VTI vs MSCI World: The Battle of the Titans
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Investing can be a daunting task, especially for beginners. With so many options available, it’s hard to know where to start.
That’s why I decided to compare two popular exchange-traded funds (ETFs) – VTI and MSCI World – to help simplify the decision-making process. VTI vs MSCI World:
VTI, or Vanguard Total Stock Market ETF, is a well-known and widely held ETF that tracks the performance of the entire U.S. stock market. On the other hand, MSCI World is a global equity index that covers 23 developed markets and represents approximately 85% of the free float-adjusted market capitalization in each country.
So, which one is better? Well, it depends on your investment goals and risk tolerance.
In this article, I’ll break down the pros and cons of each ETF and provide my personal opinion on which one I prefer. Let’s dive in!
What is VTI?
VTI is the ticker symbol for the Vanguard Total Stock Market ETF. It is an exchange-traded fund that tracks the CRSP US Total Market Index.
This means that VTI invests in around 4,000 US stocks, providing an outstanding level of diversification.
VTI was launched in 2001 and has since become one of the most popular ETFs in the market. It is managed by Vanguard, a company known for its low-cost index funds and ETFs.
In fact, VTI has an expense ratio of only 0.03%, making it one of the cheapest ETFs available.
VTI is a great choice for investors who want to invest in the US stock market as a whole. It includes large, mid, and small-cap stocks, as well as value and growth stocks.
This means that VTI provides exposure to a wide range of companies across different sectors and industries.
Investing in VTI is also very easy. It can be bought and sold just like a stock, and it can be held in a variety of accounts, including individual brokerage accounts, IRAs, and 401(k) plans. This makes VTI a versatile investment option for investors of all levels.
What is MSCI World?
So, I was curious about MSCI World and how it compares to VTI.
After doing some research, I found out that MSCI World is a market cap weighted stock market index that tracks the performance of large and mid-cap companies across 23 developed markets countries. It includes about 1,508 constituents from all around the world.
According to MSCI, the index covers approximately 85% of the free float-adjusted market capitalization in each country. However, it does not offer exposure to emerging markets.
So, if you’re looking for exposure to emerging markets, MSCI World may not be the best choice for you.
MSCI World is often used as a benchmark for global or world stock funds that aim to represent a broad cross-section of global markets. It’s a great way to get exposure to large and mid-cap companies from developed markets all around the world.
VTI vs MSCI World: Key Differences
Performance VTI vs MSCI World
When it comes to performance, VTI and MSCI World have had different returns over the years.
VTI has had an average annual return of 13.45% over the last 10 years, while MSCI World has had a slightly lower return of 12.73% in the same time frame.
However, zooming in, VTI has returned an outstanding 17.45% over 5 years, while MSCI World only returned 14.30% in the same period. It’s important to note that past performance is not a guarantee of future results.
Geographic Exposure VTI vs MSCI World
VTI and MSCI World have different geographic exposures. VTI is a US-based ETF that tracks the performance of the entire US stock market, while MSCI World is a global index that includes stocks from 23 developed countries.
As a result, VTI is heavily focused on the US market, while MSCI World has a more diversified exposure to international markets.
Sector Allocation VTI vs MSCI World
VTI and MSCI World also have different sector allocations. VTI tracks the performance of the entire US stock market, which means it includes all sectors, including technology, healthcare, and financials.
On the other hand, MSCI World has a more diversified sector allocation that includes technology, healthcare, financials, consumer goods, and more. As a result, MSCI World has a more balanced exposure to different sectors, while VTI is heavily weighted towards the technology sector.
Overall, VTI and MSCI World have different performance, geographic exposure, and sector allocation. It’s important to consider these differences when choosing which ETF to invest in.
Which is Better: VTI or MSCI World?
Investment Goals VTI vs MSCI World
When deciding between VTI and MSCI World, it’s important to consider your investment goals. VTI is a great choice if you’re looking for exposure to the entire US stock market, while MSCI World offers a more global perspective.
If you’re looking for a diversified portfolio, then MSCI World might be the better choice for you. However, if you’re looking to invest solely in US stocks, then VTI might be the way to go.
Risk Tolerance VTI vs MSCI World
Another important factor to consider when choosing between VTI and MSCI World is your risk tolerance. VTI is considered a more aggressive investment because it’s focused solely on US stocks.
On the other hand, MSCI World offers a more balanced approach with exposure to both developed and emerging markets. If you’re comfortable with a higher level of risk, then VTI might be the better choice. However, if you prefer a more conservative approach, then MSCI World might be a better fit.
Cost VTI vs MSCI World
When it comes to cost, VTI has a slight advantage with a lower expense ratio of 0.03% compared to MSCI World’s expense ratio of 0.20%. However, it’s important to note that expense ratio isn’t the only factor to consider when evaluating cost.
Trading fees, bid-ask spreads, and taxes can all affect the overall cost of your investment.
Performance VTI vs MSCI World
Both VTI and MSCI World have performed well over the years. According to Mr. Marvin Allen, VTI has had an average 13.45% annual return over the last 10 years, while MSCI World has had a 12.73% annual return over the same time frame.
However, past performance is not a guarantee of future results, so it’s important to keep that in mind when making investment decisions.
The choice between VTI and MSCI World ultimately depends on your investment goals and risk tolerance. It’s important to do your own research and consult with a financial advisor before making any investment decisions.
Final Thoughts: VTI vs MSCI World
| ETF | Focus | Fluctuation Susceptibility | Average Annual Return | Expense Ratio | Number of Holdings | Suitability |
|---|---|---|---|---|---|---|
| VTI | US market | More susceptible to fluctuations in the US market | Higher average annual return over the last 10 years than MSCI World | Slightly lower expense ratio than MSCI World | Larger number of holdings than MSCI World | Better for long-term investments, higher potential return |
| MSCI World | Companies from all over the world | More stable and less risky | Lower average annual return over the last 10 years than VTI | Slightly higher expense ratio than VTI | Less number of holdings than VTI | Better for short-term investments, more stable and diversified |
Well, folks, we’ve reached the end of our journey comparing VTI and MSCI World. It’s been a wild ride, but I hope you’ve learned something new and exciting. Let’s take a moment to recap what we’ve discovered.
Firstly, VTI and MSCI World are both great ETFs, but they have their differences. VTI is focused on the US market, whereas MSCI World is more diversified, including companies from all over the world. This means that VTI is more susceptible to fluctuations in the US market, while MSCI World is more stable and less risky.
Secondly, we found that VTI has had a higher average annual return over the last 10 years than MSCI World. However, when we zoomed in on the last 5 years, VTI’s lead over MSCI World was not as significant.
This suggests that VTI may be a better choice for long-term investments, while MSCI World may be better for short-term investments.
Thirdly, we compared the fees and expenses of both ETFs and found that VTI has a slightly lower expense ratio than MSCI World. This means that VTI is slightly cheaper to invest in than MSCI World.
Finally, we looked at the holdings of both ETFs and found that they have some overlap, but VTI has a larger number of holdings than MSCI World.
This means that VTI is more diversified than MSCI World and less susceptible to fluctuations in any one company.
So, what does all of this mean for you? Well, it depends on your investment goals and risk tolerance. If you’re looking for a long-term investment with a higher potential return, VTI may be the better choice for you. However, if you’re looking for a more stable and diversified investment, MSCI World may be the way to go.
The decision is up to you. I hope this comparison has helped you make a more informed decision about which ETF is right for you. Happy investing!
Before you head out:
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- Vanguard Drip: What It Is and How to Do It - August 30, 2023
