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

EthicsGradient

InvesterJones said:

TheBanker said:

Postik said:

leosayer said:

OP you haven't given any reasons why you would ignore the whole rest of the world when investing. 

The US may continue its stellar growth for many years but it may not.  Do you really want to miss out if another country outperforms the US in future?

@leosayer only reason I went with the S&P500 is from various YouTube videos and articles I read over Christmas.  So I went ahead and bought £200 worth.

I'm using Trading212 and have now moved some cash into an ISA there and can begin investing it.  At the last moment I have started reading about using an All World fund instead.

I do believe that the current tech and AI bubbles could burst, or at least cool.  However when you look at some of the other companies making up the S&P500, I am not sure they will ever be de-throned, at least not in my lifetime.

Did your research tell you that around a third of your S&P500 tracker will be invested in just seven companies - Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Meta Platforms, and Tesla? Even with an All World tracker, 20% of your investment is concentrated in these seven.

If I remember, the FTSE100 is pretty concentrated too. As are some other markets.

Pretty, but the largest 7 in the S&P 500 (which includes Broadcom, but not Tesla - many people haven't kept up with recent valuations) are all highly tech-related - especially AI. The worry is that AI, which has been a major factor in the big 7/8's rise in valuation, will turn out to have been overhyped.

In comparison, the top 8 of the FTSE 100 are

2 Pharmaceuticals, Banks, Oil & Gas, Aerospace, Tobacco, Personal Care Products, and Mining

spark1

All world index’s are 60%+ USA therefore when the S&P 500 dips so does the all world. I’ve set my youngest up with 50% S&P 500 and 25% FTSE 100 and 25% Europe Ex UK in a pie and it’s up 5.6% since August which ain’t bad. Started her early, it’s a long game if you can get 30/40 years in an isa then there’s no reason why you can’t have a massive tax free pot in years to come.
I’ve got an All world in a separate invest account  and deposit every day as an experiment, that’s how I know that the all world and S&P 500 go up and down together. 

My main pie is 60 % FTSE 100 and 40% Europe Ex UK and that’s going ok.
Then I have another pie made up of all FTSE 100 companies looking for regular dividends and growth and that’s going ok. 

Nothing wrong with UK and European shares, steady, might not grow quick but don’t drop quick either.

If the USA markets collapse then other markets around the world can go with it, its all interlinked.

masonic

I wouldn't regard UK and European stocks as not being capable of dropping quick. They have done in the past and surely will do in the future. There are circumstances where they could drop without taking the US with them, so I'd not want to focus entirely on any one region of the world.

spark1

masonic said:

I wouldn't regard UK and European stocks as not being capable of dropping quick. They have done in the past and surely will do in the future. There are circumstances where they could drop without taking the US with them, so I'd not want to focus entirely on any one region of the world.

I’m not telling you to focus entirely on any one region of the world, you invest how you choose.

masonic

spark1 said:

masonic said:

I wouldn't regard UK and European stocks as not being capable of dropping quick. They have done in the past and surely will do in the future. There are circumstances where they could drop without taking the US with them, so I'd not want to focus entirely on any one region of the world.

I’m not telling you to focus entirely on any one region of the world, you invest how you choose.

No disagreement there. People need to take personal responsibility and nobody can give them investment advice. My point was that "might not grow quick but don’t drop quick either" isn't a reasonable characterisation of UK/Europe stocks. They can and do drop quickly at times.

hallmark

FWIW I'd vote for global tracker.  The S&P500 just looks too expensive based on almost any valuation criteria (to me).

Also when you break down the numbers, the exposure to AI is pretty eye-watering.  Mag7 is currently over a third of the index.  So Lets say you had a £500K SIPP (I'm sure plenty on here have more than that). If it's all S&P500 that's maybe £170K essentially in AI stocks (or at least stocks who's current valuation is largely down to AI).

Now that MIGHT turn out to be a winning formula, but I'm pretty sure the kind of person who wants to be 100% in an index tracker isn't the kind of person who wants a third of their pot betting on AI.

GazzaBloom

It's also worth checking yourself how much the current anti Trump rhetoric, quite rightly due to his foreign policy activities, is generating anti US sentiment and a “sell US stocks” mantra. Despite what Trump does with foreign policy, many US companies are continuing to successfully and profitably go about their business serving 300+ million Americans and more hundreds or millions, if not billions of customers around the world.

The bulk of stock market returns in history have been generated by a handful of companies. Currently the top 10 is filled with US tech mega caps, in 1989 it was Japanese banks and industrials.

