Vanguard Total International Stock Index Fund

The Vanguard Total International Stock Index Fund (NASDAQMUTFUND:VGTSX) is part of a group of Vanguard index funds that collectively contain more than $200 billion of investor wealth, making it one of the largest mutual funds on earth. As one of the best foreign index funds, and one of the best stock index funds generally, it's an attractive way to buy and hold foreign stocks at an inexpensive price.

Here are five reasons to consider this fund for your retirement account.

1. A low expense ratio

All else equal, funds with the lowest expense ratios have the best opportunity to deliver excellent returns for their investors. The Vanguard Total International Index Fund Investor Shares carry an annual expense ratio of just 0.19% annually, far lower than expense ratios of 1% or more for actively managed foreign stock funds.

In part because of its low expense ratio, a $10,000 investment in Vanguard's index fund in 1996 would have grown to more than $22,600 at the time of writing. The same investment in the average foreign large blend fund would have grown to just over $20,000.

2. Broad diversification outside the United States

The Vanguard Total International Stock Index Fund held 6,050 international stocks at the time of writing, which mostly trade on developed market exchanges outside the United States. Top holdings include packaged food company Nestle SA and automaker Toyota Motor, just to name two household names. The top five countries make up roughly half of the fund's assets.

Vanguard Total International Stock Index Fund Chart

3. Market cap weighting

The fund sizes its investments by market cap, thus it owns more large-cap stocks than small caps. Vanguard notes that roughly 82% of its investments are in developed markets, with 18% classified as emerging markets. The market cap weighting naturally skews the fund to developed markets, and larger, typically safer companies within these markets. 

Vanguard Total International Stock Index Fund Chart

4. Tax efficiency

Index funds do a very good job in general of limiting tax consequences for investors, and the Vanguard Total International Stock Index Fund is no slouch when it comes to avoiding Uncle Sam. Importantly, the fund holds stocks for a very long time, rarely making new buy or sell decisions.

Vanguard reports that at the end of the fund's 2015 fiscal year in October, it had an annual turnover ratio of just 2.5%. This means  it bought and sold stocks that, when combined, tallied to just 2.5% of its net assets. Lower turnover generally results in lower tax bills and lower costs for fund administration, which is passed on in the form of a lower expense ratio.

5. Unique risks

The most important part of investing overseas is that you expose your portfolio to different risks in the pursuit of returns. Notably, the fund is diversified by industry, with financials, consumer goods, industrials, and consumer services stocks making up 25%, 16%, 14%, and 9% of fund assets, respectively.

More commoditized industries like basic materials, oil & gas, and utilities companies make up just 7%, 6%, and 3.5% of the portfolio, respectively. 

Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Nestle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.