Analysis of IWDA and VTI investment using DCA over 5 year period

There have been multiple discussions of the pros/cons of long term DCA investments in IWDA vs. VTI.

Typical pros of IWDA:

1. No estate tax for non-US residents (unlike VTI which has 40% estate tax on the portfolio)
2. Does not pay dividends and is domiciled based - No dividends tax for non-US residents.
3. Worlds holdings and hence more diversified (as opposed to VTI which is US-centric) on paper - I mention "on-paper" since >60% of IWDA holdings are based in US.

Pros of VTI:

1. Lower expense ratio of 0.03% (versus 0.20% for IWDA)
2. Pays dividends (if you need to have regular cash inflows)
3. Appears to pay more in the long term.

I begin to wonder (a) how much (if any) would the gains be like if one invests monthly via a dollar cost averaging strategy, and (b) if the gains are statistically significant. Here's the analysis and the results.

Data: Past 5-years monthly open and close prices for both stocks.

Assumptions: Fixed monthly investment (at the start of each month). No withdrawal. Ignore all dividends gains (agreed that this over-penalized VTI ).

Test: One tailed paired t-test.

Results:

1. Statistically speaking, month-on-month portfolio when investing via DCA on VTI is much more than IWDA - the p-value is < 0.0136.
2. The results of [1] above is skewed towards recent surge in US stocks. Here's visualization of what I mean [https://ibb.co/r4dqSqG] - negative values indicate VTI to give stronger overall DCA returns where we can see increase gains starting in mid 2019.

On [2], I re-ran the t-test by breaking into 2 time windows, where I used 30 monthly data points

1. From 2016-2018: the p-value is non significant [p <= 0.44612].
2. From mid2018-2021: the p-value is significant [p<= 0.01146]

From the above, I can see the followings:

1. VTI provides better returns than IWDA, and the better performance is statistically significant.
2. VTI stronger performance is from *recent* trends - which is important since all things equal, modeling future performance from recent events is likely to be more correct than modelling from long-ago events.
3. VTI give dividends, which I ignored in this analysis. Including that would show VTI to be a more superior investment.

I'm super inclined to divert /pivot my portfolio (which is on IWDA now) to VTI at least for the next 5 years, since I don't see dominance of US companies declining any time soon. Will re-evaluate again post 5 years.

Would love to hear your feedback on the above.

Submitted March 21, 2021 at 10:20PM by paperboiko https://ift.tt/3lC5Vuw