Think This Vanguard Will Beat the S&P 500 Over 10 Years

Hook: The Big Question Investors Are Asking

When you scan the headlines about the stock market, you’ll often see the S&P 500 hailed as the default benchmark for U.S. equity success. But what if the real opportunity over the next 10 years lies outside the United States? If you think this Vanguard will outperform the S&P 500 over the long run, you’re not alone. A popular choice for many long-term plans is the Vanguard Total International Stock ETF, ticker VXUS, which bundles broad exposure to developed and emerging markets beyond U.S. shores. The premise isn’t that U.S. stocks will crash, but that international markets could catch up, offering a compelling diversification boost and meaningful potential returns as valuations normalize.

Let’s unpack the case in a structured, practical way. We’ll look at why this Vanguard ETF could beat the S&P 500 over the next decade, how to implement it without overcomplicating your portfolio, and what risks to watch. By the end, you’ll have concrete steps you can use to decide whether VXUS deserves a larger role in your plan.

Why I Believe This Vanguard ETF Has a Real Chance To Outperform

The thesis rests on three pillars: valuation mean reversion, a durable international growth story, and a thoughtful approach to risk and diversification. If you think this Vanguard will outperform the S&P 500 over the next 10 years, these factors help explain why.

1) Valuation Gaps Could Narrow Over Time

Historically, international stocks have traded at lower multiples than U.S. equities. When price-to-earnings and price-to-book ratios compress less expensive markets, the potential for catch-up gains rises. Over the past 10–15 years, U.S. large-cap stocks benefited from strong domestic growth, tech leadership, and favorable buybacks, which kept valuations relatively rich. If you think this Vanguard will outperform, a key assumption is mean reversion: as international markets recover from their underperformance, price appreciation could outpace U.S. markets during a decade-long horizon.

2) A Durable Growth Story Outside the U.S.

Global growth isn’t uniform, but many economies outside the U.S. are expanding in a way that can supplement U.S. leadership. Asia, Europe, and emerging markets are investing in infrastructure, technology, and consumer demand that often outpace U.S. sectors in different cycles. If you think this Vanguard will outperform, you’re banking on a secular tailwind: non-U.S. earnings growth that isn’t perfectly synchronized with the U.S. cycle, which can help smooth overall portfolio returns.

3) Diversification as a Risk-Adjusted Lift

Diversification is not just about chasing higher returns. It’s about reducing downside risk and creating a steadier path toward your goals. VXUS adds exposure to sectors and currencies that aren’t as dominant in the S&P 500, which can help during U.S.-specific shocks. In a 10-year plan, a well-constructed international sleeve can reduce correlation and potentially improve the risk-adjusted return of your entire portfolio.

Understanding VXUS: What It Is and What It Isn’t

VXUS, the Vanguard Total International Stock ETF, provides broad exposure to markets outside the United States. It includes developed markets like Europe and Japan, plus a significant slice of emerging markets. The ETF is known for its low cost relative to many peers, a hallmark of Vanguard funds. For investors who think this Vanguard will outperform the S&P 500, VXUS offers a straightforward, cost-efficient way to obtain global breadth without trying to pick a handful of foreign stocks.

Key facts to know about VXUS

• Expense ratio: about 0.07% per year, one of the lowest among broad international ETFs
• Coverage: broad, diversified exposure across developed and emerging markets
• Currency exposure: USD-denominated; currency moves can impact returns positively or negatively
• Tax considerations: ETF structure helps with liquidity and tax efficiency for taxable accounts

How to Position VXUS in Your Portfolio If You Think This Vanguard Will Beat The S&P 500

Positioning matters just as much as the decision to buy. Here are practical guidelines to implement the idea responsibly and consistently.

1) Start With a Core-Complementary Split

A simple baseline is to allocate a meaningful portion of your equity to VXUS while maintaining a core U.S. exposure via a broad-market ETF like an S&P 500 or total market fund. A common starting point for many investors is a 60/40 stocks/bonds split, with 20–40% of the equity sleeve in international stocks. If you think this Vanguard will beat the S&P 500 over the next decade, you might tilt toward 30–40% international exposure within equities, then adjust as you learn what the cycle brings.

2) Use a Tactical Yet Simple Rebalancing Rule

Rebalancing helps you lock in gains from overperforming markets and maintain your risk profile. A practical approach is to rebalance annually or when VXUS drifts 5 percentage points away from its target. This discipline prevents emotion from driving decisions and keeps you aligned with your plan.

3) Dollar-Cost Averaging: A Steady Path In

Rather than trying to time the market, commit to a regular investment cadence—monthly or quarterly. If you invest $500 a month into VXUS for a decade, you’ll capture a wide range of prices and reduce the impact of short-term volatility, which is especially helpful for a strategy that relies on long-run mean reversion.

