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Wednesday, August 06, 2008

Breaking News: Vanguard Total International Stock Index Fund just became more tax efficient

One of the reasons why folks like Bernstein recommend holding the components of the Total International Index Fund rather than the fund itself is that the Total International Index Fund is not tax efficient.

Well, that just changed! The fund is now going to carry half its portfolio directly in stocks, rather than as just the components of the other funds. This releases 50% of the foreign tax credit, which should help considerably with tax efficiency. How much does it help? My guess is that the 50% of the portfolio that's going directly to stocks is the largest 50% by market cap, and those tend to be the high dividend ones. But I'm not as familiar as international situations, so I don't know how that will go.

In any case, this is very good news, and reduces my desire to switch to the FTSE-all world Index, for instance, quite considerably.

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