When it comes to investing in ETFs one of the big decisions investors have to make is whether to invest in a World ETF or a US ETF. Both offer their own set of advantages and disadvantages.
Investing in a World ETF, such as the Vanguard FTSE All-World ETF (VWRL), provides exposure to a diversified portfolio of stocks from all over the world. This can be an attractive option for investors who want to diversify their portfolio across multiple markets and currencies, reducing the risk of any one stock or sector having a significant impact on their portfolio's performance. By investing in a world ETF, investors can also take advantage of emerging markets and potentially higher returns.
On the other hand, investing in a US ETF, such as the Vanguard S&P 500 ETF (VUSA), provides exposure to a basket of large-cap US stocks, including some of the most well-known companies in the world. The US economy is also the largest in the world, making it a popular option for investors looking for stability and growth potential. Investing in a US ETF can also provide a degree of familiarity, as many investors are likely to recognize the companies listed in the index. One thing to note is that many of these companies operate all over the world and have revenue streams across the globe.
So, which is the better option? The answer depends on several factors, including an investor's goals, risk tolerance, and investment horizon. For investors looking for diversification and potential exposure to emerging markets, a world ETF may be a better option. On the other hand, investors who want stability, growth potential, and familiarity with the companies listed in the index may prefer a US ETF.
Looking purely at performance, historically the US market has performed quite well if we look at the VUSA vs VWRL over the last 5 years VWRL has gained 41% while VUSA has gained 74%. The difference has increased even more due to the performance of the USD vs other currencies such as the EUR. However, historically, if for example other currencies and companies internationally perform better than US ones, than we will miss this opportunity by focusing solely on US stocks.
It's also worth considering that both options can be complementary to each other. A big portion of VWRL is in the US and many of the top US holdings in VWRL are also in VUSA so in case more exposure is wanted to the US, in that case, VUSA can be complemented.
In summary, deciding whether to invest in a world ETF or a US ETF is a personal decision that should be based on an investor's individual goals, risk tolerance, and investment horizon.
Disclaimer: I am not a financial advisor, this blog is centered around my opinion and should not be viewed as legal, professional, or financial advice.
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