Everyone talks about investing in the market and the market will beat the vast majority of active investors.
But what exactly IS the market and what is the best way to invest into it?
Well there are a few different definitions and I wanted to explain what the key differences are and how they perform relative to each other.
I will cover the S&P 500, the Total US Stock Market (VTI Index), FTSE 100 and 250 and the MSCI World Index.
A common way to invest in these is through ETFs but you can also invest through different types of funds.
Each one has its pros and cons but they also share a lot of similarities so hopefully this video will give you a good overview.
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Hey guys, it's sasha. I often talk about investing in the market as something that proves the best investing strategy in the vast majority of cases as many as 95 percent of actually managed funds lose out to the market that they're trying to beat, and the vast majority of retail investors will Fail trying to do the same thing, but what is the market if someone wants to invest in the market? What should you put your money into? Is it the s? P 500, that is usually the most popular choice. Is it the total u.s market is investing in the ftse better for uk investors, because a lot of people really think so what about the msci world index that tracks the global market? Well, let me explain exactly what these different options look like how they perform relative to each other and some important things to know so that you can go and make the best choice. Just a quick disclaimer.

I am not a financial advisor. This is not financial advice. I can't provide financial advice to you and if you do need financial advice, please make sure you're going to seek the help of a security qualified professional now. First, let me cover exactly what these different things are, because confusingly they are all often referred to as the market, so let's break down what these indices actually are and who which companies are in them.

First, off, let's talk about the biggest most popular one, the s p. 500. You may be more familiar with this one, because this is the one that everyone talks about, but it is basically just a list of the 500 largest companies in the united states and it is aggregated by standard and poor's. Hence s p, 500..

As a result, the list only includes high market cap companies and the biggest contributors are companies like apple microsoft, google, amazon and facebook. In fact, just those five companies on their own make up a whopping 21.5 percent of the entire s, p, 500. So the majority of your investment is going to sit with the relatively small group of the largest us companies and warren buffett's berkshire hathaway, which is the sixth biggest at the moment. The total u.s market is an index that matches small companies as well as those big ones into one big index.

There are several different ways that these indices can be calculated. One of the most popular ones is vanguard's vti. This index covers almost 4 000 u.s companies, ranging from small caps all the way to the biggest companies, and this index will give you a more comprehensive coverage of the market as a whole, but over 80 percent of this very index is actually made up of the Same s, p 500 companies with the 10 biggest ones, making up 22.4 of the total, so we are still largely investing in the s p 500 index, plus a few extras. On top now i live in the uk and i predominantly invest in the us market.

I'm going to explain exactly why in a second is because of the returns. But often people who live in the uk say that investing in the ftse 100 is a better choice. You don't have to pay for an exchange fees and there's no withholding tax and dividends, and if you live in some other country, you may face the same issue. But the truth is, the returns are just not there, but before we dive into the numbers, there's one more option: the global market.
Some people, like the concept of investing in companies, spread across different markets, different countries all over the world. To give you a complete coverage of the global economy, now this way, if one country does badly and another one, for example, does poorly, then you should get the benefit of the average of that global level of growth, a very common way to invest in the global Index is to invest in the msci world portfolio. This is a bit like the s p. 500.

There are a lot of similar options that use the same metrics with the ishares msci world being the largest by a long way. This index covers a list of 23 developed countries around the world and includes the 85 largest companies in each of those markets, which gives you a pretty comprehensive cover. It's a bit like having the s p 500 for each of those developed countries and then adding them all up into one big index. Now, if you look at the largest holding in there, you'll notice the same pattern.

The top 10 companies in this index add up to 15.6 percent of the whole market, and these are the biggest companies in the s p. 500. So, in fact, only one company in the whole of the top 20 largest companies in this index is actually not in the s p, 500 and that's nestle and the other 19 add up to 21.94 off the total index. So i think you're probably getting the picture now, if you're investing in any index that includes us companies, the s, p 500 will be the dominant driver of performance and the majority of your investments will be in the s p 500, but is it better to invest In just the s p, 500, or do you get an advantage if you go for one of the other options because of the extra companies that you get to invest in alongside well the s p 500, as an is an incredibly strong way to invest your money In the long term, if you look at the long term over the last 100 years, the s p 500 tends to return about nine percent per year on average, roughly before inflation.

