ETF to Dump No. 3: iShares MSCI EAFE (EFA)

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If SPY is the granddaddy of all ETFs, then the iShares MSCI EAFE ( EFA) is certainly the standard-bearer for international investing. Unfortunately, EFA is based on a seriously flawed benchmark.

The MSCI Europe, Australasia and Far East (EAFE) Index is thought to cover the world's equity markets outside the U.S. In fact, it does nothing of the sort!

For one thing, the EAFE overlooks Canada -- the third largest non-U.S. market in the world. Furthermore, the EAFE has zero allocation to emerging markets like China. All told, the EAFE Index and EFA cover less than 70 percent of the non-U.S. markets.

If you want complete international exposure with just one ETF, I think you are better off with Vanguard FTSE All-World ex-U.S ( VEU).

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