30 Nov 2020
Why do people advocate buying S&P ETFs instead of a global ETF? Is there a great degree of confidence that the US stock market will continue outperforming the rest of the world in the future?
What are the advantages of buying into S&P ETFs instead of a global ETF?
For a company to enter S&P 500, they need to be measured according to performance metrics which means a higher tendency for better growth in the long run because they are "flagged" as worthy enough to be part of the index. World ETF on the other hand simply buys into everything, so your good stocks, mediocre stocks and trash stocks are all owned under the same ETF, and returns may be sub-par depending on what you choose.
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I totally understand where you are coming from, I had this question when I'm starting to invest too.
S&P500 has potentially higher returns compared to global ETF. Some people feel that the S&P500 is diversified enough. S&P500 index is commonly talked about in books, youtube, news, etc. This might be a reason why more people understand and invest in S&P500 ETF like VOO. I mean there's no right or wrong.
For me, I prefer Global ETF due to the diversification. US stock market performed well in the past but this does not mean they will continue to performing well. Investing globally will also reduce risks such as currency risk and political risk.
The core of my portfolio is in Vanguard total world stock index ETF.
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Yes U.S. market is the most dynamic
China rapidly becoming a competitor...
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