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These ETFs are an absolute staple for any passive investor

Mart Poom
3. 6. 2023
5 min read

Passive investing is becoming an increasingly popular way to hedge and participate in the stock markets. While active investors seek to outperform the market and achieve above average performance, passive investors have a very different goal, which can be tracked through these two indices.

This is because passive investors generally "only" want to follow the market. Which, if they succeed, they are halfway there. One of the most popular and effective ways to invest passively is through ETFs. Especially through two specific ETFs - or rather indices, the choice of ETF is then up to you.

ETFs are investment funds that are traded on exchanges similar to stocks. ETFs track the performance of a particular market or index and provide investors with an easy and efficient way to diversify their portfolio and minimize the risks associated with investing in individual stocks.

There is only one king

Just as Bitcoin is the king of cryptocurrencies, the S&P 500 is the king of indices.

TheS&P 500 (Standard & Poor's 500) is a stock index made up of the 500 largest companies traded on U.S. exchanges. These companies include a wide range of industries such as technology, healthcare, energy, financials and more. The S&P 500 is considered one of the best indicators of the performance of the U.S. stock market and its long-term performance has been very good.

Although it gained its current size (and name) in 1957, its origins date back to the 1920s. The average annualized return since its inception in 1928 through December 31, 2022 is 9.82%. The average annualized return since the 500 stocks were admitted to the index in 1957 through December 31, 2022 is 10.15%.

https://www.youtube.com/watch?v=beumv2JYdNM

Investing in the S&P 500 can be a good investment for investors looking to diversify their portfolio and reduce risk by investing in a large number of different companies in a variety of industries. There are several ways to invest in the S&P 500, with ETFs being the most popular.

There are many ETFs that track the performance of the S&P 500 index, and some of the most popular include the SPDR S&P 500 ETF $SPY+0.9%, iShares Core S&P 500 ETF $IVV+1.0% and Vanguard S&P 500 ETF $VOO+1.0%. These ETFs are traded on exchanges and allow you to invest in a wide range of U.S. companies that are included in the S&P 500 index.

It's important to note that each ETF has its own expenses and strategy, so it's important to carefully consider the various options and choose the ETF that best fits your investment goals and preferences. Specifically, I mean accumulation and distribution options, different domiciles, etc.

Accumulation vs Distribution ETFs. Don't make a mistake in this crucial decision!

The SPDR S&P 500 ETF $SPY+0.9% is the largest and oldest ETF tracking the performance of the S&P 500 index. SPY was launched in 1993 and has since become one of the most popular ETFs in the world. SPY is traded on the NYSE Arca exchange and currently has a market capitalization of approximately $300 billion.

Unfortunately, the most I can write about it here is for the sake of interest. It is an American ETF, which investors cannot officially buy here. Of course, you can get ETFs from most brokers in the form of a CFD - i.e. a contract. However, it is not subject to the various benefits and obligations as a real ETF. But the alternative is the European variants, which track the same index.

iShares Core S&P 500 UCITS ETF $CSPX - This ETF is managed by BlackRock and tracks the performance of the S&P 500 index. CSPX offers investors an easy way to invest in the index with minimal costs and is traded on exchanges in Europe. In addition, SPDR S&P 500 UCITS ETF $SPY5, Vanguard S&P 500 UCITS ETF $VUSA.

Is there really only one king?

In terms of popularity, the S&P 500 is indeed probably the king. But there's another very similar option. Even more diversified. Even... better?

TheAll-World Index is an index that includes stocks of companies from around the world and measures the performance of the global stock market. The index is compiled by MSCI (Morgan Stanley Capital International) and includes more than 3,000 companies in various countries and sectors.

The All-World Index is weighted according to the market capitalisation of each company, which means that more weight is given to larger companies with larger market capitalisations. This means that the performance of the index is influenced by the performance of the largest companies in the world.

The All-World Index is divided into several regional indices, including indices for North America, Europe, Asia and Pacific. These regional indices are further broken down by country and sector, allowing investors to track the performance of specific markets and industries.

Investing in the All-World Index is made possible through, how else, ETFs that track the performance of the index. Some of the most popular ETFs that track the All-World Index include the iShares MSCI ACWI ETF $ACWI+1.0%, the Vanguard Total World Stock ETF $VT and the SPDR MSCI ACWI ex-US ETF $CWI+1.1%.

Investing in the All-World Index allows investors to achieve diversification around the world. You are literally buying the performance of humanity.

Again, the same applies here as with the previous ETFs - officially we can only do the EU variants. For example:

iShares Core MSCI ACWI UCITS ETF $SWDA - Managed by BlackRock, this ETF is the largest ETF tracking the All-World index in Europe. In addition, the Xtrackers MSCI ACWI UCITS ETF $XDWD, Vanguard FTSE All-World UCITS ETF $VWRL

Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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