The Best World ETF To Hold Forever (1-ETF Strategy)

Summary

In this video, the speaker discusses the importance of selecting the right ETFs for long-term investment, likening it to choosing a life partner. The focus is on global diversification through low-cost, well-established ETFs. Several ETFs are reviewed, including the Spider MSCI World and Vanguard FTSE All-World, emphasizing factors like expense ratios, fund size, and physical replication. The speaker highlights the benefits of holding a single, globally diversified ETF and offers insights into tax efficiency and portfolio strategy. Ultimately, the message is about picking the right ETF and committing to it for the long run.

Takeaways

• 😀 Picking the right ETF for long-term investment is like choosing a life partner; you want something you can hold onto for decades without regrets.
• 😀 Global diversification is key when investing in ETFs, as it provides exposure to both current and future market leaders across various regions.
• 😀 The best ETFs should have low total expense ratios, ideally below 0.2%, to minimize the cost of your investment over time.
• 😀 Choose ETFs with a track record of several years and fund sizes over $100 million to reduce the risk of the ETF being shut down.
• 😀 Physical replication is preferred in an ETF, meaning the fund directly holds the underlying stocks of the index it tracks for better performance.
• 😀 Avoid ETFs with currency hedging as it adds unnecessary costs without providing long-term benefits for globally diversified portfolios.
• 😀 Focus on accumulating ETFs that automatically reinvest dividends, saving you from manually managing dividend reinvestments.
• 😀 The MSCI World Index is a popular global index covering over 1,500 large and mid-cap stocks from 23 developed countries, making it a great starting point for global diversification.
• 😀 The Vanguard FTSE All-World ETF is another excellent choice for global exposure, covering over 3,600 stocks from both developed and emerging markets.
• 😀 Don’t fall into the trap of constantly switching between ETFs just to chase slightly lower fees or marginally better performance—stick to your long-term strategy to avoid unnecessary taxes and costs.
• 😀 Tax efficiency is an important consideration when choosing ETFs, especially in countries with complex tax rules, such as Austria, where Vanguard ETFs offer advantages over others.

Q & A

What is the main goal of the video transcript?

The main goal of the video is to help investors choose the best global ETFs to hold for the long term, focusing on diversification, low fees, and simplicity in maintaining a one-ETF investment strategy.

Why does the speaker compare ETF investing to marriage?

The speaker uses the analogy to emphasize the importance of commitment and long-term thinking in ETF investing, highlighting that frequent changes can be costly and counterproductive.

What are the key selection criteria the speaker uses for choosing ETFs?

The criteria include a low total expense ratio, close tracking of the underlying index, fund size over 100 million, physical replication, no currency hedging, exclusion of ESG ETFs, and a preference for accumulating ETFs.

Why does the speaker prefer global ETFs over country-specific ones?

Global ETFs offer broader diversification by covering companies from multiple countries, reducing the risk of being overly exposed to one market, and ensuring that investors benefit from future global winners regardless of location.

What is the difference between accumulating and distributing ETFs?

Accumulating ETFs automatically reinvest dividends within the fund, increasing the share price, while distributing ETFs pay out dividends directly to investors’ accounts periodically.

Which ETF does the speaker identify as the most comprehensive global ETF option?

The SPDR MSCI All Country World Investable Market Index (ACWI IMI) ETF, which covers around 9,200 stocks across large, mid, and small caps from both developed and emerging markets, is presented as the broadest option.

Why does the speaker exclude ETFs domiciled in Luxembourg from their preferred list?

Luxembourg-domiciled ETFs cannot benefit from the favorable tax treaty between Ireland and the United States, resulting in higher withholding taxes on U.S. dividends and lower overall returns.

What is the speaker’s personal ETF choice and reasoning?

The speaker personally invests in the accumulating Vanguard FTSE All-World ETF due to its global diversification, tax efficiency in Austria, and strong tracking performance despite a slightly higher expense ratio.

What mistake does the speaker warn investors against making?

The speaker advises against frequently switching ETFs to chase lower fees or new trends, as selling can trigger capital gains taxes and often leads to worse long-term performance.

How does the speaker suggest investors handle taxes in relation to ETFs?

Investors should consider their country’s tax laws before choosing ETFs, as tax efficiency can vary by domicile and ETF type; holding investments long-term and avoiding unnecessary sales can help minimize taxes.

What is the speaker’s advice for investors in countries without capital gains taxes?

While these investors don’t face tax consequences when selling, the speaker cautions them against trying to time the market, as studies show this behavior usually leads to underperformance over time.

Why might the FTSE Developed World Index be preferred over the MSCI World Index?

The FTSE Developed World Index includes more countries such as South Korea and Poland, as well as a higher number of stocks, providing broader diversification compared to the MSCI World Index.