If you reinvest the dividends, that's an incredibly good return, but as with everything in investing that return fluctuates for every year, like 2020, when we had absolutely crazy returns in the market. There are plenty of other years when the market is stagnant or even loses money over the course of the year. Now it is hard to compare these because different indices perform differently over different periods of time, but there is good data for all of these. Over the last 15 years, so i thought i'd just go with that.

It's not perfectly representative, but no particular time scale is in may 2006. The s p 500 index was on 1291 points and at the moment it is on 4246. So if you do, the math is about 10.35 per year, not bad at all, and obviously the last 18 months have pushed that higher than the average. Now, if you look at the vti index for the whole of the us market with all the smaller companies, it has actually done even better.
It's gone up from 64 to over 220 points, which is about 10.73 return, which is very high, but actually very similar to the s p. 500. The important note is that, historically, the s p 500 tends to do slightly better during bear markets and periods of stagnant, slower growth, whereas the vti, the old market index, tends to outperform during bull, runs or during times of high volatility. This is because small companies tend to actually be hit a bit harder during the harder times and they are slightly less robust, but they also tend to rise quicker and do better during times when things are exploding and doing really well because they're, starting at such a Low starting point now, a lot of people i know in the uk tell me that the ftse is where it's at, because investing in the uk is cheaper well in the same time frame.

The ftse 100 from may 2006 has gone up from 5657 points to 7178 points. That's almost two percent, exactly on average, even the ftse oh share index has only gone up two point: nine two percent in the same time frame. The fact is us: companies are dominating global economy, services and tech. If you are investing in us companies, you are de facto investing in companies that are covering more and more of the global market as time wears on, and unfortunately this means that if you invest in other countries around the world, the market share of big companies in Those other markets is dropping in their own backyard.

So for me there is absolutely no real point in investing in their ftse, even if i lose out slightly on taxes and fees, because the returns are not even remotely close, but what about the world index? What about the index that covers all the different companies in countries around the world? Well, the msci world index has grown by 10.45 on average since may 2006.. That is a very, very close rate of return to the s p. 500. In fact, it's only 0.1 percent.

More per year, but the etfs that are available for the s p 500 charge between 0.03 and 0.07, depending on where you live, the ishares swda msci world index charges not 0.2 and some of the other options charge even more so the net return after you take That to account is almost identical, so what does all of this mean? Well, the truth is large. American companies dominate the global economy and whichever market you're investing in you will largely be invested. In those same s, p 500 large companies. Some people like to have the diversification by investing in the total u.s market or global market, but, as you can see from these numbers, the returns of all of these are very, very similar.

The us and the world total markets can sometimes be slightly more advantageous, but they're also typically more volatile, and this is why the s p 500 is such a popular choice. It provides robust returns that are very, very difficult to beat, and it also limits your exposure to smaller high-risk companies and to more volatile markets. I hope you found this useful if you have i'd, really appreciate it. If you go and smash the like button for each the youtube algorithm so that more people can watch this video, thank you so much for watching.
I really really appreciate it and, as always i'll see you guys later, you.

By Stock Chat

where the coffee is hot and so is the chat

30 thoughts on “The best way to invest in “the market” – s&p 500 vs total us stock market vs msci world etfs”
  1. Avataaar/Circle Created with python_avatars W R says:

    Please do this video in 5-10 years again.
    Sorry to say but you fundamentally lack the reason for the growth of the S&P500 over the last decade as well as other periods and how economies was back then vs now.
    Hell, if you want to chase returns then just US small cap and nothing else…

    But we all know, fundamentally that is not the correct way to invest as markets cycle and past != future as the economical climates change drastically over time.

  2. Avataaar/Circle Created with python_avatars loutol says:

    Great video Sasha. I watched this video twice and the message really resonated with my investment inclinations. What do you think of the FTSE Developed world ex πŸ‡¬πŸ‡§?

