The common advice among EU based Bogleheads is to suggest a globally diversified low-cost portfolio which includes the following funds:
- iShares MSCI World – for developed markets (large cap) exposure
- iShares MSCI EM – for emerging market (large cap) exposure
- (optional) iShares MSCI World Small Cap – for developed markets small/mid cap stocks exposure.
But what if you can only invest in a single fund? Maybe your transaction fees are high or you have access to less funds from your broker or your investment amounts are low. Is it reasonable to simply invest in the iShares MSCI World ETF?
Even though in an ideal situation you should be exposed to a broad set of stocks from a broad set of geographies weighted by market cap. I think it is completely fine to only hold a MSCI World ETF:
- The MSCI World Index represents approximately 88% of the MSCI ACWI Index, MSCI’s global all-cap index. So in essence with the MSCI World index you are already exposed to a substantial majority of the assets you’d get by being globally exposed.
- Historically, the MSCI World Index has had similar performance characteristics in the past to the MSCI ACWI. According to the factsheet from the MSCI World Index, annualized net returns performance since Dec 29 2000 of the MSCI World index have been 4.89% and of the MSCI ASCWI index has been 5.00%
- According to Credit Suisse Global Investment Returns Yearbook 2018 a developed market index would have returned 8.4% p.a. from 1900-2017 and an emerging markets index would have returned 7.4% from 1900-2017.
The data shows that historically holding a developed markets index has done well for investors. And I think that will still happen given the prevalence of developed markets within world indexes. Therefore, I think it is OK to only invest in a MSCI World Index for the equity portion of your portfolio.
We don’t know what the future holds though, so holding a globally diversified portfolio allows us to be proportionally exposed to multiple markets. And potentially get better returns because not all markets are correlated – that is one market may rise when others are falling.