A friend of mine asked me how the MSCI World has performed against the S&P 500 in the past.
He was deciding whether there was a good reason to own a global large-cap and mid-cap index rather than a pure US index ETF.
MSCI only has data for various developed countries starting in 1970, so we can only compare performance over the last 52.5 years.
We can compare the results by taking the return of the S&P 500 minus the return of the MSCI World Index. When returns are positive, the S&P 500 outperforms the MSCI World. When returns are negative, the S&P 500 underperforms the MSCI World.
Since the US has made up 40% or more of the MSCI World at various points in the past, we can see how different international stocks in developed countries (not including emerging markets) are compared to the US.
Here’s how the S&P 500 compared to the MSCI World for the year, month-by-month:
There are periods when the S&P 500 outperforms the MSCI World, and vice versa.
Most of us tend to have a recency bias, and this would be heavily influenced by the fact that the MSCI World has always compared poorly to the S&P 500.
Now let’s look at the ten-year cumulative return (as opposed to the annualized return) as we go month-by-month:
The S&P 500 has had a stunning decade of performance.
Given this data, most people might conclude that they should just invest in the S&P 500 index.
But if I got the data right, it shows periods where the S&P 500 has underperformed over a decade. I wonder how many people can withstand ten years of underemployment.
There are also periods when the MSCI World lags by ten years.
Be that as it may, my strong conclusion is that most investors cannot sustain ten years of underperformance unless they come to their senses and realize that they cannot simply price based on this comparison.
You can purchase an ETF that tracks both the S&P 500 and the MSCI World that is domiciled in Ireland through Interactive brokers in a very cheap way. The preferred ticker for the S&P 500 is CSPX and MSCI World is SWDA.
I have several other articles on data-driven Index ETFs. They are suitable if you are interested in building a low-cost, well-diversified, passive portfolio.
You can check them out here:
- IWDA vs. VWRA – Are there significant differences in performance between the two low-cost ETFs?
- The beauty of high-yield bond funds – what the data tells us
- The search for higher yields in emerging market bonds
- Should we add the MSCI World Small-Cap ETF (WSML) to our passive portfolio?
- Overview of LionGlobal Infinity Global – an MSCI global equity fund available for CPF OA investment
- Actively managed funds versus passively managed funds over the long term – The facts
- International actions against the United States until 2010 – Data
- Differences in performance of the S&P 500 index against the MSCI world index over one and ten years – data
Here are a few extras to help you improve low-cost passive ETF investing:
Those who want to adjust their portfolio for better returns believe that certain factors such as value, size, quality, momentum and low volatility will perform well over time and are willing to collect these factors through ETFs and funds over time. time, here are some articles to help you get started with passive factor investing:
- An Introduction to Factor Investing / Smart Beta Investing.
- IFSW is the iShares MSCI World Multi-Factor ETF
- IWMO – iShares MSCI World Momentum ETF
- Invest in companies with strong economic moats through MOAT and GOAT.
- Robeco Research on 151-Year Low Volatility Ratio – Market Returns With Lower Volatility That Has Performed Well in Different Market Regimes
- JPGL vs. IFSW vs. Dimensional Global Core vs. SWDA – 22 Years of 5-Year and 10-Year Rolling Returns Performance Comparison
I invested in a diversified portfolio of exchange-traded funds (ETFs) and stocks listed in the US, Hong Kong and London.
My preferred broker to trade and protect my investments Interactive brokers. Interactive Brokers allows you to trade in the US, UK, Europe, Singapore, Hong Kong and many other markets. Options too. No minimum monthly payments, very low forex commissions for currency exchange, very low commissions for different markets.
To learn more visit Interactive Brokers today.
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