numbers. Owning VTI and VXUS results in a blended expense ratio 0.03% per annum lower than the all-in-one ETF. For investors who have enough assets in their taxable accounts to accommodate their VXUS holding, an even bigger benefit of the two-ETF strategy is that VXUS passes through 0.23% in the form of a foreign tax credit, which the all-in-one VT does not. This is a consequence of the IRS rule that says if a fund has less than 50% of its assets in foreign stocks at the end of each quarter, it cannot pass through the foreign tax credit to its shareholders. VT fails this test, with under 40% of its assets in foreign stocks.¹

The 0.13% combined benefit from the lower expense ratio and the foreign tax credit is pretty substantial, equivalent to $1,300 per $1 million of investment every year.²

A Few Additional Bonuses

The two-ETF solution provides a bit more diversification, as it holds 20% more individual stocks. This is because VT and VXUS track FTSE indexes while VTI tracks a CRSP index, and we think the indexes are equally good.

The two-ETF approach also provides greater scope for tax-loss harvesting, since there’s a reasonable chance that one fund might decline while the other rises in any given period.

Some fear the rebalancing burden of two funds, but this is largely a phantom concern. Because the market-cap weights move with the price of the assets, the “drift” is primarily caused by dividends and corporate activity (IPOs and buybacks), which are small enough that a biennial truing-up is more than sufficient.

The Bottom Line

We know this VT versus VTI-plus-VXUS question has been discussed before on the Bogleheads forum,³ but as we only happened upon this analysis ourselves recently, and as we’re regularly asked for our opinion on it, we thought it was worth sharing here. The 0.13% annual benefit may sound small in isolation, but it’s risk-free, requires minimal effort to capture, and compounds over a lifetime of investing. In the world of index fund investing, where every basis point of cost reduction is hard-won, a risk-free 13 basis points is one of the easier wins available to a long-term investor and is deserving of attention.

We thank our partner Jerry Bell, and our friend and excellent sounding board Larry Hilibrand for their helpful comments. Of course, there is only so much they can do to help us, and all remaining short-comings are solely our own.

Victor Haghani is founder & CIO of Elm Wealth, a Philadelphia-based asset manager. James White is Elm Wealth’s CEO.

Endnotes

¹ For curious and detail-oriented readers (which we assume everyone reading this article must be), the reason the blended dividend yield of 1.92% is 0.1% higher than that of VT is because VXUS must count the foreign withholding tax credit as a deemed distribution.

² And is greater than the 0.12% fee our firm Elm Wealth charges our clients!

³ And that VT is less than 10% of the combined size of VTI and VXUS suggests that many investors know about this already too.

Originally published on Advisor Perspectives May 22, 2026

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