Why do I invest in a global index when the S&P500 always wins?

SneakySpectator

I'm invested exclusively in VWRP which is a global index fund. I chose this because I read countless articles about concentrating all your money to one country can be risky, even if that country is the United States. 

And it made sense at the time, I thought I was being smart and risk averse by opting for a more balanced global index but at the years tick by I can't help but regret my decision. It's not like VWRP isn't going up, it is, but the S&P500 is going up more. 

Look at the chart of VWRP/SPY 

The S&P500 has done 15.40% better than VWRP, which for an index fund is pretty remarkable, that 15.40% difference is essentially the rest of the world underperforming relative to the US. 



You can see that 35.5% of the fund is outside the US, which is what's causing it to drag compared to 100% US fund. 

People have also told me that the global market goes through cycles where the US does well, then the rest of the world does well while the US doesn't do so well etc. Basically investors cycle from US > rest of world > US > rest of world etc. 

But I'm not really seeing it? To illustrate this, here's a screenshot of the Vanguard total world stock VT/SPY

 
So if you invested in VT since 2008 rather than the SPY you'd be 46% worse off. That is staggering. So this current US cycle has lasted 17 years now... Where is this market cycle / rotation everyone speaks about?

kempiejon

Well, over 5 years it looks like my India index tracker has beaten the S&P500 up 110% vrs 80%. and India is only 4% of global so missed out on that performance by being lower weighted. Oh well.

jackrack

Similar situation here, started £500 a month into VWRL quite some years ago now sort of kicking myself? When tariff situation hit VWRL dropped about the same amount as the S&P did as well?! 

eskbanker

SneakySpectator said:

The S&P500 has done 15.40% better than VWRP

Are you comparing S&P500 as expressed in $ versus VWRP expressed in £, i.e. ignoring the effect of exchange rate fluctuations?

masonic

I'm having a sense of deja vu.

Why not NASDAQ if you are trying to select the winning index?

InvesterJones

If you were trying to pick the single best winner over a specific timeframe in the past then why go as broad as the S&P500? - you could have picked Nvidia or Monster drinks or something and smashed the S&P500 even. 

But we don't get to pick retrospectively. What performs well in the past doesn't always in the future, which is why you diversified to an index fund in the first place wasn't it?

Hoenir

SneakySpectator said:

 
So if you invested in VT since 2008 rather than the SPY you'd be 46% worse off. That is staggering. So this current US cycle has lasted 17 years now... Where is this market cycle / rotation everyone speaks about?

If you held the US markets in 2000. It would have taken 13 years to recover to previous highs (in $ terms). Markets have a nasty habit of ripping the shirt off your back just as you think that you are doing so well. Markets are cyclical. Driven fundamentally by momentum (i.e.money). Whereas as the underlying companies you are investing in. Are ultimately constrained by their own financial performance. There are only so many stunts that can be pulled to enhance profitability. 

“In the short run, the stock market is a voting machine. But in the long run, it is a weighing machine.”

Ben Graham, Economist  (author of the Intelligent Investor). 

Why did you start in 2008? The period since was abnormal in historical terms. Now is normality again. Back to the pre 2007 era. 

Go back to the Asian debt crisis of 1997 and there's another trigger for the buying of US assets such as Treasuries over the past few decades. Cycles can last a long time. Though only takes a trigger such as events over the pond for the entire trade to be flipped on it's head overnight. Risk premiums exist for good reason. 

Linton

SneakySpectator said:

I'm invested exclusively in VWRP which is a global index fund. I chose this because I read countless articles about concentrating all your money to one country can be risky, even if that country is the United States. 

And it made sense at the time, I thought I was being smart and risk averse by opting for a more balanced global index but at the years tick by I can't help but regret my decision. It's not like VWRP isn't going up, it is, but the S&P500 is going up more. 

Look at the chart of VWRP/SPY 

The S&P500 has done 15.40% better than VWRP, which for an index fund is pretty remarkable, that 15.40% difference is essentially the rest of the world underperforming relative to the US. 



You can see that 35.5% of the fund is outside the US, which is what's causing it to drag compared to 100% US fund. 

