VEQT vs XEQT for overthinkers
I’m 25 years old and completely new to the world of investing. Recently, I read a book that opened my eyes to how important it is to start investing young. I’ve decided to go the index ETF route with 100% equity for now. I might diversify further as I learn more, but for the time being keeping it simple is my plan.
After a lot of research, I’ve narrowed my options down to two ETFs: VEQT and XEQT.
Before you roll your eyes and think "not another VEQT vs. XEQT post” hear me out! I’ve spent countless hours reading posts, articles, and watching videos on this topic, yet I still feel like the answers I find are repetitive and don’t fully address the overthinking side of this decision. Yes, I know I’m overanalyzing, and people often suggest flipping a coin because both ETFs are great options. But for overthinkers like me, flipping a coin doesn’t cut it. We need to deeply analyze a choice upfront so that we can stick with it long-term and not constantly second-guess ourselves.
This post is for the overthinkers. Hopefully, it will help others like me make a decision and save time that could be spent on more productive endeavors.
After reflecting on the advice to “pick one and stick with it”, I’m leaning toward VEQT. Here’s why:
- Vanguard’s Philosophy: I prefer Vanguard’s approach and mission. Since we can’t predict whether VEQT or XEQT will (slightly) outperform, I’d rather choose the ETF aligned with a company whose values resonate with me. If it underperforms, I’ll at least have peace of mind knowing I chose a provider I like.
- Greater Diversification: VEQT includes more underlying stocks (13,422 compared to XEQT’s 8,754). To me, this increases the chances of capturing the "needle in a haystack" since only a few rare companies are responsible for a significant portion of market growth.
- Market-Cap Weighting: VEQT adjusts its international exposure dynamically based on market cap. I like this flexibility compared to XEQT’s fixed allocation.
- Home Bias Justification: While some criticize VEQT’s 30% allocation to Canadian equities as excessive, I find it better aligns with the optimal 35% home-country bias Ben Felix discusses in this video.
- MER Difference: Yes, VEQT has a slightly higher MER (0.24% vs. 0.20%), but it’s only $4 per $10,000. I’m okay with this, especially since Vanguard may reduce its MER in the future to match BlackRock. And if not, I’ll gladly skip one coffee a year for the added benefits I perceive in VEQT.
My questions are:
- Sticking with One ETF: If sticking with one ETF is the best strategy, are there any flaws in my reasoning for preferring VEQT?
- Switching Based on MER: Why not buy XEQT now and switch to VEQT later if Vanguard reduces its MER? What’s the downside to switching ETFs down the road? Is there a tangible advantage to sticking with just one ETF for the long term?
- MER Impact: A common argument is that the MER difference between VEQT and XEQT doesn’t matter. While $4 per $10,000 may seem negligible, isn’t this overlooking the long-term impact of compounding? After all, compounding is the main reason investing is so powerful... Of course, it’s possible to achieve an even lower total MER by buying individual ETFs and rebalancing manually, but that’s not a fair comparison since it requires significantly more effort. If XEQT and VEQT are as similar as people often claim, wouldn’t it be logical to simply choose the ETF with the lowest MER? At what point does the MER difference become significant enough to prioritize?
Thanks for taking the time to read this and for saving me and other fellow overthinkers from endlessly spiraling on this decision!
PS. Sorry for any mistakes or misunderstandings in this post, I’m still very new to investing and learning as I go!