Yes, the top US stocks are highly valued, but famous short seller, Michael Burry, won't bet against most of them, only Nvidia, as he sees strong businesses that generate revenues outside of AI related activities in Apple, Meta, Alphabet and Amazon (he sees Tesla as hugely overvalued but won't short them).

There is a lot of media speculation about an AI bubble and parallels drawn with the 2000 dot com boom and bust, and since the end of 2024 there has been a flow of money into undervalued or safe haven assets such as emerging markets, UK and European stocks and gold/silver, however, black swan events are rarely sign posted or predicted by the media and it is not inconceivable that the next major market crashing event could be something unforeseen and unrelated to AI. If, and more likely when, it happens the current investing landscape could change dramatically and very quickly.

So, we can take a couple of approaches, attempt to market time and shift your portfolio around according to which way you think the wind will blow or buy and hold. However you invest it's worth focussing on making sure you have enough fixed income or risk off assets to cover annual spending needs for the foreseeable future and leave the rest invested for the long term (20/30/40 years).

In retirement, the risk off can be fixed income streams such as state pensions, annuity, defined benefit pension, fixed term bonds/gilts or cash. While working, the fixed income is your wages so you can potentially have more risk on money while accumulating.

For the risk on investments, for a buy and hold hands off approach, following this is going to serve well with decent returns over the long term but with some serious value drops along the way:

Minimalist Investing Philosophy: own the world, keep fees low, stay the course.

 

Postik

Thanks for everyone's replies, which I have read in detail and appreciate.  I went ahead and put some into a Vanguard All-World ETF.  I have kept my S&P500 with £200 in it and will leave that as is, just to see what happens to it.

As many have pointed out it is still far from risk free as around 60% of the All-World is effectively made up of what's in the S&P500, and that is propped up by the biggest 7 tech companies.

For now I am happy with this but will continue to try and learn more.

Domnhallaich

Hi All,

I created my own thread but was directed here - hope you don't mind be hijacking as I have a very similar query and have been reading through this thread.

I am a 45 yo who has decided to start investing, so that I have more money to enjoy in retirement or, leave it to my kids if I pop it before I get to enjoy it.  But I am feeling a little overwhelmed at the options.

One thing that seems to be a no brainer is the setting up of a Stocks and Shares ISA and investing in Accumulating ETFs, so that any dividends automatically get re-invested which should help with compound interest.  My understanding is that there will be no tax to pay because its under the ISA.

Assuming I am not mistaken (and please correct me if I am) my first challenge is deciding where to invest.  So far I have heard two things:

1. S&P 500 has performed incredibly well over the past 10-15 years.

2. You should not put all yours eggs in the S&P 500 basket.

What is the best approach here? And what else should I be looking at, besides stocks/ETFs because I saw someone say that to be risk diverse, you need to look at alternatives, like metals, bonds, gilts etc.

Please help.

Postik

Domnhallaich said:

Hi All,

I created my own thread but was directed here - hope you don't mind be hijacking as I have a very similar query and have been reading through this thread.

I am a 45 yo who has decided to start investing, so that I have more money to enjoy in retirement or, leave it to my kids if I pop it before I get to enjoy it.  But I am feeling a little overwhelmed at the options.

One thing that seems to be a no brainer is the setting up of a Stocks and Shares ISA and investing in Accumulating ETFs, so that any dividends automatically get re-invested which should help with compound interest.  My understanding is that there will be no tax to pay because its under the ISA.

Assuming I am not mistaken (and please correct me if I am) my first challenge is deciding where to invest.  So far I have heard two things:

1. S&P 500 has performed incredibly well over the past 10-15 years.

2. You should not put all yours eggs in the S&P 500 basket.

What is the best approach here? And what else should I be looking at, besides stocks/ETFs because I saw someone say that to be risk diverse, you need to look at alternatives, like metals, bonds, gilts etc.

Please help.

Same boat as me really.

I went with S&P500 at first because it's what seemed to be recommended online, but I think there is a fair amount of American bias online.  If we lived in America it would probably be a no brainer investing in your own country.

I have gone with an All-World ETF instead which is still 60% USA, and the remainder rest of world.

As I understand, both the S&P and All-World have always gone up over the last 100 years, and any dips and crashes have been recovered from in the longer term.

Until I know more about what I'm doing I will invest regular amounts in my All-World fund for the time being.  I am doing this via the Trading212 app which has made it incredibly easy to get started.

I will only buy individual shares for fun, not as an attempt to get rich.