VTI vs VXUS: US vs International Diversification Guide for 2026

US vs International: The Big Question

Should you invest only in U.S. stocks, or should you include international stocks? This is one of the most debated questions in investing.

The U.S. has been the best-performing developed market for over a decade. But history shows that leadership rotates. Today's winners become tomorrow's laggards, and vice versa.

Let's look at VTI (total U.S. market) and VXUS (total international ex-US) and figure out how to combine them.

Quick Comparison

Feature	VTI	VXUS
Full Name	Vanguard Total Stock Market ETF	Vanguard Total International Stock ETF
Index	CRSP US Total Market	FTSE Global All Cap ex US
Holdings	~4,000 US stocks	~8,000 international stocks
Countries	1 (USA only)	46 countries
Expense Ratio	0.03%	0.07%
AUM	~$400 Billion	~$70 Billion
Dividend Yield	~1.4%	~3.0%
P/E Ratio	~24x	~14x

VTI: Total U.S. Stock Market

VTI gives you exposure to the entire U.S. stock market - about 4,000 companies representing virtually 100% of the investable U.S. market.

VTI Top Holdings

Rank	Company	Weight	Sector
1	Apple	6.2%	Technology
2	Microsoft	5.8%	Technology
3	NVIDIA	4.5%	Technology
4	Amazon	3.4%	Consumer Discretionary
5	Alphabet (Class A)	2.0%	Communication
6	Alphabet (Class C)	1.7%	Communication
7	Meta Platforms	1.9%	Communication
8	Berkshire Hathaway	1.6%	Financials
9	Tesla	1.4%	Consumer Discretionary
10	UnitedHealth	1.2%	Healthcare

VTI Sector Breakdown

Sector	VTI Weight
Technology	30.5%
Financials	13.0%
Healthcare	12.5%
Consumer Discretionary	10.5%
Industrials	9.0%
Communication Services	8.5%
Consumer Staples	5.5%
Energy	4.0%
Utilities	2.5%
Real Estate	2.0%
Materials	2.0%

Key observation: VTI is heavily tilted toward technology and growth companies. The "Magnificent 7" tech giants make up over 25% of the fund.

VXUS: Total International ex-US

VXUS gives you exposure to developed and emerging markets outside the United States - about 8,000 companies across 46 countries.

VXUS Geographic Allocation

Region	Weight	Key Countries
Europe	39%	UK, France, Germany, Switzerland
Pacific	27%	Japan, Australia, Hong Kong
Emerging Markets	26%	China, Taiwan, India, Brazil
North America	6%	Canada
Middle East	2%	Israel, UAE

VXUS Top Holdings

Rank	Company	Country	Weight
1	Taiwan Semiconductor	Taiwan	2.3%
2	Novo Nordisk	Denmark	1.5%
3	ASML Holding	Netherlands	1.4%
4	Samsung Electronics	South Korea	1.3%
5	Nestlé	Switzerland	1.1%
6	Toyota Motor	Japan	1.0%
7	SAP	Germany	0.9%
8	LVMH	France	0.9%
9	Tencent Holdings	China	0.8%
10	AstraZeneca	UK	0.8%

VXUS Sector Breakdown

Sector	VXUS Weight	vs VTI
Financials	21.0%	+8.0%
Industrials	14.5%	+5.5%
Technology	13.0%	-17.5%
Consumer Discretionary	11.5%	+1.0%
Healthcare	10.0%	-2.5%
Consumer Staples	8.5%	+3.0%
Materials	7.0%	+5.0%
Energy	5.5%	+1.5%
Communication	5.0%	-3.5%
Utilities	3.0%	+0.5%
Real Estate	1.0%	-1.0%

Key observation: VXUS has far less technology exposure and far more financials, industrials, and materials. It's a more "old economy" portfolio.

Correlation and Diversification

The main argument for owning international stocks is diversification. If U.S. and international stocks don't move in lockstep, combining them reduces portfolio volatility.

Historical Correlations (VTI vs VXUS)

Time Period	Correlation	Interpretation
1 Year	0.82	High correlation
5 Years	0.88	Very high correlation
10 Years	0.85	Very high correlation
20 Years	0.87	Very high correlation

Bad news: The correlation is pretty high. In a global crisis, both U.S. and international stocks tend to fall together. You won't get "uncorrelated" returns.

Good news: Correlation isn't perfect. There are periods where U.S. outperforms (like 2010-2020) and periods where international outperforms (like 2000-2010). Owning both smooths the ride somewhat.

Volatility Comparison

Metric	VTI	VXUS	60/40 VTI/VXUS
Standard Deviation (10yr)	18.5%	17.2%	17.0%
Max Drawdown (10yr)	-34%	-33%	-32%
Sharpe Ratio (10yr)	0.65	0.25	0.50

Historical Performance

This is where it gets contentious. U.S. stocks have crushed international stocks for the past 15 years.

Recent Performance (Annualized Returns)

Period	VTI (US)	VXUS (Int'l)	Difference
1 Year	25.1%	8.2%	US +16.9%
3 Years	9.8%	2.1%	US +7.7%
5 Years	14.2%	4.8%	US +9.4%
10 Years	12.4%	4.6%	US +7.8%
15 Years	13.8%	5.2%	US +8.6%

The U.S. has dominated since the 2008 financial crisis. Investors who went 100% U.S. have been rewarded handsomely.

