MSCI World Index: 99% of Investors Get THIS Wrong!

00:09:00
https://www.youtube.com/watch?v=3YdYTiOzLnk

Résumé

TLDRThe MSCI World Index is a widely recognized global stock market benchmark made up of stocks from 23 developed countries. Despite its popularity among passive investors, there are several misconceptions about its risk, performance, and suitability.Reviewing key points, the video highlights that the index is not risk-free and can experience significant downturns, such as a historical drawdown lasting over 13 years. Passive investing is often misunderstood, as many believe simply investing a small amount regularly will ensure financial freedom. The index is also predominantly composed of U.S. large-cap stocks, which may not provide true diversification. The speaker instead advocates for a dual strategy approach to investing, combining passive and active methods to gain better control over portfolio quality. This video serves as a crucial resource for anyone looking to understand the real implications of investing in the MSCI World Index.

A retenir

  • 📈 The MSCI World Index includes stocks from 23 developed countries.
  • ⚠️ Investing in the index does come with risks.
  • 📉 Historically, the index faced a 13-year drawdown period.
  • 💰 Passive investing alone may not lead to financial independence.
  • 🇺🇸 The index is heavily weighted towards U.S. large-cap stocks.
  • 🔍 True diversification is not guaranteed with the index.
  • 📊 A mix of passive and active investing is recommended for better control.
  • 📚 Continuous education about investments is crucial.

Chronologie

  • 00:00:00 - 00:09:00

    The MSCI World Index is a widely recognized benchmark for global stock markets, encompassing stocks from 23 developed countries, making it popular among passive investors. However, misconceptions exist regarding its risk and volatility. This video highlights five key misconceptions about the MSCI World Index, providing clarity on its purpose, functioning, and limitations. It emphasizes the importance of understanding market risks and that investing in the index is not a guaranteed way to avoid market downturns. Additionally, it cautions against complacency among investors who may feel too comfortable with minimal investments and stresses the need for ongoing financial education. The video clarifies that the MSCI World Index does not guarantee absolute diversification due to its heavy weighting toward large U.S. companies and the necessity of active decision-making in investment strategies. Lastly, it suggests combining passive investing in ETFs with active selection of high-quality individual stocks for better financial outcomes.

Carte mentale

Vidéo Q&R

  • What is the MSCI World Index?

    It is a benchmark for global stock markets, comprising stocks from 23 developed countries.

  • Is the MSCI World Index risk-free?

    No, it is subject to market fluctuations and can decline in value.

  • Can passive investing lead to financial freedom?

    Simply investing a small amount passively may not lead to financial freedom; substantial investment is needed.

  • How much of the MSCI World Index is U.S. companies?

    Approximately 68% of the index consists of U.S. listed companies.

  • Is the MSCI World Index diversified?

    While it includes many companies, it heavily favors large-cap stocks, particularly in the U.S.

  • What is the longest drawdown period in the MSCI World Index?

    The longest drawdown period lasted 13 years and two months.

  • What investing strategy is suggested in the video?

    A dual strategy: invest some in passive indices like the MSCI World Index and some in selected individual stocks.

  • What should investors do to understand the index better?

    Investors should educate themselves about the stock market dynamics and the specific components of their investments.