People have also told me that the global market goes through cycles where the US does well, then the rest of the world does well while the US doesn't do so well etc. Basically investors cycle from US > rest of world > US > rest of world etc. 

But I'm not really seeing it? To illustrate this, here's a screenshot of the Vanguard total world stock VT/SPY

 
So if you invested in VT since 2008 rather than the SPY you'd be 46% worse off. That is staggering. So this current US cycle has lasted 17 years now... Where is this market cycle / rotation everyone speaks about?

If you had invested equal sums of money in the S&P 500 and NSCI World indexes at the end of 2001 the S&P 500 would have lagged the MSCII World until 2013.

Beware recency bias.

SneakySpectator

InvesterJones said:

If you were trying to pick the single best winner over a specific timeframe in the past then why go as broad as the S&P500? - you could have picked Nvidia or Monster drinks or something and smashed the S&P500 even. 

But we don't get to pick retrospectively. What performs well in the past doesn't always in the future, which is why you diversified to an index fund in the first place wasn't it?

Well I was never going to pick an individual stock because for me that really is too risky. But I was on the cusp of just going all in on the S&P every month for 25 years, but I instead committed to VWRP because I thought it was safer. 

But in reality if the US tanks, the entire world tanks since the entire world depends on the US for pretty much everything. Look at what happened to the world just because Lehman Brothers, an American bank went bust. It dragged the entire world into a major bear market.

SneakySpectator

Linton said:

SneakySpectator said:

I'm invested exclusively in VWRP which is a global index fund. I chose this because I read countless articles about concentrating all your money to one country can be risky, even if that country is the United States. 

And it made sense at the time, I thought I was being smart and risk averse by opting for a more balanced global index but at the years tick by I can't help but regret my decision. It's not like VWRP isn't going up, it is, but the S&P500 is going up more. 

Look at the chart of VWRP/SPY 

The S&P500 has done 15.40% better than VWRP, which for an index fund is pretty remarkable, that 15.40% difference is essentially the rest of the world underperforming relative to the US. 



You can see that 35.5% of the fund is outside the US, which is what's causing it to drag compared to 100% US fund. 

People have also told me that the global market goes through cycles where the US does well, then the rest of the world does well while the US doesn't do so well etc. Basically investors cycle from US > rest of world > US > rest of world etc. 

But I'm not really seeing it? To illustrate this, here's a screenshot of the Vanguard total world stock VT/SPY

 
So if you invested in VT since 2008 rather than the SPY you'd be 46% worse off. That is staggering. So this current US cycle has lasted 17 years now... Where is this market cycle / rotation everyone speaks about?

If you had invested equal sums of money in the S&P 500 and NSCI World indexes at the end of 2001 the S&P 500 would have lagged the MSCII World until 2013.

Beware recency bias.

17 years isn't exactly recency bias. Do you have a chart similar to mind that goes back further? The furthest I could find that displayed rest of world / spy chart like that above is limited to 2008.

Hoenir

SneakySpectator said:

InvesterJones said:

If you were trying to pick the single best winner over a specific timeframe in the past then why go as broad as the S&P500? - you could have picked Nvidia or Monster drinks or something and smashed the S&P500 even. 

But we don't get to pick retrospectively. What performs well in the past doesn't always in the future, which is why you diversified to an index fund in the first place wasn't it?

But in reality if the US tanks, the entire world tanks since the entire world depends on the US for pretty much everything. Look at what happened to the world just because Lehman Brothers, an American bank went bust. It dragged the entire world into a major bear market.

GFC started in 2007. That's when markets peaked. Plenty of events major highlights were. BNP Paribas was the first to report liquidity issues in the August. Same month the first US mortgage company filed for banruptcy. Northern Rock had a run in the September. After a six month UK Treasury department investigation of it's books. Was immediately nationalised in March 2008 as found to be insolvent. Required a £50 billion funding loan. Also in March 2008 Bear Sterns facing bankruptcy was sold to JP Morgan. With the US Federal Reserve underwiting Bear Sterns bad loans. 

The ROW is already adjusting to reduced dependence on the USA. The post WW2 world has been blown apart by the Trump administration.