  3. Avataaar/Circle Created with python_avatars Matt Humphries says:

    Im mainly in VWRL which is about 60% USA – as you need to be 'all about diversification'. Just bought VUSA though too as USA is main obvious contributor to return % with low OGF and with dividends to boot! You didnt even mention those. but great vid

  4. Avataaar/Circle Created with python_avatars DOTTY GIRL says:

    Another cracking video Sasha. I have been tying myself in knots looking into the S&P 500. Your video makes so much sense. Now… time for me to take action. As ever thank you.

  5. Avataaar/Circle Created with python_avatars Mizan Ali says:

    Morning Sasha,

    Help me find a S&P 500 ETF that is Accumulating on etoro please many thanks.

  6. Avataaar/Circle Created with python_avatars ellieban says:

    So the reason the S&P appears to be doing so well is because it happens to contain the cream of the global index? Believing the S&P will continue to do that well requires me to accept the economic foundations of the US are strong and sustainable… yeah, about that…

    Given the global index is more diverse and more resilient and performing more or less the same (perhaps slightly better) than the S&P500, and contains all the same companies anyway, why isn’t it logically the best and simplest strategy to invest in the global index only?

    It feels less diverse emotionally, because it’s one index instead of several, but the other indexes are illusory because they are contained within the larger one anyway. What am I missing/failing to understand here?

  7. Avataaar/Circle Created with python_avatars Kingmaker says:

    Sasha what about riskier opportunities that might have more upside in the future for e.g. Emerging Markets ETFs?

  8. Avataaar/Circle Created with python_avatars Lucky13 says:

    Thanks for another informative video and throwing a spanner into my logic of buying globally diversified funds lol. I had thought they would be less volatile than the S&P 500!

  9. Avataaar/Circle Created with python_avatars Jason Hooper says:

    Excellent video Sasha. One point – do you feel China could be the one to watch next 10 years and therefore S&P 500 may lose a little of it’s current return rates?

  10. Avataaar/Circle Created with python_avatars Joshua T says:

    Japan was 45% of the world in 1989 and growing fast. If you stuck into the Nikkei 225 in 1989 it would have been a disaster!! I imagine this video would have potentially have been pushing this index over others if made then.

    I would strongly caution that past performance is not indication of future performance. Opportunities to have additional diversification should be sought as much as possible and therefore you will tend towards the mean. A world index that is market cap weighted and covers emerging and developed markets is best. This may mean 2/3 ETFs in total but will mean you don't have to worry about who/what grows the most you will capture it.

  11. Avataaar/Circle Created with python_avatars ACE CH says:

    Does vanguard have S&P 500? I thought they had something similar but it's not exactly the same. And would you stick to Vanguard or a different platform? Thank you😊

  12. Avataaar/Circle Created with python_avatars Sanj uk says:

    Thanks for your really informative videos. I'm trying to avoid charges but diversified as much as I can. So I invest in world ETF, so covers many areas, as you said, these have a large amount of 'FAANG' US companies. But, I like that they have Alibaba chinese stocks as well as emerging markets. I do invest in a UK ftse 100 ETF as well and seems to be beating individual UK stocks. Also experiment with Uk global stocks, got some fair returns, so at least have alternatives to ETF's. Saw news that S&P 500 overvalued and could have inflation effects, so not investing much in it for now.

  13. Avataaar/Circle Created with python_avatars Terry lindsay says:

    The S&P 500 has done very well in the PAST, and will probably do well in the future, but what about China? With its Belt & Road project, it is (expected) to become the world's biggest economy in just 8 years time. Surely investing in EM's makes sense too?

  14. Avataaar/Circle Created with python_avatars Shaun Hardman says:

    Would the S&P still be a clear winner over the FTSE if you were focused on dividends? Just thinking the withholding tax would have more of an impact.

  15. Avataaar/Circle Created with python_avatars Cool Easy says:

    I completely agree that FTSE 100 is not right for investing but what about UK small cap funds? I have seen their 10 year charts to be in line in returns with US small cap funds and I think that's atleast a good way to diversify across both economies.

