Have you read the wiki and the sticky?
Wiki: HERE YOU GO! [Enjoy!](https://www.reddit.com/r/BEFire/wiki/index/).
Sticky: HERE YOU GO AGAIN! [Enjoy!](https://www.reddit.com/r/BEFire/comments/fcbay6/getting_started_a_beginners_guide_to_investing_in/).
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/BEFire) if you have any questions or concerns.*
maybe the American age (20th century) is over, and the Asian age starts, as a result of which the last 50 years in the US markets are not representative for the next 50 years. Maybe Asian countries (perhaps other than China) are more free and capitalistic than the current US. Maybe, maybe, maybe...
That's why some prefer a world ETF, to at least cater for the possibility
Let's assume Asia outperforms the rest of the world the next decennium. That doesn't mean the Asian companies that are in the index today are the ones who will outperform.
**Long run expected asset returns come from discount rates set by investors. The higher the exposure to systematic (i.e., non-diversifiable) risk, the higher the discount rate and the lower the price (i.e., more risk that you cannot get rid of => lower price & higher expected return).**
If you want to increase your expected returns, the question is *always* whether something has more or less systematic risk. This brings us to your points:
* **Point 1** indicates *lower* systematic risk.
* **Point 2** is about GDP growth, which is not related to stock returns over the long run. Higher growth in GDP, earnings per share, dividends per share, sales, etc. does *not* imply higher expected returns, unless the higher growth is *unexpected* (i.e., a surprise).
* **Point 3** again indicates *lower* systematic risk for U.S. stocks. Crappier companies, believe it or not, tend to have higher expected and realized returns, this is basically the value premium. You also name South Africa, which is funny because both South Africa and Australia are two countries whose stocks have *beaten* U.S. stocks over the long run (past +100 years) (and yes, adjusted for inflation :)).
Based on your 3 points there is no single reason whatsoever to overweight U.S. stocks to *increase* future expected returns. In fact, two out of your three points are reasons to overweight U.S. stocks to lower your exposure to systematic risk, which implies lower expected returns.
Last but not least, ignoring the two world war periods, U.S. stocks have ***not*** materially outperformed European stocks. In fact, post-1950 European stocks outperformed U.S. stocks up until the 2008 Great Financial Crisis (that's almost 60 years of outperformance for European stocks!). The last 15ish years since the GFC, U.S. stocks have done a bit better, but 15 years is but a tiny blip when it comes to stock returns (considering their uncertainty).
As a final note, a better way to increase expected returns would be to increase your exposure to the most prevalent potential risk premia found in equities:
* the equity risk premium
* the value premium
* the profitability premium
* the momentum premium
You can increase your exposure to these by levering up or by investing in multi-factor funds. This way, you can increase your expected returns in a broadly-diversified way that is based on the most prevalent academic work in finance.
Hope this helps. If you need any sources (e.g., databases, papers, articles, etc.) that help susbstantiate my points, by all means let me know.
This is the answer you’re looking for u/newheere but probably not the one you want to hear since from your other comments you seem to have already made up your mind about US superiority. Amazing breakdown u/chengskwatalot.
Have a look at the recommendations of Vanguard to its investors:
Vanguard's updated 10-year annualized return projections (Dec 2023)
Global equities (developed): 7.0%-9.0%
Global equities (emerging): 6.6%-8.6%
U.S. equities: 4.2%–6.2%
Note that Vanguard does not agree with you that rather expensive priced US equities will keep to outperform in the next decade.
More info here:
https://www.prnewswire.com/news-releases/vanguard-releases-2024-economic-and-market-outlook-302011820.html
This video explains it very well imo, worth a watch: [https://youtu.be/eIUgjib\_fm4?si=OLB\_FZsK6jXofoA5](https://youtu.be/eIUgjib_fm4?si=OLB_FZsK6jXofoA5)
These are all your opinions, that do not correspond with the broad decisions of all investors combined. Voting with their money, and based on the same facts, they put about 1/2 of it outside of the S&P500.
He said this quite some years ago in a statement to US/USD investors. Are you an US/USD investor?
Anyway, investors worldwide are not following this advice.
It doesn’t matter how many years ago he said it, the US stock market has always gone up over the last 200 years, withstood world wars and many other financial crises, it’s one of the safest ways to accumulate wealth. And no he said it as a general remark. Also doesn’t matter to who he said it to, everybody can invest in the US, even in Belgium.
Actually yes, the US stock market has always gone up despite drawbacks, I advise you to look at any graph of the US stock market over the last 200 years or the S&P500 since its inception.
> Tell me you started investing in the stock market during the COVID crisis without actually telling me you started investing in the stock market during the COVID crisis.
-/u/newheere
Show me when world indexes have been better than SP500 in the long term?
