As much as we like selecting only the finest companies to invest in at the Fool, there are times when it feels far safer and far easier to buy, well, pretty much everything. That’s the thinking behind global index trackers and exchange-traded funds (ETFs).
This is investing at its laziest, and I mean that in a good way. There’s no need to pore over balance sheets, read between the lines of the latest trading update or scrutinise the track record of management. It’s the equivalent of walking down a supermarket aisle with your arms outstretched, guiding everything off the shelves into your trolley.
One example of such a fund would be the FTSE All-World ETF (LSE: VWRL) offered by US passive investment giant Vanguard. As it sounds, it seeks to match the FTSE All-World Index which itself tracks the performance of a huge number of large and mid-cap stocks around the globe.
The fact that your money is invested in thousands of stocks (3,178 to be precise) means that you’ll never need to worry about losing all your cash. Winning companies compensate for losers and high performing countries make up for the laggards. Out of interest, those bothered by how our economy might do post-Brexit can be reassured that — with just 5.7% of your capital invested in UK businesses — any negative impact from our EU departure should be fairly mild.
Another strength of this particular fund is the fact that it is truly global. In other words, it invests in stocks from both developed and emerging countries — handy if you want exposure to economies that could get significantly larger as the years pass. That said, the fact that the US economy remains the largest in the world means that companies from across the pond still make up a significant proportion of the fund.
In addition to diversification, a passive global fund such as the one offered by Vanguard has seriously low fees (0.25%), at least relative to actively managed funds trying to pick the best of the best. Although clearly far less than the sort of payout you can pick up from companies in the FTSE 100, the 2.1% yield (as of 31 October) is yet another positive.
Are there really no downsides?
Well, as with all passive investments, you will never do better than the index the fund is charged with replicating. Given that studies have reliably shown that very few money managers are able to consistently outperform the market over the long term anyway, that’s not necessarily a problem. Indeed, so long as you can avoid meddling, you can be pretty confident that your single mouse click will outperform most professionals paid to beat the index after costs.
Of course, the fact that funds such as the one described above only invest in companies above a certain size means you do miss out on smaller businesses that can grow at a rapid pace. Again, that’s not really an issue since similar funds for tracking minnows also exist (although be aware that the definition of ‘small’ can vary between providers).
Taking all this into account, devoting at least some cash to a global index tracker or exchange-traded fund feels like an eminently sensible thing to do in my mind, particularly for those who are not blessed with time on their hands.