But Wait - Look at 2000-2010

Period	US Stocks	Int'l Stocks	Difference
2000-2010	-0.95% annualized	+3.50% annualized	Int'l +4.45%
2003	+28.7%	+38.6%	Int'l +9.9%
2004	+10.9%	+20.2%	Int'l +9.3%
2005	+4.9%	+13.5%	Int'l +8.6%
2006	+15.8%	+26.3%	Int'l +10.5%
2007	+5.5%	+15.0%	Int'l +9.5%

International stocks crushed U.S. stocks for most of the 2000s. If you retired in 2010 with 100% U.S. stocks, you had a "lost decade" - zero gains in 10 years while international investors prospered.

The Takeaway

Leadership rotates. The U.S. won't outperform forever, just as it didn't outperform during the 2000s. The question is whether you want to bet on one winner or own both.

Optimal Allocation Models

There's no single "right" answer, but here are common frameworks:

Common Allocation Models

Model	US (VTI)	Int'l (VXUS)	Rationale
Global Market Cap	60%	40%	Own the world in proportion to its value
US-Tilted	70%	30%	Home country tilt + some diversification
US-Heavy	80%	20%	Strong US preference + token diversification
US-Only	100%	0%	Reject international diversification
Bogleheads Target Date	60-70%	30-40%	Vanguard Target Date fund allocation

Arguments for Different Allocations

For 60/40 (Global Market Weight)

This is the actual composition of global stock markets
Maximum diversification across geographies
No need to predict which region will outperform
What Vanguard uses in their target-date funds

For 70/30 or 80/20 (US Tilt)

U.S. has stronger shareholder protections
U.S. companies are already global (50%+ of S&P 500 revenue is international)
Avoids currency risk and foreign withholding taxes
Simpler tax reporting (no foreign tax credits)

For 100% US

U.S. has outperformed for 15 years
U.S. companies dominate global technology
Avoid underperforming international markets
Simpler portfolio management

Simulation: Different Allocations (2010-2025)

Allocation	Annualized Return	Volatility	$10K Grew To
100% US (VTI)	13.8%	18.5%	$71,000
80% US / 20% Int'l	12.1%	17.2%	$56,000
70% US / 30% Int'l	11.2%	16.8%	$49,000
60% US / 40% Int'l	10.3%	16.5%	$43,000

In hindsight, 100% US was the winning strategy. But nobody knew this in 2010, and it might not be true for 2026-2040.

Home Country Bias Discussion

Home country bias is the tendency for investors to overweight their own country's stocks. Americans overweight U.S. stocks. Japanese overweight Japanese stocks. Everyone does it.

Why We Have Home Country Bias

Familiarity: We know U.S. companies - Apple, Amazon, Google
Recency bias: U.S. has outperformed recently, so we expect it to continue
Simplicity: One fund (VTI) is easier than two (VTI + VXUS)
Currency: We spend in dollars, so dollar-denominated assets feel safer
Tax complexity: Foreign tax credits are annoying

Why Home Country Bias Can Be Dangerous

Concentration risk: All eggs in one basket (one country)
Mean reversion: Outperforming markets tend to underperform eventually
Valuation: U.S. stocks are expensive (P/E ~24) vs international (P/E ~14)
Japan example: Japanese investors in 1989 were 100% Japan... then lost 30 years

The Japan Cautionary Tale

In 1989, Japan was 45% of global stock market cap. Japanese investors were 100% invested in Japanese stocks. The Nikkei hit 38,957.

35 years later, the Nikkei is still below that level (adjusted for dividends, it's roughly even). Japanese investors who diversified globally did far better.

Could this happen to the U.S.? Probably not to the same extreme, but outperformance doesn't last forever.

The Bottom Line

There's no objectively "correct" U.S. vs international allocation. But here's a framework for deciding:

Choose 60/40 US/International If:

You want to own the global market as it exists
You believe in diversification across countries
You're investing for 20+ years and don't want to predict winners
You're comfortable with Vanguard's own target-date allocation

Choose 70/30 or 80/20 US Tilt If:

You believe U.S. has structural advantages (innovation, rule of law)
You want some diversification but prefer U.S. companies
You want to minimize currency risk and tax complexity
This is a reasonable middle ground most can live with

Choose 100% US If:

You're fully convinced U.S. will continue to outperform
You don't want to deal with foreign tax credits
You believe U.S. multinational exposure is "international enough"
But understand you're making a concentrated bet

My Recommendation

For most investors: 70% VTI / 30% VXUS is a reasonable allocation.

It provides meaningful international diversification
It maintains a home country tilt that's not unreasonable
It's simple to maintain with two funds
It's within the range of expert recommendations

What Matters Most

Whether you choose 60/40, 70/30, 80/20, or even 100/0, the most important thing is:

Pick an allocation you can stick with for decades
Don't change it based on recent performance
Stay invested through market ups and downs
Keep costs low - VTI and VXUS are both excellent

The difference between a 70/30 and 60/40 allocation is far less important than consistently investing and staying the course.

This is not investment advice. Past performance does not predict future results. Consider your personal situation and risk tolerance before investing.