Cheapest way to buy MSCI World

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glorat
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Cheapest way to buy MSCI World

Post by glorat » Fri Aug 23, 2019 8:22 am

The usual default strategy for the international boglehead is to buy the total stock market. The most popular index that covers the total stock market is the MSCI ACWI index (or some variant of it) so the question is what are the simplest and most cost-effective ways to buy this index.

The simplest is to use 1 fund - and that's typically the Vanguard FTSE All-World UCITS ETF (TER 0.25%) (VWRD/VWRA/VWRL/VWRP etc.)

The often discussed way to do it cheaper is to buy developed world and emerging markets separately. Developed world can be covered by iShares Core MSCI World ETF (IWDA) or SPDR MSCI World ETF (SWRD), accompanied by iShares Core MSCI EM IMI (EIMI). Net TER now drops to 0.13-0.20%.

Since that's all I've seen, I figured that was cheapest, until this conversation happened.
glorat wrote:
Thu Aug 22, 2019 10:31 am
engineerahead wrote:
Thu Aug 22, 2019 12:12 am
[...]

Even though it's easy to go two big stocks, I've recently encountered an idea where the people that don't mind the hassle of having multiple ETFs go for the All World allocation manually, which is about 6-7 ETFs altogether, but the total TER goes from around 0,20 to 0,12, but at the cost of additional expenses PER trade depending on your broker - my calculations are that in the longer investment horizon and higher value of portfolio this is the cheaper result over years even though you pay extra per exchange.
I haven't seen anything cheaper than the SWRD+EIMI combo. Sorry, I don't believe the claim of 6-7 ETFs with net TER of 0.12% for non-US people. The only way I can imagine doing this is with US domiciled funds (rather than Ireland domiciled funds) but that will incur the hidden dividend tax cost that will double the TER cost.
So with the gauntlet thrown down, @engineerahead picked it up and slapped me with it :D
engineerahead wrote:
Thu Aug 22, 2019 11:38 pm
I'm sorry then, if you haven't seen anything possibly cheaper than IWDA+EMIM then it surely doesnt exist! :D
All of the singular ETFs could be found accumulating, domiciled in Ireland, traded by Euronext Amsterdam and are available with Degiro..
And here's the portfolio given by @engineerahead (and @selters):

57% iShares Core S&P 500 (TER 0.07%)
10.4% iShares Core Emerging Markets (0.18%)
18.4% iShares Core Europe (0,12%)
7.1% iShares Core Japan (0.15%)
3.7% iShares Core Pacific ex Japan (0.2%)
3% Shares MSCI Canada UCITS ETF (0.48%)

netting you an interesting 0.11-0.12% TER

What do people think about this portfolio? How does it track compared to the "simpler" choices? Would you give it consideration

Disclaimer: I'm all on VWRD variants because an extra 0.05% cost isn't worth my mental time/effort to maintain extra ETFs but for more than 0.1% it at least gets some attention

Edit: Corrected the TER for SWRD+EMIM from 0.18% to 0.13%
Last edited by glorat on Fri Aug 23, 2019 10:27 am, edited 1 time in total.

Mindhacker
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Re: Cheapest way to buy MSCI World

Post by Mindhacker » Fri Aug 23, 2019 8:50 am

I thought that SWRD (0.12 TER) + EMIM (0.18 TER) is the cheapest combo and if you go to a 88 - 12 allocation as you will lend somewhere around 0.13 TER per your portfolio.

If you take into consideration that having multiple funds will imply multiple acquisition costs I am wondering if it makes any sense the hustle ...

I buy funds 3 times per year and instead of 6 orders based on your model I will have 18, now depending on your broker and your terms may not be an issue especially if you have large amounts of money but in my case makes no sense. Keep it simple :)

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BeBH65
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Re: Cheapest way to buy MSCI World

Post by BeBH65 » Fri Aug 23, 2019 9:01 am

Two of the Bogleheads principles are: "simplicity" and "keep costs low". Sometimes you cannot have both.

Morningstar XRay allows to create portfolios and to compare them on composition and multiple metrics.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

Valuethinker
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Re: Cheapest way to buy MSCI World

Post by Valuethinker » Fri Aug 23, 2019 9:11 am

glorat wrote:
Fri Aug 23, 2019 8:22 am
The usual default strategy for the international boglehead is to buy the total stock market. The most popular index that covers the total stock market is the MSCI ACWI index (or some variant of it) so the question is what are the simplest and most cost-effective ways to buy this index.

