DIY Investor - The Do-It-Yourself Investing Blog

Explain it to a Golden Retriever – World ETFs Review: Guest post from Bankeronwheels.com

In 2019, I cycled over 5,000 km across Japan and didn’t wanted to leave (a few typhoons forced me to). One of the reasons is the Japanese architecture, especially the peaceful countryside and Japanese gardens

Japanese people love minimalism and simplicity

In a lot of fields, as Steve Jobs said, Simple is Hard – making a product like the iPhone certainly was

Yet, in Investments Simple is Easy

I spent part of my career analyzing Structure Finance products. Yes, the ones that blew up in 2008 (I actually went into this field only in 2009 – to ‘clean up’ the mess)

Be alarmed when investments get complicated, if you can’t explain it to a six year old….or a Golden Retriever

One of the biggest mistakes Investors made was taking things at face value – especially for very complex products while being remote from the place where these products were originated (I look at you, German Investors in US Subprimes)

It happened, for example, when an Investor bought Assets that had the highest credit rating but didn’t quite understand and didn’t have the systems to analyze

Most of us don’t have access to sophisticated products but a lot of traps remain. Academic research and empirical evidence point to the fact that simple Investing Strategies (e.g. Index Investing) usually work best, are easily understood and accessible to anyone

What if you could only buy into ONE single investment and HODL?

Interestingly, when you speak to people that have been in the investment business for long time and ask them the above question (that by definition makes them think about their true beliefs and long term risks they understand and leaves short term speculation off the table)

With the idea that:

They could only choose one passive investment for their personal portfolio
HODL (Hold On for Dear Life) and can only withdraw to fund their needs

The answer often is… a World Equity ETF

Sure enough, if we assume you can’t swap investments and can only withdraw to fund your living expenses, we’re taking out the biggest investment risk out of the equation – yourself and your emotions

And in fact, wise investors often move from complex portfolios to this simple strategy as they realize that the market almost always wins in the long run

THE SIMPLEST INVESTMENT – A WORLD ETF

investing

You don’t need much knowledge to put your cash to work

In fact, to get exposure to World Equities you only need a single ETF

And this exposure evolves with the markets as certain countries grow or decline in World ETF Benchmarks

world etf

Currently, c. 60% of all World Stocks as measured by market capitalization are US Equities but it wasn’t always that way and…

It may not always remain so. While there are certainly reasons for the current allocations, imagine if China or/and India accelerated opening up (and transparency) of their Capital Markets (China’s current weight is only c. 5% in the Global Stocks whereas its GDP is 65% of the US GDP). The mix of Emerging Market sectors is getting interesting as well

How did the World ETFs perform?

Let’s look at the Benchmark with the longest track record:

WORLD ETF BENCHMARK PERFORMANCE

If you assume your investment horizon is 10 years…

… by investing $1,000 and keeping it for the entire 10 year period it would have on average returned c. 7% per year (after 0.3% fees) and your portfolio would have doubled (on average) during those first 10 years

The graph above shows the net profit at the time when you sold a 10-year World Equity ETF

e.g. portfolio worth $3,300 that is: $1,000 (initial investment) + $2,300 (profit) if sold in 2019 (so, invested 10 years earlier, in 2009)

Of course, if you held longer than for a decade, the return would be closer to exponential over time given how compound interest works

Incurring losses was almost impossible

More importantly, as wise investors know, the likelihood of having a negative yielding portfolio was close to zero beyond a 10-15 year holding period

In fact, from 1988 to 2020 the likelihood was below 3% if you kept the portfolio for the entire 10 year holding period (essentially the only case was if you invested in 1999 and was forced to sell in 2009)

Click to read the entire article:

Commentary » Exchange traded products Commentary » Exchange traded products Latest » Latest » Mutual funds Commentary » Uncategorized

Explain it to a Golden Retriever – World ETFs Review