ETF's, can't decide between S&P500 or All World

Postik

I'm new to investing, always played it safe with high street saving accounts, cash ISA's, etc.

I've been reading a lot about it and dabbling with the Trading212 app.  I'm ready to start putting small lump sums into an ETF over a long period (20+ years) and had picked the S&P500 based on, basically what everyone else online seemed to be doing.

Now I am reading on Reddit that a lot of people are preferring an All World ETF to try and spread the risk away from being entirely invested in the USA.

My novice observations so far:

1. Vanguard's S&P has just over 500 US companies with 7 of them making up a big majority of the share.

2. Vanguard's FTSE All World has over 3,000 companies with around 60% of them being USA.

3. We tend to think of a company being "USA" or "not" but when you look at the likes of Coca-Cola, McDonalds, Microsoft, etc really they are international.

4. If the S&P500 crashes badly, the chances are an All World fund would too.

I really cannot decide what to do.  I personally feel like the S&P500 is still a relatively safe bet regardless of what happens.  But I cannot help but be swayed toward an All World ETF.

I just wanted a fresh prespective on things outside of Reddit.

Thank you!

jaypers

There is no right or wrong answer and you’ll get a lot of different opinions on this. Are you going all in or drip feeding? If all in, how significant is your investment? If it is significant, you want to pick some other funds too to balance the risk across a variety of different things/regions/sectors.

Long term, in all likelihood you’ll win. As long as you’re not in for the short term with unrealistic expectations you’ll be fine. 

Postik

@jaypers thanks for your reply.  I'm not going all in at this stage, will use pound cost averaging and pay in an amount each month, probably around £500.  However I'd like to get the pot to £20k+ eventually.

I bought £200 of the S&P500 so far.  I've spent so long looking into it all, I just want to setup a monthly payment and forget about it for a while!  But I am dithering over S&P500 and All World.

jaypers

Postik said:

@jaypers thanks for your reply.  I'm not going all in at this stage, will use pound cost averaging and pay in an amount each month, probably around £500.  However I'd like to get the pot to £20k+ eventually.

I bought £200 of the S&P500 so far.  I've spent so long looking into it all, I just want to setup a monthly payment and forget about it for a while!  But I am dithering over S&P500 and All World.

Why not do both 50/50 for a while? Apart from anything else, will be fun to see which performs best.

Postik

@jaypers I've seen a few people do this thinking they are diversifying, but with the S&P500 being 100% USA, and the All World being 60% USA, if you buy 50/50 of both you still end up with 80% USA

El_Torro

The only time buying the S&P 500 makes sense is when you are also buying other regions. A European tracker, Asia Pacific, Japan, Emerging Markets, etc.... Putting 100% of your investment into the S&P 500 makes little sense, especially for someone who does not live in the US. 

A global tracker is generally fine, as long as you plan to stay invested for 10 years or more. You might want to invest in a multi asset fund instead if you want something less volatile, though the long term returns will be less than a global tracker.

Some people are currently reducing their exposure to the US, since, as Postik points out, the US makes up over 60% of a global tracker. This can be done by adding regional trackers on top of a global tracker. I haven't done this myself but can see the logic in it. 

Albermarle

 I'm ready to start putting small lump sums into an ETF over a long period (20+ years) and had picked the S&P500 based on, basically what everyone else online seemed to be doing.

On this forum you will not get much positive reaction to being 100% in the S&P 500 . Not just today or this year but always. Simply because it is not diversified enough and in the long term . However this would apply especially currently due to the high valuation of the Mag 7 .

Many on the forum are invested in Global index trackers, but you need relatively strong nerves to see out the ups and downs of being 100% equity. The majority of the public are more 'medium risk' types. 

dunstonh

Now I am reading on Reddit that a lot of people are preferring an All World ETF to try and spread the risk away from being entirely invested in the USA.

Global has always been preferable and the most suitable.   However, some newer, inexperienced investors relied on recency where the US had been better than global in this cycle and piled into US.       That worked until the end of 2024 but since then US has underperformed global.  Historically US vs global ex US cycle.   We could now be in the cycle that favours global but only time will tell.

4. If the S&P500 crashes badly, the chances are an All World fund would too.

Yes.  However, the depth of a tech crash (aka dot.com 2) would be greater on the S&P500 and the recovery would be longer.   In dot.com 1, everything went down but the main market recovered within 4 years.  Tech took over 12 years.

I really cannot decide what to do.  I personally feel like the S&P500 is still a relatively safe bet regardless of what happens.  But I cannot help but be swayed toward an All World ETF.

It is an obvious solution. it should be global.   

It is bad quality investing to go 100% into one country/region.

InvesterJones

I think it can be helpful to think a global tracker isn't simply to avoid losses via diversification - as you point out a crash will also bring down a global tracker which is (currently) made up largely of US stocks - however what global trackers do is help make sure you capture the upside of the next 'winner' without you having to know in advance what that winner will be. Take last year - the US index underperformed the UK, emerging markets, and I think Europe - as a result you'd have got nearly double the return in an all country world index compared to S&P 500.

saajan_12

Postik said:

4. If the S&P500 crashes badly, the chances are an All World fund would too.
Thank you!

InvesterJones said:

I think it can be helpful to think a global tracker isn't simply to avoid losses via diversification - as you point out a crash will also bring down a global tracker which is (currently) made up largely of US stocks - 

but its not all a binary outcome, ie whether in index crashes or not. A more diversified index may decrease but less so than one ore concentrated in an area if that area ends up havign losses. You may lose half your money instead of all of it - surely you can see one is better. It absolutely is about avoiding losses via diversification (as well as picking up gains). 

Overall the point is what are you aiming for
-- are you looking for something that will appreciate in line with the world, then get an All World. If you don't like the split of that all world index, then find another or create it yourself eg AllWorld + smaller holdings in indices from non-US regions. 
-- are you speculating that the US will appreciate more than the rest of the world, and have enough other funds not invested in US to tide you over incase your speculation is wrong and it crashes? 
-- will your long term expenses by US centric, meaning that's the economy you need to track and are unaffected by the rest of the world? 

PixelPound

What platform? Some have annual platform fee (fixed or %), some free. Some have a transaction fee to trade, some free.