- April 25, 2024
- Posted by: legaleseblogger
- Category: Related News
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# Beginning the Investment Journey: Deciding between All World ETF and S&P 500
Hi everyone! I am excited to embark on my investment journey and transition into becoming an active investor. I have been immersing myself in research and studying various investment strategies. I am now ready to put some of my money into an Exchange-Traded Fund (ETF).
Initially, I was inclined towards the All World ETF, as it seemed to be a popular choice among investors. However, after conducting a thorough analysis of the performance metrics and comparing different numbers, I have noticed that the S&P 500 has been delivering better returns, albeit with slightly higher volatility. I am aware that past performance does not guarantee future results, but the performance of these two options has caught my attention.
Upon further examination, I realized that the S&P 500, All World, and Developed World ETFs consist of the same major companies, which hold significant positions in their respective portfolios. This raised concerns for me regarding the effectiveness of diversifying by geographical location. Even if I were to invest in the All World ETF and the US companies experience a significant decline, the geographical diversification may not necessarily provide the level of protection I seek.
Considering this, I am currently leaning towards investing in the S&P 500 initially. From my knowledge, it appears more advantageous to diversify by asset classes and sectors rather than solely relying on geographical diversification.
I would greatly appreciate some advice or insights on this matter as I move forward with my investment decisions. Thank you in advance for your help!
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It’s great that you studied a lot already but your question is one of the most commonly asked questions in the passive investing community in general.
You could either use the search bar in reddit ([link](https://www.reddit.com/r/eupersonalfinance/search?q=sp500+world&restrict_sr=on)) or in youtube, and continue your studies.
I promise you, you won’t hear anything new when you’re the person asking the same question for the 99999th time.
VWCE & chill.
However, if you are performance chasing, you will regret going for VWCE because you will always look back to what if scenarios for the S&P 500 (at least for now).
VWCE is solid because it is market cap weighted, if a country performances better/worse, it will auto regulate to increase/decrease its allocation. It is true, 60% of vwce is the US and , 20% of that is the mag 7, however, it still offers more diversification for that remaining 40%.
The US is an economic superpower that has its economy based on the stock market & most innovations will probably stem from there for now but its still 1 economy. And the argument of ‘most companies have international exposure hence you are being exposed to international markets anyway’ is false. https://youtu.be/1FXuMs6YRCY?si=uH_d9gr12nubush7
I had this same question not long ago of VWCE vs S&P500 but im staying the course with VWCE because over the long run, imo, it is a safer bet. No one has a crystal ball and no one will know if 100% US will still outperform (it has only done so for the last 8 years). So I will pay the price of diversification in this respect.
Your investment journey will be fluid, it’s not a dogma, a Bible that cannot be changed.
Some people do like sticking to dogma, since it makes it easy for them. Some people like the tyranny of habit as the alternative of wild open seas is just too scary.
Start with vwce and chill, it’s a simple rule to be followed. But what % will you allocate to bonds? Just shows you the iterations never end.
Everyone likes to mention Japan, how about we mention China and Europe messing up vwce? Everyone focuses on us eventually losing steam or having internal problems (another insurrection during upcoming elections?).
The thing you need to realize, world isn’t simple 0 or 1. It would be wonderful if it was, wake up at 8, go have breakfast, leave for work at 9 etc etc. But what’s so wonderful about humanity is that we adjust and iterate, that’s why I’d suggest you stay from any dogma. Is your daily routine going to change based on weather? Quite likely… How about your weekend? Or will you continue the same routine no matter what? Probably not.
This should help you answer S&p VS rest of the world. We have one war in middle east, another one in Ukraine. We have problems in China. Sure some believe in dogma, but some believe it’s time to adjust and join the winning team for now. Maybe after elections this will be different… There’s no simple rule as it’s impossible to time the market. But US has benefited massively during last two world wars and during any global crisis (flight to safety)…
We are intelligent human beings, if you see it’s snowing outside, you adjust what you wear before you go out. Then if it stops and starts being sunny, maybe you lose a layer or two. We adjust we iterate.
Think about your investment journey the same way.
So don’t chase returns, don’t be dogmatic, be pragmatic, whatever that means…
People invest in VWCE because they believe that International stocks might one day outperform US stocks. So if you’re invested in VWCE and international stocks go up, you will not miss out completely.
Is this one day coming anytime soon or is it in the far distance? No one knows. It’s a choice you only have to make: S&P500 only, VWCE only, or a mix of both. There is no right or wrong answer no matter how emotionally strong someone’s answer might be.
Decide on what will make you sleep well a night without thinking: “did I make the right choice?”; because the danger of that is that you might continue to tweak your portfolio and hence interrupting its compounding effect.
heart says S&P 500, brain says VWCE 😂
joking aside, you really can’t go wrong with both. Even if one exceeds another, it will be for couple of percents which you can’t predict anyways.
If you feel like VWCE is too safe, and you want to spice it up with a little bit of risk vs reward factor, you can introduce another ETF alongside with VWCE. (This is what I do)
Read it and pick your poison
https://www.bogleheads.org/forum/viewtopic.php?t=409214
All World is safer for those unique times where some other country exceeds USA. Last time it has happened with Japan.
I have both. 60% S&P500 and 40% All World (vwce)
I moved all my investments in these two back in November and I’m up 9% at the moment. The first is up 10% while vwce is up 8%
vwce is the one ETF that I’ve seen people suggesting if you’re only going to put everything in one ETF but S&P 500s performance was anough for me to take the (minimal at the moment) ‘risk’ and invest in that too
You are actually correct and do not listen to anybody that is telling you that VWRL is much safer than VUSA/SXR8. As you can check the distribution in the VWRL (world etf) geographically speaking now is 56% USA then the rest of the world. The other countries will always try to catch up to US but will never reach that economic milestone.
If US will disappear as an economic and world first military power you can just forget about investing alltougheter.
I presume you live in Europe and you will invest in EUR on a UCITS S&P500 instrument (would recommend VUSA or SXR8).
Try also a distribution of 90% S&P and a 10% short term us treasuries (IBTS denominated in EUR)
All etfs are denominated in EUR and within the EU.
Supporters of VWCE seem to believe that if the US economy were to crash the rest of the world will chill and outperform the S&P. The truth is that the US is still the leading economy and the dollar is still the global reserve currency. If something goes wrong in the US economy it affects almost everyone. The best case scenario for VWCE during hard times will look something like this:
VOO drops 21%, VWCE will drop 16%. Once they recover, S&P will keep outpeforming the rest of the world. If the first percentage scares you and increases the probability to panic sell or stop DCAing then it’s ok to stick to VWCE.
If S&P 500 is not performing well, there is no way that all world will perform good either.
And over the past 10 years, S&P 500 has performed better than the all world.