The MSCI World index is one of the most popular indexes to invest in. You typically invest in the index through an ETF. We will explain how the MSCI World index can be a great investment. Then, we'll show what to consider when choosing an MSCI World ETF. Finally, we'll discuss some of our favourite ETFs.
What is the MSCI World index
In finance, an index tracks a collection of stocks. Stocks are pieces of companies. These indexes exist to help people understand how well the stock market or a specific part of it is doing. For instance, the S&P 500 index consists of the 500 largest American companies and tracks a large segment of the US stock market. Belgium has its own stock market index, the BEL 20.
Rather than tracking the stock market of a specific country, the MSCI World index is a global index. It consists of about 1,500 stocks from 23 developed countries. It consists of large and mid-sized companies from North America, Europe, and parts of Asia, including the US, France, Germany, Japan, and Australia.
The index weights the stocks based on their market capitalisation. In other words, the bigger the company, the more important its weight within the index. For example, as of August 2024, Microsoft holds 4.48% of the index. In contrast, a smaller company like Lotus Bakeries represents only 0.007% of the index. American companies make up about 70% of the MSCI World index for the same reason. After all, the largest companies are part of the US economy.
Why the MSCI World is a great investment
Diversification is one of the main reasons why the MSCI World index is a great investment. It includes stocks from companies in 23 developed countries. This spreads your investment across different regions and industries and reduces the risk. You're not reliant on one stock, market, or sector. Also, developed countries have stable, mature economies and provide reliable growth over time.
Historically, the global stock market has shown a tendency to grow over the long term, despite short-term ups and downs. Investing in the MSCI World index lets you benefit from this growth. Since 1978, the index has delivered an average yearly return of 10.4%! If you had invested €10,000 in 1978, you would have had over €900,000 today.
Lastly, the easiest way to access a wide range of stocks is to invest in indexes like the MSCI World. We call this style of investing passive investing because you don't need to actively manage your investments. Instead of buying and selling individual stocks to try to outperform the market, you simply invest in index funds or ETFs that tracks a broad market index like the MSCI World. This approach allows you to benefit from the overall growth of the market with lower fees and less effort. And the data shows that it leads to better results.
How to invest in the MSCI World
We can't invest directly in an index. We must choose funds that track the index. In Europe, this is done through an ETF, or exchange-traded fund.
Investors trade ETFs on stock exchanges. The most popular stock exchanges are the New York Stock Exchange (NYSE) and Nasdaq. But, in Europe, it's better to buy ETFs on European exchanges. For example, Euronext Amsterdam or XETRA. To access a stock exchange, you have to go through an intermediary called a broker.
There are several brokers that Belgians can choose from, each with their pros and cons. Investing through a broker gives you the most flexibility. You have access to any of the thousands of ETFs available in the market, including ETFs that track the MSCI World. But, it's also the hardest because you're fully responsible for the management of your portfolio (and do you just choose to invest in one world ETF?). You have to learn how to build the best portfolio that aligns with your goals, how taxes work, which broker to use, make the trades every month...
The best MSCI World ETFs
When choosing a good ETF that tracks the MSCI World index, consider the following:
- Distribution of dividends. From a taxation point of view, accumulating funds are preferred over distributing funds to avoid paying a 30% tax on dividends.
- Domicile. Luxembourg and Ireland have special tax treaties with the US that make it attractive to set up funds there. As a Belgian investor, you can benefit from this by investing in funds that are domiciled in one of these two countries.
- Currency. If you buy a fund that is not traded in euro, the broker will likely convert it for you. But this comes at an additional cost.
- Size. Larger funds are less likely to be shut down.
- Replication. Physical replication is preferred over synthetic replication to reduce third-party risk.
- Cost. Fund managers charge a fee for managing their funds. The total cost of a fund is indicated by the total expense ratio (TER). Naturally, the lower the better!
- Sustainability. Some ETFs follow a sustainable version of an index where some companies have been excluded based on ethical views.
Here are three MSCI World ETFs that are interesting:
Learn more through our list of best world ETFs.
Curvo, the best option for index investing
At Curvo, we strongly believe that index investing is the best way for most Belgians to grow their wealth and prepare for their financial future. And we built Curvo to make index investing accessible to all Belgians.
The Growth portfolio is a great alternative to the MSCI World Index. It's composed of two funds, both offered by Vanguard:
- FTSE Developed All Cap Choice index (ISIN: IE00B5456744)
- FTSE Emerging All Cap Choice index (ISIN: IE00BKV0W243)
Together, these funds cover the entire world. The portfolio is even more diversified than the MSCI World index as it also includes stocks from emerging markets like Brazil and China.
Invest sustainably
Sustainable investing is challenging because everyone has different beliefs and values. The funds chosen in Growth focus on one guiding principle: they don't invest in companies that are considered destructive to the planet. This means the following sectors are excluded:
- non-renewable energy (nuclear power, fossil fuels)
- vice products (adult entertainment, alcohol, gambling, tobacco)
- weapons (civilian firearms, military weapons)
- controversial companies that do not meet the labour, human rights, environmental and anti-corruption standards defined by the United Nations Global Compact
No transaction tax
Each of the MSCI World ETFs is liable for the Belgian transaction tax. You need to pay this tax every time you buy or sell an ETF. But the funds in the Curvo portfolios are exempt. This means you’re saving between 0.12% and 1.32% per transaction, depending on the ETF you choose.
All your money is invested
Your investments work with fractional shares meaning that all your money is invested. When buying your own ETFs, you're required to buy whole units of shares. This can make it much harder to do invest monthly (which we recommend!) because you may have to wait several months until you've saved enough to buy a single share. You'll also always be left with some cash on your brokerage account.
You don't encounter these issues with the Growth portfolio. You can start investing from the first month, from €50, and every cent will be invested for you.
Automated monthly investing
You can set up a saving plan to send contributions monthly and put your investments on autopilot.
Portfolio tailored to you
Next to Growth, you can invest in other portfolios, each suited for a different financial goal and appetite for risk. When you sign up to Curvo, you are asked a couple of questions to determine your goal and the risk you are seeking. You are then matched with the portfolio that's best suited to you.
Explore how Curvo works if you want to learn more.
Buying ETFs is usually cheaper
Investing in one of Curvo's portfolios is usually more expensive than buying MSCI World ETFs through a broker. The fee starts from 0.6% “all-in” on your total investments, but provides you with peace of mind as everything is taken care of: taxes, rebalancing, purchases, etc...
Summary
In conclusion, the MSCI World index is a popular choice for long-term wealth growth. It's diversified and lets you invest at low cost and without much hassle. When choosing an MSCI World ETF, consider the dividend distribution, fund domicile, currency, fund size, replication strategy, cost, and taxes. These factors will help you find the best fit for your goals.
At Curvo, we offer a great alternative that lets you invest in a diversified portfolio of index funds that are even more diversified than the MSCI World index.
Questions you may have
Is the MSCI World index a good investment?
Yes! The MSCI World index is a good investment due to its broad diversification and growth potential, making it suitable for long-term investors seeking global exposure in putting their savings to work.
What is the difference between S&P 500 and MSCI World index?
The S&P 500 tracks 500 of the largest publicly traded companies in the United States, focusing solely on the U.S. economy. In contrast, the MSCI World Index includes around 1,500 stocks from 23 developed countries, providing a broader and more diversified exposure.
