Page 38 - DIY Investor Magazine | Issue 40

HOW TO GET A GLOBALLY DIVERSIFIED PORTFOLIO WITH JUST ONE ETF
April 2024 38 There are thousands of funds to choose from, but there’s a simple hack that cuts through the problem: it’s called a World Index ETF, and you should make it your first equity ETF pick – by Dominique Riedl.
DIY Investor Magazine · A World Index ETF is an equity tracker that spreads its holdings across the major investable countries of the world. Investing theory and experience tells us that the vast majority of people should:
• Invest in equities to achieve long-term growth
• Diversify as widely as possible to reduce risk
• Choose simple, low cost investing products
• Avoid trying to beat the market
A good World Index ETF hits all these bases; choose one that follows a reputable index like the MSCI World and you are instantly invested in the leading companies of the world’s developed economies.
Just one low-fee product gives you exposure to the US, the UK, Japan, Western Europe, Australia, Canada and more – 23 advanced economies in total. You’re not tied to the fortunes
of any single economy and can avoid excessive exposure to Brexit, lost decades in Japan or any other adverse economic scenario that can befall a country.
Source: MSCI World; as of 30/03/2023
INVEST IN THE WORLD
‘THE BEST ANSWER TO THE QUESTION ‘WHERE SHOULD I PUT MY MONEY’ IS THE COLLECTIVE RESPONSE OF THE PLANET’S BEST-INFORMED INVESTORS’
By investing in a World Index ETF you are acknowledging a simple truth: that the best answer to the question ‘Where should I put my money’ is the collective response of the planet’s best- informed investors.
The MSCI World index reflects the judgement of major investment players by using a market cap weighting method. The proportion of an index devoted to any one company is aligned with its share price; the most highly valued company in the world will take up the largest proportion of the index, the second company will be ranked as the next largest and so on.
When global investors decide it’s time to move money out of the UK and into the US, for example, you don’t have to lift a finger; an MSCI World ETF will reflect the change in outlook automatically.
GLOBAL DIVERSIFICATION
MSCI World is the best known global index and is to Planet Earth what the FTSE 100 is to the UK or the S&P 500 to the US; it tracks around 1,600 of the world’s largest companies – immunising you against the risk of a single firm going bust.
Recalling the fate of Enron or Nokia is a stark reminder that once-dominant companies can fall from grace. But individual corporate disasters barely affect the MSCI World when even Apple is worth just about 4.8% of the entire index.
A World Index ETF means you don’t have to make complicated
If a catastrophic product failure smashed Apple’s share price by decisions about how to allocate your funds - you piggyback on
50% tomorrow that would only translate into a slightly more than the wisdom of the crowd. Apple and Microsoft are the biggest
2% loss for the MSCI World. Major Apple shareholders would companies in the world because of the aggregate decisions of
be devastated but globally diversified investors would scarcely the global investment community to invest more of its wealth in
feel a thing.
those two than in any other firms.
The 10 largest holdings amount to just 18% of the MSCI World – a sign of a well-diversified index.