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  • 00:00:00
    the msda world index is one of the major
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    stock market indices in the world and
  • 00:00:05
    arguably the most popular index among
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    passive investors it is a widely
  • 00:00:09
    recognized Benchmark for Global stock
  • 00:00:11
    markets and composting stocks from 23
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    different developed countries however
  • 00:00:16
    despite its popularity and widespread
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    use there are several misconceptions
  • 00:00:21
    surrounding the msci index that can lead
  • 00:00:23
    to misunderstanding its purpose and
  • 00:00:25
    significance so in this video we will
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    explore some of these misconceptions 5
  • 00:00:30
    and total and provide Clarity on what
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    the msda world index actually is how it
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    works and what its limitations are so
  • 00:00:37
    whether you are an experienced investor
  • 00:00:39
    or simply interested in learning more
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    about global Equity markets this video
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    will provide some very valuable insights
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    into the msci world index and its role
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    in the world of Finance
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    thank you
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    [Applause]
  • 00:00:56
    first off let me get one thing straight
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    think the vast majority of people should
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    simply invest passively and invest in
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    one two or three Broad and low cost
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    indices and I think the MSA world is a
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    really good choice for this if you are
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    completely new to investing investing in
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    a passive ETF is also an excellent
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    choice to get a sense of what it's
  • 00:01:16
    actually like to be invested in the
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    equity markets how it feels like when
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    the value of your Investments goes up
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    and down and to develop an interest in
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    the broader economy and more generally
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    economic topics however I think
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    especially among the group of passive
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    investors there are a lot of
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    misconceptions about the msci world
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    index so let me inform you about some of
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    the limitations of this popular ETF so
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    that you can make more informed
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    decisions when it comes to choosing the
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    appropriate investing strategy and goals
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    that suit your personal situation so the
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    first one is the idea that the msda
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    world carries no risk which is simply
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    not true what you have to understand is
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    that the passive investing industry is
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    now a trillion dollar industry and
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    obviously this industry will make lots
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    of promises to attract even more money
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    but these promises may not necessarily
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    be true the nsca world is certainly not
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    a magical investment instrument that
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    will magically always go up now in fact
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    it's not uncommon for the index to
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    decline in any given year as highlighted
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    by these two travel charts now take a
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    guess what do you think how long lasted
  • 00:02:22
    the longest drawdown of the msci world
  • 00:02:24
    index I'm pretty sure you will be
  • 00:02:26
    surprised by the length of this flat
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    return period so let me show you well
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    the longest drawdown period lasted for
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    13 years and two months and was between
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    August 2000 and October 2013 and the
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    maximum drawdown from Peak to draw and
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    this period was actually a negative 54
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    this chart here attempts to answer how
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    long you should stay invested to have a
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    high probability of achieving a positive
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    return for different period length it
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    calculates how many periods of that
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    length have resulted in positive return
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    and as you can see you only cross the 90
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    threshold if you extend your investing
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    Horizon to 10 years or more so to sum up
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    this first point please understand that
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    the msca world index is not immune to
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    Market fluctuations like all Investments
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    the msca world index is subject to
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    volatility and while the index has
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    historically delivered very decent
  • 00:03:19
    long-term returns it is still subject to
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    short-term ups and downs and it's
  • 00:03:24
    important to mentally prepare for this
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    okay the second limitation of the MSA
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    World index is a little more nuanced
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    from my experience of talking to people
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    who invest regularly in ETFs I can say
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    that investing in a broad market index
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    or multiple ETFs even makes many people
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    feel comfortable and I would argue
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    sometimes too comfortable take my fiance
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    for instance three years ago or so she
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    set up an ETF savings plan and now
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    invests 300 Euros a month into the MSA
  • 00:03:53
    World index I think that's actually a
  • 00:03:55
    great start but consider during her
