Is there any point in investing in both All Country and S&P 500? Explaining the 'over-holding problem' for beginners
Hello, this is Dividend Lab.
When you start investing, many people have questions like these.
“Is it better to invest in both All Country and S&P 500 for diversification?”
“Should I add NASDAQ 100 as well?”
“It seems safer to hold a variety of things.”
Even I, when researching investment products,
“This looks good too.”
“Maybe I should add that one too.”
I sometimes think that.
However, for investment trusts, it is not a simple matter of ‘the more you have, the more diversified you are’.
This time, I will organize the following as clearly as possible:
-
The meaning of holding both All Country and S&P 500
-
Does holding two really provide diversification?
-
How does it change if you add things like NASDAQ 100?
-
How should beginners think about this?
I will organize these points as clearly as possible.
First, what is the difference between All Country and S&P 500?
All Country, or ‘eMAXIS Slim Worldwide Equity (All Country)’, is an investment trust that aims to track an index called MSCI ACWI.
MSCI ACWI covers a wide range of large and mid-cap stocks in developed and emerging countries.
On the other hand, the S&P 500 is an index composed mainly of large companies representing the United States.
To put it very simply,
All Country = Global stocks
S&P 500 = Large-cap US stocks
That is the difference.
However, what is important here is that
All Country also contains a significant amount of US stocks
is the fact.
Looking at the composition of ETFs that track the MSCI ACWI, US stocks account for about 60% of the total.
In other words, by the time you buy All Country, you are already investing a significant portion in US companies.
Does All Country + S&P 500 really provide ‘diversification’?
This is the point I most want to convey this time.
For example,
10,000 yen per month into All Country
10,000 yen per month into S&P 500
Suppose you invest in these.
At first glance,
‘Because I hold two products, it is more diversified than just holding one’
it appears that way.
However, All Country already contains
NVIDIA
Apple
Microsoft
Amazon
Alphabet
Meta
and other large US companies.
And the S&P 500 also contains many of the same companies.
In short,
even if you have two products, their contents overlap significantly.
Therefore, holding both All Country and S&P 500 is,
rather than ‘diversifying into completely different investments,’
it is easier to think of it as
basing your portfolio on All Country while further increasing the ratio of U.S. stocks.
to think of it that way.
So, is there no point in holding both?
I wouldn’t go so far as to say there is ‘no point.’
If you have a specific goal, I think it is perfectly valid.
For example,
‘I want to invest globally, but I have slightly higher expectations for the U.S.’
For such a person,
in this case,
rather than just using All Country,
combining All Country and S&P 500
allows you to intentionally increase your U.S. stock ratio.
In other words, the reason for holding both is,
easier to understand if you think of it as adjusting the U.S. ratio yourself rather than increasing diversification.
is easier to understand if you think of it that way.
If you hold both after understanding this purpose, it is not particularly strange.
Conversely,
“It just feels safer to have two”
If that is your only reason, I think it is worth checking the contents once.
What happens if you add NASDAQ 100 as well?
What you see even more often is
All Country
+ S&P 500
+ NASDAQ 100
as a combination.
The NASDAQ 100 is composed mainly of large non-financial companies listed on the NASDAQ market, excluding financial companies.
Therefore, it is an index that is easily influenced by large U.S. technology companies and growth companies.
Here too,
“Since it increased to three, it is even more diversified”
is not necessarily true.
All Country, S&P 500, and NASDAQ 100 may all contain the same large U.S. companies.
In other words, adding the NASDAQ 100
has more of the meaning of increasing the weight of large U.S. growth stocks rather than increasing diversification
.
Of course,
“Even if the price fluctuations become larger, I want to have higher expectations for U.S. growth companies”
if you add it with this mindset, it is one option.
The important thing is,
not just adding them aimlessly, but understanding how your asset allocation changes when you do.
I believe.
What about adding high-dividend stocks or high-dividend ETFs?
The way of thinking changes a bit here.
All Country and S&P 500 are basically used with the goal of asset growth itself.
On the other hand, high-dividend stocks and high-dividend ETFs are,
often held by people with the goal of
‘wanting to receive regular dividends or distributions.’
Therefore,
a combination like All Country + high-dividend ETF
is not just about ‘diversifying regions,’ but rather,
a way of thinking about
how to combine asset growth and income.
I personally like receiving dividends and distributions as well.
However, I don’t judge based solely on the size of the dividends,
but also make sure to check
whether my total assets are ultimately increasing.
‘Holding a lot of things’ does not equal ‘diversification.’
Holding a lot of things does not equal diversification.
I think this is a point that is easy to misunderstand, especially when you first start investing.
For example,
All Country
S&P 500
NASDAQ 100
US High Dividend ETF
Japanese Stock Mutual Fund
even if you hold these 5,
when you check the contents, you may find that the proportion of investment in US stocks is actually quite high.
What is important is,
not how many funds you hold, but what you are ultimately investing in
.
When adding a mutual fund,
“If I add this product, which part of my assets will increase?”
It is easier to organize your thoughts if you think about it this way.
The disadvantages of holding too many funds
Holding multiple products is not bad in itself.
However, when the number of funds increases,
-
it becomes difficult to understand your asset allocation
-
investments in the same companies overlap
-
you lose track of why you bought them
-
management becomes troublesome
and so on.
Especially with long-term accumulation, there is a possibility that you will continue for years or decades.
That is precisely why
keeping things in a simple form that you can understand
is also important.
So, how should beginners think about this?
Personally, I think the easiest way is to first
decide ‘what you want to focus on’
and go from there.
Want to invest in the entire world? → Focus on All Country.
Want to believe more in U.S. growth? → Focus on the S&P 500.
Want to further increase U.S. large-cap growth? → Consider the meaning of adding something like the NASDAQ 100.
Want to enjoy dividends too? → Combine with some high-dividend stocks or ETFs.
That is the general idea.
Of course, there is no single right answer.
It is fine to have just All Country.
It is fine to have just the S&P 500.
It is fine to have both.
It is fine to combine them with other products.
However,
being in a state where you can explain to yourself ‘why you hold them’
is what I think is important.
Summary
To summarize the key points of this article:
-
All Country already contains a significant amount of US stocks
-
All Country and S&P 500 have a large overlap in their holdings
-
Holding both mainly serves to increase your exposure to the US market
-
Adding NASDAQ 100 further increases your weight in large-cap US growth stocks
-
Increasing the number of funds does not necessarily mean you are more diversified
-
What matters is not ‘how many funds you hold’ but ‘what you are ultimately invested in’
That is the takeaway.
When you start investing, you tend to want to hold many products that look good.
However, there are products that provide sufficient diversification with just one fund.
I myself am also working toward the goal of
reaching 10 million yen in assets while receiving dividends
toward that goal, and I want to continue building my assets while thinking about
not just ‘what to buy,’ but also
‘why I am holding it’
as I continue my asset formation.
I hope this article helps those who are wondering,
‘Should I invest in both All Country and S&P 500?’
‘Is it safer to buy a variety of things?’
I hope this serves as a helpful reference for those who are unsure.
*This article does not recommend investing in any specific product. Investing carries the risk of loss of principal. Please make your own final investment decisions.
[Reference]
MSCI ‘MSCI ACWI Index’
S&P Dow Jones Indices ‘S&P 500’
Nasdaq ‘NASDAQ-100 Index’
iShares ‘iShares MSCI ACWI ETF’