Investing in one world fund vs multiple regional ones

LHW99

JohnWinder said:

Good stuff. But what is the first question linking to volatility? And the second? Then I’ll have a shot at it.

1) "will I lose all my money?"

2) "will I always be able to have enough income to support my lifestyle?"

JohnWinder

‘1) "will I lose all my money?"

2) "will I always be able to have enough income to support my lifestyle?"’

I agree, short phrase terminology doesn’t easily capture the complexity of the issues. But I don’t agree ‘best return’ is problematic. We’re investing to get money without working; get someone else to do the work, we’ll take some of the surplus. It follows that ‘best return’ will be ‘the most money as a proportion of how much we’ve put at risk’ ie, x%/year return.

Return comes in two forms: dividends (and interest); capital growth (or loss, hopefully not). When businesses have a surplus to share among shareholders, it doesn’t matter to the shareholder’s wealth growth whether that surplus comes as dividend or share growth. The only difference of significance is that dividends can land in your bank account for grocery shopping, while share growth needs you to sell some of the shares to get the cash for groceries.

I don’t know if this is what you’re alluding to, but whether you take dividends or capital growth to buy your groceries the value of your share holding falls. When a company pays dividends the value of the company (and thus your share of it) falls by however much dividends it gives away. And when you reinvest the dividends but sell some shares for grocery shopping the value you hold in the company falls by the same amount as if dividends were cashed out.

I agree with you on risk.

Linton

JohnWinder said:

‘1) "will I lose all my money?"

2) "will I always be able to have enough income to support my lifestyle?"’

I agree, short phrase terminology doesn’t easily capture the complexity of the issues. But I don’t agree ‘best return’ is problematic. We’re investing to get money without working; get someone else to do the work, we’ll take some of the surplus. It follows that ‘best return’ will be ‘the most money as a proportion of how much we’ve put at risk’ ie, x%/year return.

Return comes in two forms: dividends (and interest); capital growth (or loss, hopefully not). When businesses have a surplus to share among shareholders, it doesn’t matter to the shareholder’s wealth growth whether that surplus comes as dividend or share growth. The only difference of significance is that dividends can land in your bank account for grocery shopping, while share growth needs you to sell some of the shares to get the cash for groceries.

I don’t know if this is what you’re alluding to, but whether you take dividends or capital growth to buy your groceries the value of your share holding falls. When a company pays dividends the value of the company (and thus your share of it) falls by however much dividends it gives away. And when you reinvest the dividends but sell some shares for grocery shopping the value you hold in the company falls by the same amount as if dividends were cashed out.

I agree with you on risk.

a) I dont think you can talk authoritatively about other people's motivations.  Yours may be maximising long term return - it is not for me to say you are wrong in doing so.  Perhaps there is a national culture aspect to it.

For me the motivations are, in order
1) Ensure that our contentment/happiness/well-being is not restricted by lack of money either for day-to-day living or one-off extravagences.
2)  Ensure that (1) will continue to be the situation for the rest of our lives barring extreme circumstances.
3) Given (2) is satisfied to ensure that the money is available when needed with minimal hassle..

Beyond that I see no need for further investment growth.  Return on Investment is not a useful metric for the objectives.  St Peter does not check your bank balance at the Pearly Gates and I have no wish to create a mausoleum in my memory.

Of course one can see investing purely as some sort of game or intellectual challenge.  Fine, but perhaps better not to let it take over your life, especially if it compromises the 3 primary motivations..

b) On dividends vs capital growth

Diviends may not be necessary for (1) but their stability compared with equity prices is helpful in the short/medium term for  (2) and I would say they are essential for (3) unless one buys an annuity.

JohnWinder

I don’t think we have to invoke trans-Atlantic differences to address this; my poor writing offered plenty of scope for confusion. Sorry, I should have been talking about ‘best return’ FOR A SPECIFIC LEVEL OF RISK, and that ‘best return’ will be the most money as a proportion of how much we put at THAT LEVEL of risk ie x%/year return.

It would be senseless to me that should two people, both not wanting to go beyond the same level of risk with their investing, one of them would want less return than the other or accept less than the ‘best return’. To do so would mean needing to invest for longer to get the same absolute return, thus putting capital at risk when it need not be, or simply taking more risk than needed when accepting less than ‘best return’. But open to a better understanding.

‘1) Ensure that our contentment/happiness/well-being is not restricted by lack of money either for day-to-day living or one-off extravagences.

2)  Ensure that (1) will continue to be the situation for the rest of our lives barring extreme circumstances.

3) Given (2) is satisfied to ensure that the money is available when needed with minimal hassle..

Beyond that I see no need for further investment growth.’

The discussion hasn’t been about ‘growth’, it’s been about returns, they’re different.

‘Return on Investment is not a useful metric for the objectives (1 to 3).

Perhaps, but if we need more for our living expenses than provided for by a zero interest savings account, the 1) to 3) are all about returns, and return on investment is useful to the extent that it can be accurately measured, less prone to bias and allows easy comparison of investment options.