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

masonic

SneakySpectator said:

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.

A search engine would furnish you with the information you seek. Here is the top result when I searched for you:

https://www.hartfordfunds.com/dam/en/docs/pub/whitepapers/CCWP014.pdf

I've seen substantial underperformance of my S&P500 tracker vs European tracker over the past 6 months, so who knows, perhaps the cycle is already at an end, or perhaps not.

Linton

SneakySpectator said:

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.

Any use of historic data to predict the future wont provide better than 50% chance of succes except to confirm that prediction. To me the 2000-2008 period is recent

 You can cut and paste the numbers from https://curvo.eu/backtest/en/compare-indexes/msci-world-vs-sp-500?currency=gbp into a spreadsheet to make comparisoms back to 2000 

booneruk

SneakySpectator said:

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.

Pensioncraft on Youtube has discussed times when the US has underperformed the rest of the world and shown historic graphs in a few of his videos. There is certainly nothing to stop the US underperforming for a long period again, in which the case you'll be happy being in a global tracker.

I've had a quick skim, I think this is the video I watched (though I watch a lot)

https://www.youtube.com/watch?v=WQ2CbTnOTz8

boingy

SneakySpectator said:

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.

If you think the S&P500 is the right index to track then you should probably do it. It's only money.

masonic

Overall, I think if your considered opinion is that S&P500 always wins if held long enough, you should go with it, as it will feel worse to be proven right and lose out because you listened to others than to be proven wrong.

Hoenir

17 years isn't exactly recency bias. 

When did the QE start and end........  Will go down as the most abnormal period in financial history. Though many still consider it normal and expect interest rates to return to extremely low levels. Also that 12% plus market returns are normal. In for a shock I'd suggest. 

Tucosalamanca

This also leads back to yesterday's thread, when @sneakyspeculator was querying why RR / European defence stocks have been rising.
For those paying attention, you can almost see the bias changing on individual stocks, or more broadly with STOXX vs SPY.
The recent shift in capital flows from US to Europe is well reported at this point.

In the year-to-date period, ^STOXX achieves a 8.14% return, which is significantly higher than SPY's 0.58% return. Over the past 10 years, ^STOXX has underperformed SPY with an annualized return of 3.22%, while SPY has yielded a comparatively higher 12.71% annualized return.

Which illustrates why a global fund might be preferable, lower volatility, lower risk

Hoenir

Tucosalamanca said:

Which illustrates why a global fund might be preferable, lower volatility, lower risk

The way that new monies are invested simply drives the same major stocks up and up in price. There's no price discovery. 

SneakySpectator

booneruk said:

SneakySpectator said:

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.

Pensioncraft on Youtube has discussed times when the US has underperformed the rest of the world and shown historic graphs in a few of his videos. There is certainly nothing to stop the US underperforming for a long period again, in which the case you'll be happy being in a global tracker.

I've had a quick skim, I think this is the video I watched (though I watch a lot)

https://www.youtube.com/watch?v=WQ2CbTnOTz8

That video was amazing thank you for linking it. Pretty much put my regret to rest. 

london21

I felt the same and posted something similar in January. I'm invested in a global index, but I sometimes wonder if I made the right choice.