S&P500 vs All World ETF

[justiceformyfoot]

I am completely new to investing. I am currently picking the ETF to invest in and I cannot decide between All world (Vanguard FTSE All-World UCITS ETF Acc) and US only (Xtrackers MSCI USA UCITS ETF 1C).

How do you choose to invest in either all world or US only stocks? I know that historically US-based stocks have outperformed the all-world stocks but is there any reason to believe that this trend will remain unchanged in the future?

 

[goodybaker94]

@justiceformyfoot I'm currently all-in USA. In fact, more than all-in with the 2x Leveraged MSCI USA (18MF).

Let me just c&p and deepl two comments I wrote explaining this on a German-language sub:

That would be me. I started with an all-world ETF savings plan and have been with a 2x MSCI USA for some time. As far as I can see, the US is simply overpowered. So many advantages that other countries in the world lack. Not the least of which is the stock market culture. Elsewhere, the economy can develop, but it doesn't have to in the stock market. Certainly not there.



Or in Warren Buffet's words: "For 240 years it's been a terrible mistake to bet against America".

America is highly developed, has rich natural resources, helpful geography, a healthily growing population, rising productivity and a stable political situation. This combo doesn't exist anywhere else in the world again in this form, everywhere else there is at least one dud. Compared to all the others, they simply play the game on easy-mode.

But in the end, everyone has to decide for themselves. We can compare in 30 years' time.

 

[momof4]

@justiceformyfoot I am a new investor but please correct me if my logic does not make sense.

Why prefer All world and not purely SP500 when history has demonstrated that when SP500 coughs, the rest of the world gets a cold. Is there really any case where if the SP500 goes down, the rest of the world doesn't follow?

 

[kalwa]

@momof4 I agree, I can't see a realistic scenario in the next few years where global markets would detach from the US one in any meaningful sense

 

[tfosria]

@momof4 agreed, plus stock ownership in the US is much more common than in Europe (it's basically part of everyone's 401k, whereas only few countries in Europe have anything remotely similar to that...)... This means more people have a vested interest in stock market performing well and as you can see, it's a big topic for every US president, dem or republican...

When was this ever a topic in Europe?

 

[rom837]

@tfosria Switzerland had it before USA

 

[meshangel]

@rom837 Switzerland is basically US but in Europe and better.

 

[edward1690]

@momof4 Have a look at Ben felix video about snp500. Performance of snp500 is not correlated 1:1 to the rest of the world. You're statistically better off going with all world. It virtually impossible to predict how things will behave based on the past, which is where your logic fails

To be fair, at the end of the day snp500 is a great investment as well, but you will most probably lose out in the long term.

 

[calypso34]

@edward1690 You mean the world ETF will outperform snp500 in the longterm?

 

[edward1690]

@calypso34 Nobody can say for sure, but most probably yes

 

[resjudicata]

@calypso34 Emerging markets have the potential to outperform snp 500 and have done so at times in the past.

 

[rom837]

@momof4 Not true, Switzerland was not affected in the 2008 crisis.

 

[kandywandy]

@rom837 False

 

[shakibra]

@momof4 I think it's just about risk:reward and not necesarilly just a case of markets crashing. If you invest in a world index, the increased diversity of the portfolio provides less volatility compared to the S&P which is dominated by US tech companies. The S&Ps volatility, while being riskier, also lends to larger spikes, and so can lead to much bigger and faster growth, but those spikes can also go down, and it'll be particularly shit if you retire at a time when the market is dipping, and you're all in on S&P and so have probably lost more value than somebody invested in a world index. I think the smart move though is to invest in a combination of the two, rather than going all in on either.

 

[young86]

@shakibra But you have to be ready for that. At the time you're exepecting to retire you probably don't have a majority of portfolio on stocks unless you fit in a considerably aggressive type of investor.

 

[tjweb]

@shakibra but if you will combine let say 50:50 with both, then you have even more USA, its like 80% of USA in your shares, so i dont think combination is good

 

[sdd2174]

@justiceformyfoot You should mostly be fine with either. But basically, all world protects you somewhat from the off chance the US stops dominating the global economy. I say somewhat because most all world ETFs still invest at least 60% in the US.

Personally, I stick to VUAA, as I do trust the us to stay dominant within my time frame.

 

[lovelygrace]

@justiceformyfoot There's no reason to believe US outperformance will continue.

I invest in All World.

 

[vrogers]

@lovelygrace There is no reason to believe it will not. All major companies that are among the leaders of their sector are listed in New York. Europe is very risk adverse when it comes to investments, that is why the venture capital part that could grow new bussines and innovation is tiny compared to USA, and the EU industrial giants are in constant decline. Asia is growing but is not shareholder friendly. The resource rich part of world is dominated by political turmoils or dictators that can wipe out your entire new worth just because they can ( got burned by a investing in Russian stocks listed in London). So, I am positive that over a 20+ year period the US500 will over perform the All World index.

 

[lovelygrace]

@vrogers What you are saying is true.

However that is information known to everyone and is priced in. That's why Europe and other markets have lower valuations than USA.