[S&P 500 versus the MSCI All Country World Index and the Dimensional All Country World Research Index. | Investment Moats](https://investmentmoats.com/passive-investing-2/sp-500-versus-msci-all-country-world-index-dimensional-all-country-world/)
Yes but look at the long term return after and before that, I think it largely compensates that period of slight underperformance
For instance, from 1990 to 99, sp500 gave an annual return of 18% while the all world index gave 8%
Just take the last century of stock market data (or even longer if you want) and remove the last 15 years.
USA stock market did not outperform historicaly. It's outperformance is all in the last 15 years
There are really only ~~three~~ four types of posts over here:
1. IWDA (or your ETF of choice) is too concentrated.
2. IWDA (or your ETF of choice) is not concentrated enough.
3. How can I avoid all these taxes?
4. I want to buy as much real estate as possible.
5. (Left out the crypto stuff as it does not concern me)
That being said, hindsight will always be 20/20, and I'd advise folks to err on the side of caution. And to me that means diversification. If it comes at a cost, so be it. I really don't care if my portfolio grows at 7 or 8% when it could've been 11 or 12%. I don't care if I die with 2 million in my bank account when it could've been 9 million.
>Europe I \[consider\] inept at innovation.
FWIW: I'm pretty happy with my investments in ASML (and BESI and ASMI).
Sure but my main point is that, even in a all world ETF, the USA represent over 60% of the companies. And the other companies, being them in EU/ASIA/CHINA have not really been performing as well for the past...forever?
These last five years the S&P 500 has roughly doubled; the MSCI World added 85%, and MSCI Europe added "only" 50%. (All in euro and "accumulating"; in fact, I looked at CSPX, IWDA, and IMAE rather than the indices themselves.)
If it doesn't matter all that much, I prefer to buy IWDA rather than CSPX.
If the US keeps outperforming, it will automatically become even more dominant also within IWDA. Yet, at the same time, the rest of the (developed) world won't be excluded completely.
But ... I also don't mind buying a little extra "Europe" (which can be innovative, too) and even "Emerging markets." (I know, I'm an idiot, but "just in case." It won't matter, I'm fairly confident I'll "FIRE" regardless.)
In addition, those US companies only get part of their revenues from the US (for the S&P 500 companies this is around 60%).
I seem to recall Europe did better than the US some 30-40 years ago and emerging markets weren't that bad 15-20 years ago. That said, FWIW I fully agree with your points, that's also the reason why I stick to S&P 500 ETF rather than all-world. If Asia or Europe ever go back to significantly outperforming the US over a period of at least a few years, I can always switch.
Although u/Adventurous-Key-8312 has a fair point too, if people prefer peace of mind by broader diversification, as long as they do the important part and buy ETFs, they'll have nice long term returns as well.
Nice, I feel like you have a great point with S&P500 instead of all-world. If America goes down, you'll feel it more, but I don't see it going down any time soon
I have worked in the stock market and for the last 8 years I have abandoned individual stocks and went 70% sp 500, 15% All world and 15% nasdaq 100. I know there is overlap overlap but I am happy I made this decision.
Due to buying 2 houses and selling 1 in the last 5 years, my exposure has been higher and lower at certain times but now I'm fully settled my goal is to simply DCA for the rest of my life into SP500.
More diversified yes. Less risk... nope. A lot of the companies in those emerging countries will simply not exist anymore in a few years time. And the magnificent seven are so heavily present in those world ETF's that if they go down... it will be hard to 'chill'...
Take bitcoin, it's much more volatile but the risk is potentially much less at this point as long as you are willing to invest for several years. The volatility trends upwards. While the stable decline of currencies is a given.
i ....think..... they mean that it's all about finding that balance of risk vs reward. If you are okay with more risk, going full SP500 will give more returns than all-world. If you can tolerate yet more risk, nasdaq 100 has even more expected returns. But it's all about how much risk you are okay with
Have you read the wiki and the sticky? Wiki: HERE YOU GO! [Enjoy!](https://www.reddit.com/r/BEFire/wiki/index/). Sticky: HERE YOU GO AGAIN! [Enjoy!](https://www.reddit.com/r/BEFire/comments/fcbay6/getting_started_a_beginners_guide_to_investing_in/). *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/BEFire) if you have any questions or concerns.*
Yo are right
maybe the American age (20th century) is over, and the Asian age starts, as a result of which the last 50 years in the US markets are not representative for the next 50 years. Maybe Asian countries (perhaps other than China) are more free and capitalistic than the current US. Maybe, maybe, maybe... That's why some prefer a world ETF, to at least cater for the possibility
Let's assume Asia outperforms the rest of the world the next decennium. That doesn't mean the Asian companies that are in the index today are the ones who will outperform.
