One of my friends asked me how MSCI World performed against the S&P 500 in the past.
He was deciding whether there is a solid reason to own a global large-cap and mid-cap index rather than a pure US index ETF.
MSCI only has the data for various developed worlds starting from 1970, so we can only compare the performance for the past 52.5 years.
We can compare the performance by taking the returns of the S&P 500 index minus the returns of the MSCI World index. If the returns are positive, the S&P 500 outperforms the MSCI World. If the returns are negative, the S&P 500 underperforms the MSCI World.
Since the US forms between 40% and more of the MSCI World at various past junctures, we can see how different the international developed stocks (does not include emerging markets) perform against the US.
How the S&P 500 did over one year versus the MSCI World if we roll month by month:
There are periods where the S&P 500 performs better than the MSCI World and also vice-versa.
Most of us tend to have a recency bias and would be quite influenced that MSCI World always did poorly compare to the S&P 500.
Now, let us take a look at the ten-year cumulative returns (as opposed to annualised returns) if we roll month by month:
The S&P 500 have some astounding ten-year outperformance.
Given this data, most people might conclude that they should just invest in the S&P 500.
But if I get the data right, the data show the periods where S&P 500 underperform for ten years. I wonder how many people can endure ten years of underperformance.
There are also periods where the MSCI World underperforms by ten years.
Whichever way, my firm conclusion is that most investors cannot endure ten years of underperforming unless they wise up and realise they can’t just evaluate based on this comparison.
You can purchase an ETF that tracks both the S&P 500 and MSCI World that is domiciled in Ireland through Interactive Brokers in a very low-cost manner. The preferred ticker for S&P 500 is the CSPX and the MSCI World is SWDA.
I do have a few other data-driven Index ETF articles. These are suitable if you are interested in constructing a low-cost, well-diversified, passive portfolio.
You can check them out here:
- IWDA vs VWRA – Are Significant Performance Differences Between the Two Low-Cost ETFs?
- The Beauty of High Yield Bond Funds – What the Data Tells Us
- Searching for Higher Yield in Emerging Market Bonds
- The performance of investing in stocks that can Grow their Dividends for 7/10 years
- Should We Add MSCI World Small-Cap ETF (WSML) to Our Passive Portfolio?
- Review of the LionGlobal Infinity Global – A MSCI World Unit Trust Available for CPF OA Investment
- 222 Years of 60/40 Portfolio Shows Us Balanced Portfolio Corrections are Pretty Mild
- Actively managed funds versus Passive Peers Over the Longer Run – Data
- International Stocks vs the USA before 2010 – Data
- S&P 500 Index vs MSCI World Index Performance Differences Over One and Ten Year Periods – Data
Here are some supplements to sharpen your edge on low-cost, passive ETF investing:
Those who wish to set up their portfolio to capture better returns believe that certain factors such as value, size, quality, momentum and low volatility would do well over time and are willing to harvest these factors through ETFs and funds over time, here are some articles to get you started on factor investing passively:
- Introduction to factor investing / Smart Beta investing.
- IFSW – The iShares MSCI World Multi-factor ETF
- IWMO – The iShares MSCI World Momentum ETF
- Investing in companies with strong economic moats through MOAT and GOAT.
- Robeco’s research into 151 years of Low Volatility Factor – Market returns with lower volatility that did 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
- 98 Years of Data Shows the US Small Cap Value Premium over S&P 500
- 42 Years of data shows that Europe Small Cap Value premium over MSCI Europe
I invested in a diversified portfolio of exchange-traded funds (ETF) and stocks listed in the US, Hong Kong and London.
My preferred broker to trade and custodize my investments is Interactive Brokers. Interactive Brokers allow you to trade in the US, UK, Europe, Singapore, Hong Kong and many other markets. Options as well. There are no minimum monthly charges, very low forex fees for currency exchange, very low commissions for various markets.
To find out more visit Interactive Brokers today.
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