This is a term I’m completely making up. Vanguard doesn’t actually call this a tree. I think it’s a really good way to describe what you can invest in and how it comes together in one entire portfolio.
We’ll be doing a lot of drawing for this one, so it should be fun.
[iPad]
So just a recap, when it comes to investing we’re talking about investing in stocks (companies) and bonds (financing debt).
[(Our Portfolio) -> [Stocks, bonds]]
We’ve talked about two funds already – $VFIAX which is 100% stocks investing in the largest 500 companies the US. And $VBTLX which is 100% bonds in the US.
[write stocks -> (US) VFIAX / and bonds -> (US) 100% stocks and $VBTLX / 100% bonds]
We’re going to explore a few other areas here. Less to recommend which funds you should invest in, and more to get the full picture of what’s out there to invest in.
Under stocks, there’s more companies in the world than just those in the US. The US stock market is the largest, with about 40% of the total world market.
[ https://seekingalpha.com/article/4202768-u-s-percent-world-stock-market-cap-tops-40-percent ]
There are a bunch of reasons why you may want to invest in the US and outside the US. We’ll talk more about diversification and why you likely want to invest both with the US and outside the US.
Even though US companies only make up 40% of the total world stock markets, US companies tend to be the largest companies in the world. The largest companies in the world make more money through international customers than smaller companies.