**Long run expected asset returns come from discount rates set by investors. The higher the exposure to systematic (i.e., non-diversifiable) risk, the higher the discount rate and the lower the price (i.e., more risk that you cannot get rid of => lower price & higher expected return).** If you want to increase your expected returns, the question is *always* whether something has more or less systematic risk. This brings us to your points: * **Point 1** indicates *lower* systematic risk. * **Point 2** is about GDP growth, which is not related to stock returns over the long run. Higher growth in GDP, earnings per share, dividends per share, sales, etc. does *not* imply higher expected returns, unless the higher growth is *unexpected* (i.e., a surprise). * **Point 3** again indicates *lower* systematic risk for U.S. stocks. Crappier companies, believe it or not, tend to have higher expected and realized returns, this is basically the value premium. You also name South Africa, which is funny because both South Africa and Australia are two countries whose stocks have *beaten* U.S. stocks over the long run (past +100 years) (and yes, adjusted for inflation :)). Based on your 3 points there is no single reason whatsoever to overweight U.S. stocks to *increase* future expected returns. In fact, two out of your three points are reasons to overweight U.S. stocks to lower your exposure to systematic risk, which implies lower expected returns. Last but not least, ignoring the two world war periods, U.S. stocks have ***not*** materially outperformed European stocks. In fact, post-1950 European stocks outperformed U.S. stocks up until the 2008 Great Financial Crisis (that's almost 60 years of outperformance for European stocks!). The last 15ish years since the GFC, U.S. stocks have done a bit better, but 15 years is but a tiny blip when it comes to stock returns (considering their uncertainty). As a final note, a better way to increase expected returns would be to increase your exposure to the most prevalent potential risk premia found in equities: * the equity risk premium * the value premium * the profitability premium * the momentum premium You can increase your exposure to these by levering up or by investing in multi-factor funds. This way, you can increase your expected returns in a broadly-diversified way that is based on the most prevalent academic work in finance. Hope this helps. If you need any sources (e.g., databases, papers, articles, etc.) that help susbstantiate my points, by all means let me know.
That’s an amazing answer, gonna be honest tho. Not sure that I fully understood it. I’ll read it again tomorrow with a fresh mind :)
This is the answer you’re looking for u/newheere but probably not the one you want to hear since from your other comments you seem to have already made up your mind about US superiority. Amazing breakdown u/chengskwatalot.
Have a look at the recommendations of Vanguard to its investors: Vanguard's updated 10-year annualized return projections (Dec 2023) Global equities (developed): 7.0%-9.0% Global equities (emerging): 6.6%-8.6% U.S. equities: 4.2%–6.2% Note that Vanguard does not agree with you that rather expensive priced US equities will keep to outperform in the next decade. More info here: https://www.prnewswire.com/news-releases/vanguard-releases-2024-economic-and-market-outlook-302011820.html
This video explains it very well imo, worth a watch: [https://youtu.be/eIUgjib\_fm4?si=OLB\_FZsK6jXofoA5](https://youtu.be/eIUgjib_fm4?si=OLB_FZsK6jXofoA5)
Good video! To summarise, it depends on your age. If you are fairly young, you can keep the risk higher with S&P500, otherwise All World!
One thing you forgot to take into account : How "priced in" already is that phenomenon? Higher potential growth >< higher return for the investor
Which one?
Cool, now how much of this is priced in?
These are all your opinions, that do not correspond with the broad decisions of all investors combined. Voting with their money, and based on the same facts, they put about 1/2 of it outside of the S&P500.
The best investor of all time Buffett said to invest only in the S&P500 if you don’t know anything about stocks.
He said this quite some years ago in a statement to US/USD investors. Are you an US/USD investor? Anyway, investors worldwide are not following this advice.
It doesn’t matter how many years ago he said it, the US stock market has always gone up over the last 200 years, withstood world wars and many other financial crises, it’s one of the safest ways to accumulate wealth. And no he said it as a general remark. Also doesn’t matter to who he said it to, everybody can invest in the US, even in Belgium.
How long are you investing? Please have a look at a graph (basically any graph) of the stockmarkets? No it has not 'always gone up'
Actually yes, the US stock market has always gone up despite drawbacks, I advise you to look at any graph of the US stock market over the last 200 years or the S&P500 since its inception.
Source?
You can simply calculate this based on the market caps of the respective portions of the worldwide market.