The simplest is to use 1 fund - and that's typically the Vanguard FTSE All-World UCITS ETF (TER 0.25%) (VWRD/VWRA/VWRL/VWRP etc.)

The often discussed way to do it cheaper is to buy developed world and emerging markets separately. Developed world can be covered by iShares Core MSCI World ETF (IWDA) or SPDR MSCI World ETF (SWRD), accompanied by iShares Core MSCI EM IMI (EIMI). Net TER now drops to 0.18-0.20%.

Since that's all I've seen, I figured that was cheapest, until this conversation happened.
glorat wrote:
Thu Aug 22, 2019 10:31 am
engineerahead wrote:
Thu Aug 22, 2019 12:12 am
[...]

Even though it's easy to go two big stocks, I've recently encountered an idea where the people that don't mind the hassle of having multiple ETFs go for the All World allocation manually, which is about 6-7 ETFs altogether, but the total TER goes from around 0,20 to 0,12, but at the cost of additional expenses PER trade depending on your broker - my calculations are that in the longer investment horizon and higher value of portfolio this is the cheaper result over years even though you pay extra per exchange.
I haven't seen anything cheaper than the SWRD+EIMI combo. Sorry, I don't believe the claim of 6-7 ETFs with net TER of 0.12% for non-US people. The only way I can imagine doing this is with US domiciled funds (rather than Ireland domiciled funds) but that will incur the hidden dividend tax cost that will double the TER cost.
So with the gauntlet thrown down, @engineerahead picked it up and slapped me with it :D
engineerahead wrote:
Thu Aug 22, 2019 11:38 pm
I'm sorry then, if you haven't seen anything possibly cheaper than IWDA+EMIM then it surely doesnt exist! :D
All of the singular ETFs could be found accumulating, domiciled in Ireland, traded by Euronext Amsterdam and are available with Degiro..
And here's the portfolio given by @engineerahead (and @selters):

57% iShares Core S&P 500 (TER 0.07%)
10.4% iShares Core Emerging Markets (0.18%)
18.4% iShares Core Europe (0,12%)
7.1% iShares Core Japan (0.15%)
3.7% iShares Core Pacific ex Japan (0.2%)
3% Shares MSCI Canada UCITS ETF (0.48%)

netting you an interesting 0.11-0.12% TER

What do people think about this portfolio? How does it track compared to the "simpler" choices? Would you give it consideration

Disclaimer: I'm all on VWRD variants because an extra 0.05% cost isn't worth my mental time/effort to maintain extra ETFs but for more than 0.1% it at least gets some attention
7 basis points on $100k is $70 pa?

I will live. There are trading costs associated with manual rebalancing - trading costs on the ETFs. In rising markets there is a "drag" because you have not rebalanced instantaneously.

KISS principle works in investing as in so many other fields. Or put it another way get your strategy right, the tactics will look after themselves.

Laurizas
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Re: Cheapest way to buy MSCI World

Post by Laurizas » Fri Aug 23, 2019 9:31 am

Too difficult, keep it simple.

Norseman14
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Re: Cheapest way to buy MSCI World

Post by Norseman14 » Fri Aug 23, 2019 9:55 am

Vanguard's Total World Stock Index (VTWAX/VT) has ~8000 stocks from 40+ countries for under 10 bps.

Mister643
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Re: Cheapest way to buy MSCI World

Post by Mister643 » Fri Aug 23, 2019 10:14 am

Having more ETFs makes sense only if you are doing a value or size tilt. Otherwise, just keep it simple if you want not to change anything.

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Vulcan
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Re: Cheapest way to buy MSCI World

Post by Vulcan » Fri Aug 23, 2019 10:25 am

Norseman14 wrote:
Fri Aug 23, 2019 9:55 am
Vanguard's Total World Stock Index (VTWAX/VT) has ~8000 stocks from 40+ countries for under 10 bps.
Welcome to bogleheads, Norseman14.
Great first post.

