New investor - MSCI World and S&P 500

Greetings everyone,

I am working full time for about 2 years now and I am thinking about starting to invest. I looked up a lot of things but since there are so many stuff to learn and what not I wanted to ask the community’s opinion.

I am from Europe (Slovakia) and I would like to invest every month about 150-200 euro to stocks. At first I found s&p 500 very good since everyone recommends it but after looking a bit more into indexes i think buying world index would be a better choice? Since S&P 500 is betting everything on the US economy if i understood it correctly.

Is buying the ETF in Euros better than in the US Dollars in the long term hold? I was thinking of these 2 ETFs World (EUNL vs VGWL) and also for the S&P 500 (IUSA vs VUAA) but I can’t decide which one should i go for and whether it’s the correct move.

Thank you a lot for your answers, looking forward to the discussion!

Am from UK and my focus is on the UK market as i feel it’s undervalued - no advice intended

If i have a choice between sterling and other currencies in buying stock/etf , i would choose my local currency to avoid fx fees personally

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Exactly this.

JustETF is a good resource to look at the different ETFs, and their fees.

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If you are in EUR country, choose EUR denominated ETFs, it would save you FX fees. And the final return will be same.

If you are starting investing and want a buy and hold portfolio, start simple or KISS (Keep It Simple and Stupid).

A Global ETF would already have between 40-50% in US stocks, so an extra US ETF will overexpose you to US stocks (although most US companies are multinationals). Most of the US stocks in Global ETFs include the largest US companies, if you buy an extra US ETF, you will have a lot of the same US companies.

Another advantage of Global ETFs is the currency risk of the underlying stocks, as it would have stocks from around the world and denominated in several currencies, including EUR, mitigating the currency risk. If you have an US ETF, you will be exposed USD currency risk.

A Global ETF have the theoretical advantage of being less risky than a regional or a country-specific ETF, it has a global scope, with several countries/regions, diluting their specific exposure (risk/return).

For example, I use the EUNL as “savings account” (as I have lot higher risk appetite and invest also in other high risk assets), I know other people that buy this ETF (some as IWDA, the Euronext Amesterdam listing) as buy n’ hold/retirement strategy.

Whilst i do agree ETF is the best strategy for a new beginner and also it makes more sense buying the haystack than trying to find the needle in the haystack. I sometimes question the asset allocation of most ETF’s as the “Titans” gets the most allocation regardless of how many times these so called “Titans” have come and gone as per history.

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This is a very valid concern; a quick look at the “diversification” of the S&P500 or the Nasdaq 100 is absolutely daunting.

That being said, it also serves a nice beneficial side-effect: having an index weighted by market cap means there is no rebalancing ever needed as these assets grow and shrink, only when one gets kicked out and replaced by an other one.

Selling events happening within an ETF is indeed a taxable event! More frequent rebalancing for an equally weighted index for example means a much bigger tax bill for the investor, which increases friction in his allocation of capital.

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sounds like a tax bill for the ETF manager, not the investor. the result would be the value of the ETF fluctuating to match those taxes being removed from the pool, but if you just buy into the ETF and sit on it, you shouldn’t be charged capital gains until you sell it (unless your government is like Ireland…)

Being in a country with no capital gain tax, I don’t know the details on the declaration.

But capital gain taxes incurred inside an ETF are the investor’s liability.


One of many sources

https://www.investopedia.com/ask/answers/110315/do-etfs-pay-capital-gains.asp

Edit: this article mention it being rare, on the assumption that most ETF are following a market cap weighted index. But for alternative weighting system, this becomes a much stronger concern for ETFs held in a taxable account.

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then it’s a rarity that people usually don’t need to really worry about, good to know. In my case I only invest through my stocks ISA so CGT won’t concern me even if they pass it through. I think a lot of people holds ETFs in their ISAs as well as they are more stable for that “retirement plan” portfolio :wink:

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Of course. This was just a precision to @imichael2006’s post regarding the lack of diversity on a market cap weighted fund.

One of the reasons of their growing popularity is not only the returns of its benchmark, but also its tax-savyness against other kind of weighting.

Just an extra bit of information :yum:

You do get equal weight as well as mcap weighted ETFs.

You are right though, some studies have shown when certain markets performance drifts over 40% away from the composite they generally realign.

Between the start of 1999 and 25 February 2021, the maximum time we have data for both indices, the S&P 500 provided a return of 392.1%, while the S&P 500 Equal Weighted provided 720.9%.

https://www.ii.co.uk/analysis-commentary/why-equal-weight-etf-isnt-just-short-term-play-ii515317

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Many good points already mentioned.
If I may add, betting on the S&P 500 is betting on (some of) the largest, global companies out there, many of which are VERY profitable. They are very powerful and influence politics and their revenue is diversified across the globe. I don’t think S&P is a US pure play as most companies listed are very global

You’d be pretty safe just investing in the S&P 500 and nothing else over a long period of time I reckon

I also saw several studies that equal-weighted ETFs (S&P 500) had better performance than the market-weighted ETFs.

Although I still didn’t saw (also I didn’t search for it) studies showing/comparing equal-weighted ETFs vs. market-weighted ETFs in other indexes/countries/regions/global. So I don’t know if equal-weighted ETFs also beats market-weighted ETFs outside the S&P 500 index or it just does it in the S&P 500.

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