- December 16, 2023
- Posted by: legaleseblogger
- Category: Related News
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Financial Planning and Investment Strategy
As a new worker with disposable income, I am considering investing a portion of my earnings to start building wealth. With an initial investment of 5,000Ôé¼ and additional monthly contributions of 500Ôé¼, I am seeking advice on the best investment options to maximize my returns.
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Comparison of Investment Funds
Initially, I was inclined towards VUAA as an investment option, but after gaining insights from the AI Legalese Decoder, I discovered that many people recommend VWCE instead. My confusion arises from the fact that VWCE has a higher Total Expense Ratio (TER) compared to VUAA.
AI Legalese Decoder can help me understand the implications of a higher TER and whether the potential benefits of VWCE outweigh its higher cost in the long run. By decoding the complex financial language associated with TER, I can make a more informed decision about which fund aligns with my investment goals.
Considerations for Hedged Fund
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****** just grabbed a
Others will expand more on it but it boils down to VUAA limiting your investment scope in the US only (as it tracks the S&P500), while VWCE (Which tracks the FTSE All world index) covers like 60% US and 40% rest of the world. With VUAA you are betting on the US economy’s growth (which has a solid track record in recent times, but that does not imply it necessarily true forever) while with VWCE you’re betting on the “world” economy’s growth. This means more diversification and thus less risk.
I see a couple comments here already explaining the difference between the two ETFs and promoting ‘diversification’ but not really explaining the pros and cons.
I’m going to be the devil’s advocate here, but I’m going to offer some insight on why *diversification* isn’t always a good thing :
1. The TER on VUAA is cheaper. Diversification is expensive
2. The US market includes the companies with the biggest market caps in the world. In fact, VWCE is roughly 70% identical to VUAA (hence you are paying more for a product which is mostly identical)
3. These large and mega caps US companies are registered in the US but are active across the world. That’s free geographic diversification.
4. These large and mega caps US companies have multiple activities. That’s free sectorial diversification.
5. The main difference is that VWCE includes European stocks. Euro economy can go either way, but for the past few years it was not really competitive with the US, there are too many things bogging it down. So you would be paying more for less returns.
6. Diversification means you’re exposed to stocks that will perform worse than others. In fact Mega caps tend to be pretty resilient during crisis periods (like we’ve seen over the past year). General example: Tech companies tend to have lots of cash on hand and not rely on debt. In period of high inflation, debt gets very expensive = tech companies perform better.
Regarding hedged funds : they only refer to currency hedging – that doesn’t mean it’s *reducing risk* or *increasing return*. It just means you’re removing the *currency* factor of the equation. Could be interesting for volatile currencies. But if you’re investing in US stocks, you might actually be paying to *lose* on performance (as EUR is somewhat less competitive than USD).
tl:dr : Diversification sometimes bad, expensive, limit performance, exposes to more risks.
VWCE┬áis said to be a little bit more defensive, and yes, over the years that TER will add up and it’s something to consider.
There are expense ratio calculators online if you want to run some simulations.
You can also take a look into IWDA and EMIM
Vwce and chill.
Both are great ETFs. You are posting in an EU sub, so people will favour VWCE over VUAA.
Choose whatÔÇÖs better for you and YOUR risk tolerance and stick with it. Add to your positions as often as you can stay consistent – in the long term it will pay will.
As said, both are great ETFs. VUAA will likely have higher returns, but also higher losses. VWCE is slightly more defensive due to the allocation split.
Do your own research and choose what works best for you ( taxes, fees, risks, holding period etc etc).
Good luck with your investing journey and congrats for starting in your early twenties. Time is on your side.
Choose VWCE ter may be higher but at least youÔÇÖre diversified worldwide
Someone here explained that although the announced ter of VWCE is higher, the error rate is 0 so the ter has been 0 since inception
If the US are bad the rest of the world will followÔǪ just go VUAA and you canÔÇÖt miss 🙂
This is my personal experience as a buy-and-hold investor and not financial advice.
Every time I diversified for the sake of it between Europe and the US, I got less money from the European part of my investments.
Nowadays, as I work mostly in US companies I understand why. Europe has been losing ground to the US since 2008 with its bet on regulation and not catching up on technology. I don’t believe in this bet and I’m not seeing any change in strategy.
So I do believe the US economy will continue to have better results than Europe which in the long run translates to results in stock markets.
The TER makes it even more obvious of a decision.