Perhaps OP could clarify what they are trying to accomplish here and what their reasons are for looking past VTWAX as the sole stock holding.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

Topic Author
glorat
Posts: 235
Joined: Thu Apr 18, 2019 2:17 am

Re: Cheapest way to buy MSCI World

Post by glorat » Fri Aug 23, 2019 10:26 am

Mindhacker wrote:
Fri Aug 23, 2019 8:50 am
I thought that SWRD (0.12 TER) + EMIM (0.18 TER) is the cheapest combo and if you go to a 88 - 12 allocation as you will lend somewhere around 0.13 TER per your portfolio.
Good call! I earlier mis-did the maths on this and you're right - this two fund combo is only 0.13% which makes it much more favourable than squeezing things with 6 funds.

Anyway, great comments from all. Personally, I will continue with VWRD because I'm a simple lazy person

engineerahead
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Re: Cheapest way to buy MSCI World

Post by engineerahead » Fri Aug 23, 2019 10:29 am

glorat wrote:
Fri Aug 23, 2019 8:22 am
The usual default strategy for the international boglehead is to buy the total stock market. The most popular index that covers the total stock market is the MSCI ACWI index (or some variant of it) so the question is what are the simplest and most cost-effective ways to buy this index.

The simplest is to use 1 fund - and that's typically the Vanguard FTSE All-World UCITS ETF (TER 0.25%) (VWRD/VWRA/VWRL/VWRP etc.)

The often discussed way to do it cheaper is to buy developed world and emerging markets separately. Developed world can be covered by iShares Core MSCI World ETF (IWDA) or SPDR MSCI World ETF (SWRD), accompanied by iShares Core MSCI EM IMI (EIMI). Net TER now drops to 0.18-0.20%.

Since that's all I've seen, I figured that was cheapest, until this conversation happened.



So with the gauntlet thrown down, @engineerahead picked it up and slapped me with it :D


What do people think about this portfolio? How does it track compared to the "simpler" choices? Would you give it consideration

Disclaimer: I'm all on VWRD variants because an extra 0.05% cost isn't worth my mental time/effort to maintain extra ETFs but for more than 0.1% it at least gets some attention
Hello,
I hope you know I didn't mean to be a negative nancy, I meant well for the others to just consider this and have mentioned it has more work and specifics. If it felt too agressive then I am sorry.
This is something I stumbled upon recently and only have given time to calculation as to at what point in time would this make me save more money in my specific case (country, broker,..) and against the typical IWDA + EMIM combo many people use.

I, myself am an user of the IWDA+EMIM combo for now, mainly since Im at the very beginning on the investment career and the 0,2 TER does nothing to the amount invested and Im learning as I go. SWRD is a very interesting option but pretty new and I would like its size to grow some more even though I don't expect this version to have problems or end.

Guys, I understand that the baseline thinking is investing into a broad US/World index AND minimize the cost, thats why the proposition was specifically for my case and I mentioned it for those willing to tinker some more with the portfolio each time they buy. The setup is person and broker specific in this case and not recommended for anybody, but as in all things, shouldnt be bad to at least know about.
Last edited by engineerahead on Fri Aug 23, 2019 10:37 am, edited 1 time in total.

Topic Author
glorat
Posts: 235
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Re: Cheapest way to buy MSCI World

Post by glorat » Fri Aug 23, 2019 10:32 am

engineerahead wrote:
Fri Aug 23, 2019 10:29 am
I hope you know I didn't mean to be a negative nancy, I meant well for the others to just consider this and have mentioned it has more work and specifics. If it felt too agressive then I am sorry.
Not at all! I really appreciated your post, sincerely. Thank you for posting it. I know tone is difficult on the internet but this thread was actually me trying to give you a compliment for teaching me something new and wanting to give you credit as I share it with others.

:sharebeer :sharebeer

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BeBH65
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Re: Cheapest way to buy MSCI World

Post by BeBH65 » Fri Aug 23, 2019 10:48 am

Vulcan wrote:
Fri Aug 23, 2019 10:25 am
Norseman14 wrote:
Fri Aug 23, 2019 9:55 am
Vanguard's Total World Stock Index (VTWAX/VT) has ~8000 stocks from 40+ countries for under 10 bps.
Welcome to bogleheads, Norseman14.
Great first post.