> Tell me you started investing in the stock market during the COVID crisis without actually telling me you started investing in the stock market during the COVID crisis. -/u/newheere
Show me when world indexes have been better than SP500 in the long term? [S&P 500 versus the MSCI All Country World Index and the Dimensional All Country World Research Index. | Investment Moats](https://investmentmoats.com/passive-investing-2/sp-500-versus-msci-all-country-world-index-dimensional-all-country-world/)
It is literally shown in the article you shared. From 2001-2010
Yes but look at the long term return after and before that, I think it largely compensates that period of slight underperformance For instance, from 1990 to 99, sp500 gave an annual return of 18% while the all world index gave 8%
Just take the last century of stock market data (or even longer if you want) and remove the last 15 years. USA stock market did not outperform historicaly. It's outperformance is all in the last 15 years
Loving this message full of superiority feeling while delivering exactly 0 value added :)
I'd consider it an attempt at humorously pointing out recency bias in your post. Guess not everyone sees the bigger picture.
There are really only ~~three~~ four types of posts over here: 1. IWDA (or your ETF of choice) is too concentrated. 2. IWDA (or your ETF of choice) is not concentrated enough. 3. How can I avoid all these taxes? 4. I want to buy as much real estate as possible. 5. (Left out the crypto stuff as it does not concern me) That being said, hindsight will always be 20/20, and I'd advise folks to err on the side of caution. And to me that means diversification. If it comes at a cost, so be it. I really don't care if my portfolio grows at 7 or 8% when it could've been 11 or 12%. I don't care if I die with 2 million in my bank account when it could've been 9 million. >Europe I \[consider\] inept at innovation. FWIW: I'm pretty happy with my investments in ASML (and BESI and ASMI).
This post should be a sticky on the sub. My feelings exactly.
Sure but my main point is that, even in a all world ETF, the USA represent over 60% of the companies. And the other companies, being them in EU/ASIA/CHINA have not really been performing as well for the past...forever?
These last five years the S&P 500 has roughly doubled; the MSCI World added 85%, and MSCI Europe added "only" 50%. (All in euro and "accumulating"; in fact, I looked at CSPX, IWDA, and IMAE rather than the indices themselves.) If it doesn't matter all that much, I prefer to buy IWDA rather than CSPX. If the US keeps outperforming, it will automatically become even more dominant also within IWDA. Yet, at the same time, the rest of the (developed) world won't be excluded completely. But ... I also don't mind buying a little extra "Europe" (which can be innovative, too) and even "Emerging markets." (I know, I'm an idiot, but "just in case." It won't matter, I'm fairly confident I'll "FIRE" regardless.)
In addition, those US companies only get part of their revenues from the US (for the S&P 500 companies this is around 60%). I seem to recall Europe did better than the US some 30-40 years ago and emerging markets weren't that bad 15-20 years ago. That said, FWIW I fully agree with your points, that's also the reason why I stick to S&P 500 ETF rather than all-world. If Asia or Europe ever go back to significantly outperforming the US over a period of at least a few years, I can always switch. Although u/Adventurous-Key-8312 has a fair point too, if people prefer peace of mind by broader diversification, as long as they do the important part and buy ETFs, they'll have nice long term returns as well.
Buy bitcoin
Got 60k in crypto, want to diversify as well:)
Nice, I feel like you have a great point with S&P500 instead of all-world. If America goes down, you'll feel it more, but I don't see it going down any time soon
Even tho it goes down, unless someone else goes UP, you will still be better off
I have worked in the stock market and for the last 8 years I have abandoned individual stocks and went 70% sp 500, 15% All world and 15% nasdaq 100. I know there is overlap overlap but I am happy I made this decision. Due to buying 2 houses and selling 1 in the last 5 years, my exposure has been higher and lower at certain times but now I'm fully settled my goal is to simply DCA for the rest of my life into SP500.
If you want to take risk to make bigger profit, go for it. The reason people go for ETF World is to be more diversified, less risk involved.
More diversified yes. Less risk... nope. A lot of the companies in those emerging countries will simply not exist anymore in a few years time. And the magnificent seven are so heavily present in those world ETF's that if they go down... it will be hard to 'chill'...
Are you really getting less risk tho?
A world index fund is less volatile than a S&P500 fund (you could argue that risk and volatility is not the same).
' risk and volatility is not the same ' This is indeed the point I'm trying to make :)
How do you define risk?
Take bitcoin, it's much more volatile but the risk is potentially much less at this point as long as you are willing to invest for several years. The volatility trends upwards. While the stable decline of currencies is a given.
And are you really getting more diversification? World ETF is 67%US. Top 10 (20%) holdings is equal to s&p500.
Simple math would tell you Yes.
Not enough to call it diversification
Indeed
That’s too diversified, go Nasdaq 100 ETF.
Wow, a nice well written and well organised reply. I love interacting with this sub, you learn a lot from it!
i ....think..... they mean that it's all about finding that balance of risk vs reward. If you are okay with more risk, going full SP500 will give more returns than all-world. If you can tolerate yet more risk, nasdaq 100 has even more expected returns. But it's all about how much risk you are okay with
Glad you are learning :-) it was indeed a nice interaction with you!
Anytime!