Two Overlooked Vanguard ETFs for a $1,000 Portfolio Makeover

For a $1,000 portfolio, the goal is often simple: add a piece of the business that most investors overlook, at a low cost. That's where these two Vanguard ETFs come in. They're not the household names like the S&P 500 funds, and that's exactly why they're worth a look. They're overlooked for a reason: they have much smaller assets under management and receive far less analyst attention than their giant peers. This lack of fanfare can be a hidden advantage.

Take the Vanguard Total International Stock ETF (VXUS) as an example. It has about $100 billion in assets, a massive sum, but it's dwarfed by the trillions in the S&P 500 funds. Its smaller scale means it gets less of the spotlight. Yet, it provides efficient access to a broad slice of the world's stock market, including both developed and emerging economies. This isn't a speculative bet; it's a practical tool for adding diversification that can smooth out your portfolio's ride when U.S. markets face a rough patch.

The same principle applies to the Vanguard FTSE All-World Ex-US Small Capital Index Fund ETF (VSS). With around $9 billion in assets, it's even less followed. Its job is to capture the performance of smaller companies outside the United States, a segment often missed by investors focused on big U.S. stocks. This niche focus offers another layer of diversification that's easy to overlook but valuable for the long term.

The bottom line is that these ETFs are low-cost, practical tools. They allow you to split that $1,000 between two overlooked market segments-international stocks and small-cap international companies-without paying a premium for popularity. In a world where everyone chases the same top performers, sometimes the quietest options are the ones that build a more resilient portfolio.

VXUS: Your Global Portfolio Anchor (The "Rainy Day" Fund)

Think of your investment portfolio like a household budget. You have your main checking account for daily spending, but you also keep a separate "rainy day" fund for unexpected bills. VXUS acts as that global rainy day fund for your portfolio. It's not meant to be your primary growth engine, but a low-cost, stable piece that protects you when the U.S. market gets too concentrated.

The business logic is straightforward. VXUS gives you broad exposure to the entire world outside the United States in a single, efficient package. It holds companies from both developed markets-like Germany and Japan-and emerging economies, such as China and Brazil. This diversification is the core of its protective function. When the U.S. market is riding high on a few giant tech stocks, international markets often move on their own rhythms. Having a piece of that global economy in your portfolio is like having a second source of income that kicks in when the first one slows down.

Its cost structure makes it a practical choice. With an expense ratio of just 0.05%, it's one of the cheapest ways to get this kind of global reach. For a $1,000 allocation, that low fee means more of your money works for you over the long haul, compounding quietly without eroding returns.

The proof of its value came in 2025. While the S&P 500 climbed, VXUS outperformed, finishing the year up 28% compared to the index's 16.4%. That kind of surge in a single year shows exactly why it's a valuable tool. It thrives when global growth stories are in favor, offering a powerful counterweight to a U.S.-centric portfolio.

Viewed another way, VXUS is a form of insurance. The S&P 500 has become increasingly reliant on just a handful of companies, a concentration that carries its own risks. By allocating a portion of your $1,000 to VXUS, you're not betting against U.S. stocks. You're simply building a buffer. If the market's focus shifts or a U.S. economic slowdown hits, your international holdings can help smooth out the ride. It's a simple, low-cost way to anchor your portfolio to the global economy, ensuring you're not betting the entire farm on one field.

VSS: The Diversification Booster (The "High-Potential" Add-On)

If VXUS is your portfolio's rainy day fund, then VSS is the high-potential add-on. It's not a core anchor, but a tactical piece designed to boost growth and add a different kind of diversification. Think of it as putting a small, high-performance engine on a reliable car. Its job is to accelerate your portfolio when the right global conditions align.

The numbers from last year show exactly what it can do. While domestic small-cap indexes struggled, VSS delivered a nearly 30% return, obliterating the performances of the Russell 2000 and S&P SmallCap 600. That kind of surge highlights the strength of a specific, often overlooked market segment: small companies outside the United States. This isn't a bet on one country or one sector; it's a broad, efficient play on a global opportunity.

Its diversification is deep and built-in. VSS holds 4,827 stocks, none of which account for more than a tiny sliver of the portfolio. This spreads risk across thousands of smaller businesses in dozens of countries. For an investor with a $1,000 portfolio, that's a powerful way to get a piece of the global economy without picking individual stocks. It's diversification within an overlooked asset class, which is exactly what many portfolios need.

The tailwinds supporting it are clear. International small-caps are benefiting from a significantly weaker U.S. dollar, which makes their products cheaper for foreign buyers. At the same time, other nations' central banks have been cutting rates ahead of the Federal Reserve, providing a supportive environment for growth. This combination has been a major tailwind for international stocks, and small-caps often lead the charge.

The bottom line is that VSS acts as a growth-oriented diversifier. It's not for everyone, and past performance doesn't guarantee future results. But for a $1,000 portfolio looking to add a high-potential boost, it offers a low-cost, practical way to target a specific market segment that delivered big returns last year. It's the kind of overlooked piece that can make a meaningful difference when the global economy finds its groove.

The $1,000 Allocation Plan: Simple, Diversified, and Forward-Looking

Now that we've looked at each piece, let's put them together into a practical plan for your $1,000. The goal is to create a simple, diversified portfolio that leverages the strengths of both overlooked ETFs while being mindful of the risks ahead.

The Allocation: A Balanced Split

For a $1,000 portfolio, a balanced split makes the most sense. I recommend allocating $500 to VXUS and $500 to VSS. This gives you equal exposure to the broad international market and the high-potential small-cap segment. It's a straightforward way to build a foundation that's not overly reliant on any single market or style.

Weighing the Pros and Cons

Each ETF brings a different role to the table. VXUS is the steady anchor. Its expense ratio of just 0.05% makes it a low-cost way to get broad diversification across developed and emerging markets. Its strength is stability and protection against U.S. market concentration. The downside is that it's a broad basket, so its returns will mirror the global market average, which can be slower than a high-flying niche.

VSS is the growth-oriented add-on. Its nearly 30% return last year shows its explosive potential when international small-caps are in favor. It provides deep diversification across 4,827 stocks, spreading risk. The trade-off is higher volatility. Small-cap stocks are inherently more sensitive to economic cycles and currency swings, making them a riskier bet than a broad international index.

The Key Risk: When the Tide Turns

The main risk with this plan is that VSS's recent success could fade. Its strong performance has been powered by a significantly weaker U.S. dollar and other nations' central banks cutting rates ahead of the Fed. If global growth slows, or if the dollar strengthens unexpectedly, these tailwinds could reverse. In that scenario, international small-caps could underperform, dragging down that portion of your portfolio. VXUS would be more resilient, but it wouldn't fully offset a sharp drop in VSS.

What to Watch Next

To know if this allocation is working, watch a few key signals. First, monitor the continued outperformance of international stocks versus the U.S. market. Second, pay attention to the drivers: the path of interest rate differentials between the U.S. and other major economies, and the strength of the U.S. dollar. These are the forces that have been lifting the international boat. If they remain supportive, both ETFs have a path to further gains. If they shift, it's a sign to reassess the allocation.

The Bottom Line

This $500/$500 split offers a clear, forward-looking strategy. You get the low-cost, diversified stability of VXUS as your portfolio's anchor, plus the high-potential growth of VSS as a tactical boost. It's a simple, practical way to own two overlooked pieces of the global economy. The plan is balanced, but remember: the risk in VSS is real. Keep an eye on the global economic currents, and this allocation gives you a solid foundation to ride them.