Author Topic: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?  (Read 5816 times)

DaKini

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Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« on: May 21, 2014, 01:20:24 AM »
Hi there,
i wonder why most us folks here invest mainly in their home country and (if investing international) split their investments in "US/International".

Why dont you invest broadly in global markets using index funds/etfs mirroring one of the MSCI ACWI indexes?

matchewed

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #1 on: May 21, 2014, 07:36:51 AM »
I think the question shouldn't be "why not do X activity?" when X activity hasn't been demonstrated to add additional value.

So why should we go for a global index? What is the value?

hodedofome

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #2 on: May 21, 2014, 07:55:18 AM »
It is interesting when you speak to someone outside of the US, they look at you funny if you mention your stock allocation is 100% US, or anything above 50% really. Everyone else seems to have a global focus when it comes to stock investments but Americans. To them, it's like we cherry picked 1 country out of 100 possibilities. Obviously some Americans feel different, but you can see this bias in things other than stocks. Americans typically only speak English, while folks outside the US typically speak more than 1 language. Americans watch US sports, but not popular int'l ones like soccer. We also can pick out more than 2 or 3 countries on a map, while int'l folks seem to have a broader knowledge of world history and geography.

FWIW I have an int'l allocation to stocks in my portfolios, but it is part of a tactical strategy so I could be 100% int'l or 100% US depending on which is doing better at the time. For instance, you would have been much better off investing internationally in the 2003-2007 bull market, however the 2009-2014 era has been dominated by the US.

matchewed

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #3 on: May 21, 2014, 08:36:46 AM »
It is interesting when you speak to someone outside of the US, they look at you funny if you mention your stock allocation is 100% US, or anything above 50% really. Everyone else seems to have a global focus when it comes to stock investments but Americans. To them, it's like we cherry picked 1 country out of 100 possibilities. Obviously some Americans feel different, but you can see this bias in things other than stocks. Americans typically only speak English, while folks outside the US typically speak more than 1 language. Americans watch US sports, but not popular int'l ones like soccer. We also can pick out more than 2 or 3 countries on a map, while int'l folks seem to have a broader knowledge of world history and geography.

FWIW I have an int'l allocation to stocks in my portfolios, but it is part of a tactical strategy so I could be 100% int'l or 100% US depending on which is doing better at the time. For instance, you would have been much better off investing internationally in the 2003-2007 bull market, however the 2009-2014 era has been dominated by the US.

I'm not sure if going with US total market is equivalent to US-centrism. One has a proven track record of being good for investing the other is a side effect of a cultural (false) exceptionalism. It may in fact be that our proven track record of a stellar economy has been one of the causes for all the other things you've listed.

foobar

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #4 on: May 21, 2014, 10:30:56 AM »
The for case:
http://www.portfoliovisualizer.com/ViewHistoricalReturns?s=y&endYear=2009&initialAmount=10000&portfolio3=Custom&portfolio2=Custom&portfolio1=Custom&TotalStockMarket2=50&TotalStockMarket1=100&SmallCapValue2=50&mode=2&annualAdjustment=0&s=y&startYear=2000&annualOperation=0

The against case

http://www.portfoliovisualizer.com/ViewHistoricalReturns?s=y&SmallCapValue2=50&mode=2&annualOperation=0&endYear=1999&initialAmount=10000&portfolio3=Custom&portfolio2=Custom&portfolio1=Custom&TotalStockMarket2=50&TotalStockMarket1=100&annualAdjustment=0&startYear=1990


Long term it hasn't mattered. That may or may not hold true in the future.  Short term (10-20 years) diversification helps protect you against bad sequences of return. People like to focus on 2008 as an example where diversification got you no where (i.e. stocks every where crash and burned) but they ignore all the times where it helps you out. Right now with international funds putting up some crummy numbers, everyone goes why waste the time. When they are crushing US funds, you hear the comments about great companies all over the world why limit yourself to just one and so on.




I think the question shouldn't be "why not do X activity?" when X activity hasn't been demonstrated to add additional value.

So why should we go for a global index? What is the value?

matchewed

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #5 on: May 21, 2014, 10:36:23 AM »
I think the question shouldn't be "why not do X activity?" when X activity hasn't been demonstrated to add additional value.

So why should we go for a global index? What is the value?