  16. Avataaar/Circle Created with python_avatars Metro says:

    Sasha
    Please can you tell me how to access the returns data of the S&P 500, Total Market, & World index.
    Thanks

  17. Avataaar/Circle Created with python_avatars Metro says:

    Does anyone have any views about the S&P 500 being β€˜Overvalued’ and if it’s wise to invest in it now. Thanks

  18. Avataaar/Circle Created with python_avatars Rares Ionescu says:

    Hi, Sasha! Speaking about the whole market, do you know if on eToro is any ETF for frontier markets? Unfortunately I couldn't find there any of iShares MSCI Frontier and Select EM ETF, iShares MSCI Frontier 100 ETF or Global X MSCI Next Emerging & Frontier ETF. To be fully diversified I would like to invest a small portion in such an ETF.

  19. Avataaar/Circle Created with python_avatars Zulfiqar Ali says:

    Hi Sasha, great video and I have used your link to create Stake account. I will let you know how it goes and what I get after the approval. Thank you

  20. Avataaar/Circle Created with python_avatars Duncan says:

    I've currently got about 25% of my cash invested in an S&P 500 ETF on Trading 212. The rest of my cash is sitting in a current account gaining literally 0% interest and of course inflation is eating away at it too! But I feel that's it's too much money to 'risk' investing – it's something I really need to deal with at some point!

  21. Avataaar/Circle Created with python_avatars SkilfulLeader1 says:

    Thanks Sasha, cant beat the S&P 500. Just keep dollar cost averaging and check it in 20 years πŸ€£πŸ‘

  22. Avataaar/Circle Created with python_avatars 盲武士 says:

    America can’t fail because if it does, it means that the global economy fails too so S&P 500 all day. As Warren Buffet said, never bet against America. I wonder what your thoughts are on the Nasdaq 100???

  23. Avataaar/Circle Created with python_avatars Luke Mcdonald says:

    Not convinced by your argument on the FTSE 100. Your comparing growth not total return. Most of the money in the FTSE is from large institutional investors, mainly pension funds. Hence why the UK market has more generous dividend policies. I would be interested to see the same comparisons with dividends reinvested.

  24. Avataaar/Circle Created with python_avatars Via Media says:

    I guess the thing which swayed me to invest in a global index (and stomach a 0.23% fee πŸ˜‚) is the idea that if the US ceases to be so dominant on the global stock markets, the index will be rebalanced to reflect that shift. E.g. if Chinese stocks become more prevalent on global markets, then the index will automatically give me more exposure to them.

  25. Avataaar/Circle Created with python_avatars Keith Clunk says:

    People talk about diversification within sectors and geographies etc., but I also diversify in global funds: VHYL, VWRL, and Fidelity Index World. All globals are far from being the same. Of course I invest in VUSA, but not VUKE.

  26. Avataaar/Circle Created with python_avatars Matthew Moran says:

    Hi Sasha, thanks very much for the content you have been putting out. Do you have any comment on how the FTSE All World (vanguard etf) compares to indexes mentioned in your video?

  27. Avataaar/Circle Created with python_avatars Keep On Gaming says:

    Another great overview. Thanks for the info. Unfortunately for me I can’t invest in the S&P 500 and FTSE 500 because it isn’t shariah compliant so I had to opt for MSCI USA Islamic ETF and MSCI World Islamic and emerging markets.

  28. Avataaar/Circle Created with python_avatars Black Circle says:

    Just a quick question. With the S&P 500 for UK people you pay 15% to the US …does that apply on ETF's since they have a big portion of the S&P500 in as well. Thanks

  29. Avataaar/Circle Created with python_avatars Money Whiskey and Coffee says:

    The only use I have for the FTSE 100 is to see if a UK company is part of it, before I buy individual stocks. I have done that a total of…… 4 times. I do have some Europe ETFs but they are predominantely ex-UK. For diversification I have Europe, Asia-Pacific and emerging market ETFs (and also some thematic ETFs that are 10 out of 7 in the risk scale πŸ˜‚πŸ˜‚πŸ˜‚πŸ˜‚ )

  30. Avataaar/Circle Created with python_avatars Sasha Yanshin says:

    Funny how I am one of those people who think they are in the 1% who might beat the market despite knowing that I am not. πŸ˜‚

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