Concrete Scenarios: What Could Happen Over the Next 10 Years

Let’s walk through a few plausible paths, assuming you think this Vanguard will beat the S&P 500 over a decade. These aren’t predictions, but structured scenarios to help you plan.

Base Case: Steady Reversion With Moderate Growth

In a mid-cycle environment where U.S. and international growth converge, VXUS offers stable diversification. Suppose VXUS returns 5–7% per year on average, while the S&P 500 clocks in 6–9% annually. The difference becomes meaningful when you compound over 10 years. In this scenario, VXUS can contribute a similar level of total return with lower peak-to-trough drawdowns thanks to its geographic diversification.

Bullish Case: International Markets Catch Up Strongly

Imagine a backdrop where international earnings acceleration, currency trends favorable to U.S. investors, and favorable policy in several large markets lift foreign equities. VXUS could see annualized gains in the 7–9% range, potentially beating a U.S.-biased 6–8% pace. For investors who think this Vanguard will beat the S&P 500, this is the scenario that makes the 10-year case especially compelling, provided correlations don’t spike dramatically during downturns.

Bear Case: U.S. Outperformance Persists or Accelerates

If the U.S. continues to lead in technology, productivity, or other sectors while international markets face headwinds, VXUS may underperform in certain years. The point of a diversified sleeve is not to guarantee outperformance every year but to smooth long-run returns and reduce the risk of a single-country shock taking a big bite out of a portfolio.

Costs, Taxes, and Why Vanguard Has An Edge

Low costs are not a marketing gimmick; they compound. VXUS’ expense ratio is a fraction of many mutual funds and some competing international ETFs. Low costs help preserve your returns over a long horizon, especially when markets don’t move in a straight line. Vanguard also emphasizes broad, passively managed exposure, which aligns well with a long-term, buy-and-hold mindset. Tax efficiency is another consideration in taxable accounts, as ETF structures typically deliver favorable tax handling for capital gains distributions relative to active funds.

Real-World Example: A 10-Year, $100,000 Allocation

Assume you allocate $100,000 to VXUS and you expect a 6% average annual return over a 10-year horizon. The portfolio would grow to roughly $179,000, assuming no additional contributions and reinvested dividends. If your U.S.-only benchmark returns 7% on average, your VXUS allocation would still contribute meaningful diversification benefits and potentially lower volatility. If you add ongoing contributions, the impact compounds further as you diversify across markets that don’t always move in lockstep with the U.S. market.

Risks You Should Not Ignore

No investment approach is risk-free, and this Vanguard strategy carries its own set of potential downsides. Here are the main considerations to keep in mind if you think this Vanguard will beat the S&P 500 over the long run:

• Currency risk: USD-denominated international exposure means foreign currency movements can boost or hurt returns in ways you might not expect.
• Emerging market volatility: VXUS includes EM exposure, which can be more volatile and sensitive to global risk sentiment.
• Valuation uncertainties: while valuations may improve, there is no certainty of mean reversion within a fixed horizon.
• Tax considerations: taxable accounts require awareness of foreign withholding taxes and dividend tax implications, which can affect after-tax returns.

Putting It All Together: A Simple Roadmap

Here’s a compact plan for readers who think this Vanguard will beat the S&P 500 over the next decade, while staying disciplined and goal-focused.

1. Choose VXUS as your international core within equities, with a target 20–40% international exposure depending on risk appetite.
2. Keep a broad U.S. market fund to maintain a diversified backbone for domestic exposure.
3. Establish a fixed rebalancing schedule (annually or when the deviation hits 5%), so you lock in gains and keep risk in check.
4. Use dollar-cost averaging to build the position over time, reducing the impact of short-term volatility.
5. Monitor macro developments (growth in developed vs. emerging markets, currency trends, trade dynamics) and adjust your target exposure gradually as you learn how your portfolio behaves in different markets.

FAQs: Quick Answers For Smart Investors

Conclusion: A Thoughtful Path Toward Potential Outperformance

Thinking deeply about market structure suggests that a sophisticated, low-cost international sleeve can help some investors reach their decade-long goals, especially if you think this Vanguard will beat the S&P 500 over the next 10 years through valuation mean reversion and diversified growth. VXUS provides broad exposure, low costs, and a straightforward way to add international exposure without trying to pick winners across countries. The key is to implement a disciplined plan: start with a reasonable international allocation, maintain a well-diversified core, rebalance regularly, and stay the course even when markets swing. If you do that, you’ll position yourself to benefit from a potential decade of international strength while preserving the core strength of your U.S. holdings.

Final Thought

Whether or not you think this Vanguard will beat the S&P 500 over the next decade, a balanced approach that includes international exposure can improve the odds of reaching long-term goals. It’s not about chasing a single winner; it’s about building a portfolio that can weather a range of scenarios with confidence and clarity.