The mustacian post and many forum members recommend VT as the ETF to invest in due to its low cost and diversification. However, upon further research one begins to find counter arguments to it suggesting that it is basically very similar to an SP500 index fund with market capitalization weighted stocks making up a big chunk of its content. VT has around 9000 different stocks but it is concentrated around these typical top SP500 stocks.
Another counter argument is that everybody and his grandmother are investing in the same stocks due to this passive investing trend going on at the moment and that these stocks are overvalued.
Also, from what I understand, these heavy weighted market cap stocks are the most stable but also the least probable to yield higher returns in the future.
Is anybody moving away from VT for any of these reasons? Are there any other concepts/sources you followed to build your portfolio?
I’m a beginner looking to make sense of all this overwhelming information one finds on the internet. Any help would be appreciated.
I was initially planning to do something like this with finpension but I’m now doing the other 30% (overweighting Europe and Small Caps) on VIAC and keep finpension simple.
If you look at the biggest constituents of MSCI Quality, the index rather looks like weeding out a few constituents of MSCI World - but still has many of the “same” stocks in it.
I am also steadily increasing my share of single stocks.
Yes a lot of people in this forum are deviating from it, but to be honest VT is still a very good option and the benchmark against which most other strategies are measured.
I’m not sure where you got this one but last time I checked the total US portion of VT was around 55% so it’s quite substantially different from an SP500 ETF.
I think esp. if you’re a beginner, there’s likely nothing wrong with doing global cap weighted. Deviating from it requires understanding the market and why you have a better understanding than everyone else.
It’s likely far from the worst you can make. Probably one of the better ones indeed.
In fact, if you’re happy with overall-market returns, VT is virtually a perfect choice.
If, on the other hand, you’re chasing returns above the overall market, one should remember that very few people or fund managers manage to do it with similar risk and / or volatility profile.
You’d basically have to
a) take a much higherrisk (maybe through leverage) and/or
b) deviatestrongly from VT to get significantly higher returns.
Approximately half of VT is S&P 500, the remaining 8000+ stocks are from all around the World. S&P 500 is a subset of VT. Sure, you can invest in a subset and do better, you can even invest in a single company and do much better. The general idea is, though, everything is priced fairly, and most people don’t know any better. So VT beats S&P 500 on the grounds of higher regional diversification.
“These” stocks cover some 97% of global investable markets. If you want to buy some stocks that are not included in VT, you need to look at micro caps (market capitalisation of a few million $). So “these” stocks are practically all stocks. Buying a VT index you’re not favoring any stocks, you’re giving each stock an equal “push”.
But maybe you mean that you would like to overweigh some stock that is already in VT (allocate more capital than the market cap proportion would imply). Well in that case good luck, there are millions of others playing this game, you better do some damn good research before you buy anything.
I would not say that VT is for beginners. It is also good for someone with millions in capital and 20 years of investing history. You wouldn’t call them a beginner. But if they go with an investment advisor, they are more likely to underperform than outperform VT in the long run.
There are all sorts of assumptions in the original post and I wonder if they are backed by evidence or feelings. Outside of the FIRE folks, it is not that normal for people to be investing exclusively in index funds. Most people still do stock picking. We were nowhere near “everyone investing in the same index fund” type of a situation the last time I checked. Since then, meme stocks and robin hood have come to the fore. I doubt the situation has changed much.
For swiss investors selling one fund and buying another instead incurs only trading costs, which could be minimal nowadays, but not tax implications. So, you can change from one fund to another, but then again you are doing some type of betting on market. Holding only VT is probably the only/the easiest way to avoid any deviations from cap-weighted investment strategy. Which works long time. As long as there is monetary economy. The only scenario it won’t work in the future is that there is no capitalism and no monetary economy, for good or bad reasons - well, then you don’t need money anyway.
If you truly want to never (well, next 40 years) sell your investments (because of taxes for example), an all stocks fund is the only/easiest way to go. Yes, SP500 is now like 50% of the total market capitalization, but it was not like this 40 years ago. And who knows which national index will be the main contributor to the global market in 40 years - SP500, Europe 600, India 2000 or China 5000? If you have all stocks now in the all stocks fund, you will have all stocks in the all stocks fund all the time in the future.
Same with different economy sectors, in case you want to invest only in IT: now IT is top, 40 years ago it was oil, in 40 years it will be artificial food, etc.
An individual stock can increase 10,100,1000 times in value in few years, but it can never lose more than 100%. So if you have 100 sh*tty small caps, 99 of them go bankrupt, 1 goes 1000 times up, you still have 10 time profit. An extreme example, but it happened with Tesla recently:
It’s a good choice if you want to go with the market. If you want to get a premium, you might want to have a different portfolio, where you would tilt probably towards EM and specific factors. I am tilted on EM and quality & value.
Exactly, active vs passive is not about being a beginner or advanced investor (although being a successful active investor requires much more time, knowledge and resources than being a successful passive investor). In any case, I know fund managers and finance professors who stick to market-cap weighed index funds. It’s a matter of preferences and strategy that approaches implementation of these preferences. And answering your title question: yes, VT is one the best index fund out there for people who prefer to build a global market-cap-weighted portfolio.
Exactly, I got a friend that worked as a Forex and precious metal trader at a major Swiss bank, he put most of his personal investments in ETFs. If I remember correctly, he told me it is 2/3 in ETFs and then various other stuff.
(he managed to pick up a couple of thousand MRNA stocks at less than $20 a couple of years ago though … not to shabby a deal).
The problem (and i mean it in a positive way) is that each response opens a world of information which in turn opens even more branches of information. So I ended up reading a lot about different ways to go about investing and related theories but I feel more confused than ever I guess I have to read a bit more.
I apologize for my 2-month-late reply. My focus went all on my new born son who, by the way, will be needing his own ETF where I can put a monthly or quarterly sum for him to be able to withdraw when he’s grown up. So that’s another factor weighing in my search for the right ETFs
A recent article in the Journal of Portfolio Management suggests that expectations for U.S. equities (significantly reflected in VT) are around 5.5%, corresponding to an inflation forecast of 2.2%, growth of 1.8%, and dividend yield of 1.5%. This does not mean that you should completely avoid VT but you need to manage your return expectations accordingly. More details on Capital Market Expectations on A look into the market crystal ball – Guide Finances.
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It’s likely far from the worst you can make. Probably one of the better ones indeed.
I guess I have to read a bit more.