The for case:
http://www.portfoliovisualizer.com/ViewHistoricalReturns?s=y&endYear=2009&initialAmount=10000&portfolio3=Custom&portfolio2=Custom&portfolio1=Custom&TotalStockMarket2=50&TotalStockMarket1=100&SmallCapValue2=50&mode=2&annualAdjustment=0&s=y&startYear=2000&annualOperation=0

The against case

http://www.portfoliovisualizer.com/ViewHistoricalReturns?s=y&SmallCapValue2=50&mode=2&annualOperation=0&endYear=1999&initialAmount=10000&portfolio3=Custom&portfolio2=Custom&portfolio1=Custom&TotalStockMarket2=50&TotalStockMarket1=100&annualAdjustment=0&startYear=1990


Long term it hasn't mattered. That may or may not hold true in the future.  Short term (10-20 years) diversification helps protect you against bad sequences of return. People like to focus on 2008 as an example where diversification got you no where (i.e. stocks every where crash and burned) but they ignore all the times where it helps you out. Right now with international funds putting up some crummy numbers, everyone goes why waste the time. When they are crushing US funds, you hear the comments about great companies all over the world why limit yourself to just one and so on.

Picking specific dates of 10 year increments isn't a very compelling argument. It is the long term trend which matters. We are investors not speculators, we will be investing for 60 years. Let me know when we've got for and against in that time frame.

Also neither of those two examples had anything to do with global markets.

maizeman

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #6 on: May 21, 2014, 08:39:17 PM »
It is interesting when you speak to someone outside of the US, they look at you funny if you mention your stock allocation is 100% US, or anything above 50% really. Everyone else seems to have a global focus when it comes to stock investments but Americans. To them, it's like we cherry picked 1 country out of 100 possibilities.

One thing I didn't realize until recently is that US companies represent nearly 1/3 of the total world stock market by market capitalization. So in comparison to countries like Sweden or Italy (each approximately 1% of the global stock market), investing in domestic index funds in the USA is like picking 30 countries out of 100 possibilities. Which is not to argue against investing in international stocks, but it does explain why the average american has been able to get away with more of a bias towards domestic index funds than investors in any other country do safely.

On a more practical note: because of the differences in tax treatment for international and domestic dividends (particularly international withholding taxes on stocks held in IRA/401k accounts) it will often make sense to use separate domestic and international index funds so the right assets are held in the accounts where they will receive the most favorable tax treatment.

Edit: I just checked and for the MSCI ACWI index, 48% of the total value is invested inUS companies.
« Last Edit: May 21, 2014, 08:42:11 PM by maizeman »

tj

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #7 on: May 25, 2014, 04:06:00 PM »
Investing costs. it's cheaper to invest in VTSAX and VTIAX, with a market cap split (or otherwise), than to invest in the one-fund VTWSX.  Part of that is because the Total World fund is new and doesn't have as much assets. VTWSX also has a bit less stocks, but the gap seems to be getting closer than when that fund started..

rpr

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #8 on: May 25, 2014, 04:12:54 PM »

Investing costs. it's cheaper to invest in VTSAX and VTIAX, with a market cap split (or otherwise), than to invest in the one-fund VTWSX.  Part of that is because the Total World fund is new and doesn't have as much assets. VTWSX also has a bit less stocks, but the gap seems to be getting closer than when that fund started..
I like VTWSX. In fact, that is the only holding I have in taxable. My tax deferred accounts also hold an all world fund as well. I am lazy and prefer the simplicity of an all world fund. Yes, the expense ratio is higher but to me I like the easy of use for the long haul, no rebalancing needed. One other thing, is that were something to happen to me, the plan for my wife is to continue with buying VTWSX.

I could buy the ETF version, but I find the automatic monthly investment program of a mutual fund most convenient.

tj

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #9 on: May 25, 2014, 07:02:12 PM »

Investing costs. it's cheaper to invest in VTSAX and VTIAX, with a market cap split (or otherwise), than to invest in the one-fund VTWSX.  Part of that is because the Total World fund is new and doesn't have as much assets. VTWSX also has a bit less stocks, but the gap seems to be getting closer than when that fund started..
I like VTWSX. In fact, that is the only holding I have in taxable. My tax deferred accounts also hold an all world fund as well. I am lazy and prefer the simplicity of an all world fund. Yes, the expense ratio is higher but to me I like the easy of use for the long haul, no rebalancing needed. One other thing, is that were something to happen to me, the plan for my wife is to continue with buying VTWSX.

I could buy the ETF version, but I find the automatic monthly investment program of a mutual fund most convenient.

I've considered this as well. I have unrealized capital gains in the Total International fund already, so I have roughly the same in VTSAX in my Roth IRA. my 401k is in an aggressive vanguard target date fund. (it has some bonds, but not really a meaningful amount) New $$ I am considering just throwing in the total world fund. It is about 20bps higher, but who cares? Also, You have to think they'll have admiral class eventually.

rpr

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Re: Why not MSCI ACWI IMI or the MSCI ACWI All Cap Index?
« Reply #10 on: May 25, 2014, 07:15:43 PM »
We have already seen the ER drop from 0.45 when I first started buying VTWSX about 5 years ago. The ETF version is already at 0.18. These days most of the admiral funds already require such low minimums that it is almost unnecessary to have two separate versions. I am thinking that is is where Vanguard may be heading to. Rather than have both Investors and Admirals version just have one with low ER.