There is the reasonable point though that some people want to use the dividends for something else. Some people also use the argument that the spreads are slightly different … i.e. VWRL is about 0.06% wider than VWRP. This whole spread thing is a consequence of you being able to trade the product just like a normal share. Now the argument goes that the wider the spreader the more it costs you to trade. You may or may not agree with that though . However, you should note spreads because they give you a feel for liquidity … I don’t think there is a huge issue with liquidity in this instance though.
You may be right. I prefer VWRL as I want the income, it’s more liquid and the spread’s tighter. However, the spread has narrowed over the years and, as @bitflip says, there’s not a lot in it now.
VUSA is an alternative but – for me – passive investing is about buying the world market. The US may underperform for a decade while emerging markets outperform, so I want exposure to both.
Yes, you can also buy ETFs for the UK, Europe, Japan and so on but then you’re either making active decisions about your allocations or having to do a balancing act to achieve ‘real-world’ weightings.
To my mind, that almost defeats the point of passive investing. I did the maths once and you don’t save as much as you might think either due to higher ‘hidden’ transaction fees.
Anyway, just buy VWRL or VWRP. (Not that I take my own advice, I’ve settled on VEVE plus VFEM as the sweetspot between cost and hassle in my Sipp.)
That’s a reasonable view. I’ve always liked Buffett’s suggested split of 90% S&P500, 10% short-term bonds – that’s so cheap, it’s going to be hard to beat. I think one of the keys for beginners is to keep things simple: you don’t need much more than one or two ETFs to have a diversified portfolio.
I can definitely see the attraction of dividends, I’m a beginner and part of my portfolio is in VHYL. However to keep the majority as simple as possible I went for VWRP as my largest ETF so I don’t miss out on reinvestment growth.
Interesting you mention that the spread is wider. I’d sort of understood the link between liquidity and spreads but I’d assumed that it would only have a noticeable effect on much smaller assets than VWRP. I think a one-time 0.06% cost is worth the lack of hassle for me though.
One important thing that all beginners should understand is the core idea behind ETFs. The ETF mantra get repeated soooo often that many people (beginners and otherwise) don’t realise why they make sense. They just go along with it - because “everyone” is doing it. The core idea is “buy the whole stock market”. Once you understand this you will realise that many ETFs** are in principle not within the “whole market” philosophy.
eeeh?
Fund managers are out to make money too. They want to make and sell products to you that you will buy. They find it easy to market products that fit in with “trendy topics”. These products are easier to sell to you. Trendy topics? Yes like “Cannabis” or “Alternative/Clean Energy” or “EV” or “Emerging Markets” or “Semiconductors”. It is important to realise that these thematic ETFs are usually concentrated opinionated picks and you are exposing yourself to substantial more risk than buying a general market ETF. Additionally, you are typically paying a great deal for the privilege of doing so. Some of these thematic ETFs may claim to follow some esoteric index. Some of these ETFs even did well in the growth era. Doing well for short periods of time doesn’t mean much (unless you are a trader rather than a investor and your stock picking skills are amazing).
I am not against active management as opposed to passive management - but if you go in that direction try to read up on some investment trusts. First of course get comfortable with your low cost core holding i.e. a tracker fund of some sort.
Now a controversial one: When the market conditions are as they are at the moment you might want to consider holding off on investing. This is a controversial statement as many will say “Hey hang on you are attempting to time the market” (Meaning you want to attempt a feat that is known as predicting the bottom of the market). No I am not suggesting that - I am suggesting that if you haven’t yet invested be wary: your funds are likely to take a hit at the moment (remember what a whole market ETF is? And remember the market is falling?). IMO at least you will miss some of the drop even if you don’t get some of the gain.
**Note: it is possible to stitch together ETFs to represent the “whole market”.
I’m racking ny brain and making myself go mad about choosing which etf route to go,i want a good spread but im stuck between going the all world route,which also wrecks my brain do i go v3am,vhyl,vwrl etc do i go or maybe something like vusa,dev europe,vuke,Japan,emerging etc and splitting it up like so,obviously not looking for someone to tell me what to do but ideas and thoughts are greatly appreciated.
If you don’t want to overcomplicate things you can trust the people at Blackrock or Vanguard to do that for you. Just buy a global tracker and if you want to keep 10/15% to invest in individual stocks you’re not risking your life saving on anything
It’s more liquid and has a tighter spread. It wouldn’t be unusual to see the spread on VWRP as high as 0.8/0.9% not long ago but it’s narrowed as the ETF has grown (eg 0.14% vs 0.30% today).
It’s much of a muchness really, beginners are probably best off using accumulating ETFs or – better still – an OEIC like Vanguard’s Global All-cap Fund which is inherently less tradable.
Additional VWRL would be easier for tax purposes if investing outside of an ISA. Reinvested dividends are still liable for dividend tax. Plus any capital gains tax could be more complicated.
. However, you should note spreads because they give you a feel for liquidity … I don’t think there is a huge issue with liquidity in this instance though.