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    monthly income 300 Euros in my opinion
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    is not really that impressive when
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    speaking of savings rates so as I said I
  • 00:04:05
    feel like most people are getting too
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    comfortable once they've set up one or
  • 00:04:09
    two ETF savings plans they tell
  • 00:04:11
    themselves that they are now doing
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    something for their retirement but then
  • 00:04:15
    they just stop they stop educating
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    themselves and they never consider
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    investing more money larger and more
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    significant sums of money that will
  • 00:04:23
    actually get them closer to reaching
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    Financial Freedom and quite frankly as
  • 00:04:27
    they are not educating themselves not
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    really understanding what they actually
  • 00:04:31
    invest in how their stock market works
  • 00:04:33
    and so on and so forth they would also
  • 00:04:35
    never feel comfortable actually putting
  • 00:04:37
    a hundred thousand dollars or more into
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    the stock market and this brings us to
  • 00:04:41
    my third problem with the MSA World
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    index the idea that the msci world index
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    is an appropriate index for all
  • 00:04:48
    investors another promise of the ETF
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    industry is that you simply have to
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    invest for 30 years and you will become
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    rich but as we've just shown first the
  • 00:04:57
    msci world does not always go up and
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    will actually experience multi-year flat
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    return periods too and second of all
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    investing just 50 or 100 a month will
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    not lead to Financial Freedom sorry but
  • 00:05:09
    I have to tell you that of course
  • 00:05:10
    investing a hundred dollars a month for
  • 00:05:12
    30 years straight will multiply your
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    wealth after 30 years your net worth
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    will have grown to 149
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    000 US Dollars and that's obviously
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    great but I have to break it to you 150
  • 00:05:24
    Grand will not allow you to live a
  • 00:05:25
    financially free life especially when
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    you start taking into account inflation
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    so you only get financially free if you
  • 00:05:32
    actually work very hard invest a lot of
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    money regularly over the long term try
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    to increase your income and possibly
  • 00:05:39
    achieve a return greater than eight
  • 00:05:40
    percent annually fourthly there is no
  • 00:05:43
    such thing as passive investing in fact
  • 00:05:45
    all investing requires active decisions
  • 00:05:48
    this is something that I have addressed
  • 00:05:50
    in a previous video of mine titled the
  • 00:05:52
    big index and ETF lie so first of all
  • 00:05:55
    many ETFs are actually anything but
  • 00:05:57
    passive and I think the average investor
  • 00:05:59
    is not really aware of this there are a
  • 00:06:01
    lot of very active portfolio management
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    decisions involved in most ETFs and
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    certain stocks may be added to or
  • 00:06:07
    deleted from an index on a regular basis
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    on top of this by investing in the msci
  • 00:06:13
    world index you yourself also make a
  • 00:06:15
    very active decision you make the
  • 00:06:17
    decision to get exposure to a the
  • 00:06:19
    developed markets and especially the
  • 00:06:21
    United States as contrary to popular
  • 00:06:24
    belief the msda world index does not
  • 00:06:26
    give you exposure to Global Equity
  • 00:06:28
    markets and all countries around the
  • 00:06:30
    world now in fact close to 68 of the
  • 00:06:33
    index is made up of U.S listed companies
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    and B you get a lot of exposure to large
  • 00:06:38
    cap stocks just look at the current top
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    10 constituents of the msci world index
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    that represent 18 of the index they are
  • 00:06:46
    all companies with the market
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    capitalization well north of 100 billion
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    US dollars so you cannot really say that
  • 00:06:52
    investing in the msca world index
  • 00:06:55
    guarantees absolute diversification now
  • 00:06:58
    investing in the msai world does provide
  • 00:07:00
    some level of diversification but it
  • 00:07:03
    does not guarantee it as seen the index
  • 00:07:05
    is heavily weighted towards the largest
  • 00:07:07
    companies in the United States lastly
  • 00:07:09
    with over 1 500 large and mid-cap
  • 00:07:12
    companies from 23 different developed
  • 00:07:15
    countries the index may be a great
  • 00:07:17
    choice from a diversification point of
  • 00:07:19
    view but it may also result in an
  • 00:07:21
    unintended exposure to lower quality
  • 00:07:24
    businesses if you've watched my recent
  • 00:07:26
    video titled the one thing most people
  • 00:07:28
    get wrong about stocks you will know
  • 00:07:29
    that the returns of the individual
  • 00:07:31
    components of a broad stock market index
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    are positively skewed meaning that only
  • 00:07:37
    a select few stocks actually contribute
  • 00:07:39
    meaningfully to the total return of the
  • 00:07:41
    index as Hendrick bazenbinder
  • 00:07:44
    highlighted in his paper do stocks
  • 00:07:46
    outperform treasury bills quote unquote
  • 00:07:48
    the best performing four percent of
  • 00:07:50
    listed companies explain the net gain of
  • 00:07:53
    the entire U.S stock market since 1926.
  • 00:07:56
    so what I love about investing actively
  • 00:07:58
    is that it gives me control over which
  • 00:08:01
    companies I actually invest in I only
  • 00:08:03
    want to invest in businesses earning
  • 00:08:05
    High Returns on Capital with healthy
  • 00:08:07
    balance sheets so that they can
  • 00:08:09
    self-fund the operations businesses with
  • 00:08:12
    a long run rate for growth and with
  • 00:08:13
    excellent Capital allocators at the
  • 00:08:15
    helmet of the corporation now combine
  • 00:08:18
    this with above average revenue growth
  • 00:08:20
    operating leverage and a modest starting
  • 00:08:22
    valuation and you get excellent
  • 00:08:24
    ingredients for an outperforming stock
  • 00:08:26
    of course you can also run a dual
  • 00:08:28
    strategy depending on your goals invest
  • 00:08:30
    a certain percentage of your net worth
  • 00:08:32
    passively in ETFs like the MSA World
  • 00:08:35
    index and then devote the other part of
  • 00:08:37
    your portfolio and net worth to
  • 00:08:39
    individual stocks with sound and strong
  • 00:08:42
    fundamentals okay I'm sure you would
  • 00:08:44
    love to learn more about the positively
  • 00:08:46
    skewed distribution of stock returns
  • 00:08:48
    which I just mentioned very briefly I
  • 00:08:51
    think understanding this is essential
  • 00:08:52
    for both active and passive investors so
  • 00:08:55
    make sure to watch the following video
  • 00:08:57
    next take care
Tags
  • MSCI World Index
  • Investing
  • Passive Investing
  • Risk
  • Stock Market
  • Diversification
  • ETFs
  • Financial Freedom
  • Market Fluctuations
  • Investment Strategy