4 ms·

What bet am I making when I buy an entire stock market index fund?

• cheerlessbog 7y ago
  That stocks are going to be a better investment then other potential investments such as bonds, CDs, baseball cards, etc
• sparkling 7y ago
  You are still making a number of small bets unknowingly. A "entire stock market index fund" (which one?) has a methodology for weighting the funds and the markets it invests in. Most funds today weigh their selection by market capitalization. A other weigthing method, such as considering country GDP, might deliver superior results. Also such "entire stock market index funds" usually only include large cap stocks -- small or micro cap stocks may or may not deliver better results. Also such "entire stock market index funds" often will exclude entire countries. E.g. the very popular MSCI World and MSCI Emerging Markets funds contain 0 stocks from Ukraine but last year Ukraine had the best performing stock market worldwide.
  • Scoundreller 7y ago
    I’ve made the decision to not bother with international diversification beyond US and local (Canadian) indicies. Why? Non-US countries usually don’t have diverse stock indexes. You’ll have their big telecoms, their big banks and a few other industries. A lot of their big industries will be owned by multinationals anyway, and the smaller ones are private. The US large caps provide tons of international diversification, with a lot less paperwork and withholding taxes. Google, Apple, Facebook, McDo’s, any oil company, etc. have large amounts of foreign revenue/branches, even in countries without a stock market that you could buy on. If anything, US investors have too much international diversification when they buy US large cap indicies. If the US economy does well but the rest doesn’t, US stock market returns will be poor.