Is the Vanguard FTSE Developed Markets ETF a Path to Wealth?

Are you considering looking outside the American markets to grow your wealth? The widely held Vanguard FTSE Developed Markets Index Fund presents both opportunities and challenges for potential investors.

This fund is part of a well-known group of exchange-traded funds (ETFs) and has become increasingly popular, boasting about $146.6 billion in assets under management (AUM). It focuses on stocks from developed markets outside of the United States, which might pique the interest of those looking for growth options in international investments.

Understanding the Vanguard Developed Markets Fund

The Vanguard Developed Markets ETF is a passively managed fund that seeks to track the performance of a vast array of stocks—approximately 3,100—which span various sectors across Europe, Asia-Pacific, and Canada. Notably, 55% of its AUM is in European stocks, followed by 35% in Asia-Pacific, and 10% in Canadian markets. Major investment areas include Japan (21%), the U.K. (13%), Canada (10%), and France (9%). This shows that the fund is heavily weighted toward advanced industrialized regions, which may present valuable investment opportunities.

In terms of holdings, the largest positions in the ETF include SAP, ASML Holdings, and Novo Nordisk. Each of these stocks accounts for about 1% of the total fund value, illustrating a broader diversification strategy compared to the S&P 500, where a few large companies dominate the fund's performance.

The Developed Markets ETF also offers attractive income through dividends, with a distribution of $1.61 per share over the past year, yielding about 3.1%. In comparison, the S&P 500 yields a lower rate of around 1.4%, making this fund more appealing for income-focused investors.

Performance Compared to the S&P 500

Historically, the Developed Markets ETF has lagged behind the S&P 500 in terms of total returns. Despite this, there are specific instances where international investments outperformed U.S. equities, particularly during economic downturns. For example, during the 2008 financial crisis, the Developed Markets ETF showed resilience compared to its American counterpart.

However, these moments are rare and may not significantly impact long-term success. While the international fund has its merits, the S&P 500 generally offers superior total returns when considering both price changes and dividend yields over time.

Is This ETF a Path to Millionaire Status?

If you believe the U.S. economy is currently overvalued or poised for a downturn, investing in the Developed Markets ETF could be an appealing strategy. Its higher yield may suit income investors or those wanting to diversify their portfolios.

Nonetheless, investing in this ETF carries risks, presenting a bet that developed markets outside of the U.S. will outperform American companies in the long-term—an assumption that hasn't held true historically. Although it may play a useful role in a well-diversified portfolio, it might not serve as a primary investment vehicle for significant wealth accumulation.

In summary, while you could potentially become a millionaire by investing in the Developed Markets Fund, it would require a considerable initial investment and a longer investment horizon compared to traditional U.S. index funds like the S&P 500. Therefore, while it offers some benefits, it may not be the best cornerstone investment for building wealth over time.

Vanguard, ETF, Investment, Wealth, Markets