Perhaps OP could clarify what they are trying to accomplish here and what their reasons are for looking past VTWAX as the sole stock holding.
This was posted in the non-US portion of the forum. Outside of the US it is sometimes not possible or desirable to buy US-domiciled funds, hence...
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles

engineerahead
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Re: Cheapest way to buy MSCI World

Post by engineerahead » Fri Aug 23, 2019 10:49 am

glorat wrote:
Fri Aug 23, 2019 10:32 am
engineerahead wrote:
Fri Aug 23, 2019 10:29 am
I hope you know I didn't mean to be a negative nancy, I meant well for the others to just consider this and have mentioned it has more work and specifics. If it felt too agressive then I am sorry.
Not at all! I really appreciated your post, sincerely. Thank you for posting it. I know tone is difficult on the internet but this thread was actually me trying to give you a compliment for teaching me something new and wanting to give you credit as I share it with others.

:sharebeer :sharebeer
I jumped too rashly on you not believing me that possibly cheaper ETF combo exists. You investigating the idea actually showed me that if a person doesn't specifically want to manually change the percentage weights of singular ETFs, then the 6 ETF portfolio is very clunky compared to SWRD+EMIM with similar costs.
Thank you :sharebeer :sharebeer

tre3sori
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Re: Cheapest way to buy MSCI World

Post by tre3sori » Fri Aug 23, 2019 11:24 am

To give some numbers:
The difference between 0.25% for VWRD and 0.126% for a 90% SWRD + 10% EIMI portfolio is 0.25% - 0.126% = 0.124%
Over a thirty year period this amounts to 1.00124^30 = 1.038 advantage for a 90% SWRD + 10% EIMI portfolio.
That is: For 100,000€ VWRD you get 103,780€ 90% SWRD + 10% EIMI theoretically (no rebalancing cost, behavior mistakes etc)
Is that right?

Mindhacker
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Re: Cheapest way to buy MSCI World

Post by Mindhacker » Fri Aug 23, 2019 1:23 pm

Which means that for 100k in 30 years you will loose 21k's for nothing assuming the average return rate is 6.12%

At 5.87%: 553,588.92
At 6%: 574,349.12

freestyler
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Re: Cheapest way to buy MSCI World

Post by freestyler » Fri Aug 23, 2019 1:34 pm

Which European broker has 0% commission for ETFs though?
The cheapest one is degiro and has a cost of around 2 Euros per ETF.
So if you do dollar cost averaging and you buy an additional ETF each month then that's 2 * 12 (months) * 30 (years) = 720 euros for the cheapest broker I know.

Just another thing to factor in.

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alpine_boglehead
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Re: Cheapest way to buy MSCI World

Post by alpine_boglehead » Fri Aug 23, 2019 3:11 pm

Other things to consider are - what's the tracking error of the various ETFs? Tracking error can also be like 5 or 10 basis points (which is about the same order of magnitude as the TER savings discussed). Is share lending revenue fed into the fund or does it go to the fund company?

The final chapter has not been written. I hope that economies of scale and competition will eventually bring down TERs in Europe and give us a one-stop shop VT-like option (VWRD is only large/mid cap, VT is all-cap) at a VT-like TER (0.09%).

If it arrives one day, the fly in the ointment will be that we'll have invested our money already in more expensive options, caught there forever (or until the next big market drop) due to to having capital gains in taxable accounts.
So, the most actual question is - what already existing fund will be the best (and most cost-effective) down the roard in 5 or 10 years? Vanguard (at least in the US) has a history of lowering prices on existing funds/ETFs. iShares also lowered the TER of EIMI from 0.25% to 0.18% last year. Hard to guess what's the better option here.

And maybe there's another financial innovation that makes ETFs the old thing of tomorrow - e.g. funds/ETFs still have the problem of withholding tax leakage (at my tax rate, that's another 0.22% loss), holding the stocks directly in a robo-managed account would not have that issue.

Stick5vw
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Re: Cheapest way to buy MSCI World

Post by Stick5vw » Sat Aug 24, 2019 7:42 am

from a performance standpoint, is the outcome better or worse for investing in a global equity ETF than a US + Intl + EM approach? For full disclosure I follow the latter approach as I am comfortable with a slight overweight to Intl/EM (please not looking to open the Pandora’s box of US vs Intl!)

I could be wrong but recall reading once upon a time that a global strategy has lagged a building block approach, assuming rebalancing took place regularly (let’s say quarterly)

I know it’s administratively a hassle to rebalance for the regional approach, but equally it may be slightly cheaper as noted above - and if the performance outcome is better, more power to ya.

are there any material pros /cons for doing a global vs. Regional approach? )Feel free to send links to other prior discussions if it’s been covered elsewhere ...)

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