Earning Dollars & Investing Smart: All Country World Index vs. MSCI World Index Explained

So just a bit of background um started working last as a professional and then just paused my professional career and came overseas to the yachts . So I'm currently working in america and earning in us dollars . Um . I started with my tax free savings account last year already even started working and then also started an ra with the company .

So debit orders goes off every month . I max out my tax free savings as well , um as a debit order on my ra . I just want advice on the taxfree savings account . Currently I'm just buying msi . Well , or until now I've just been buying that , but I've heard in a few episodes you're talking about buying emerging markets and jay's e top 40 .

So I'm in it for the long run . Um , I'm not looking for short-term investments , I'm just buying monthly and not even looking at it . Would you suggest I buy jay's e top 40 um in my tax free savings account ? Um and emerging markets together with the msci world , or just keep it msci world and let it go on . What would you recommend then ?

Also , since I'm earning in dollars , um , I've got quite some extra capital to invest . I don't know if I should keep it in dollars and put it in my easy equity usd account and invest in the s ? P 500 and a lot of books I've read and podcasts I've listened to . They people are saying just buy s ? P 500 and keep it , s&p 500 and keep it .

I know the MSCI world and the S&P 500 they correlate quite a lot . It's basically the same companies . But yeah , but in my only I'm only buying MSCI world in my tax frame . So should I keep it in dollars and , on the side , buy S&P 500 as well ? Or what would you recommend I do ?

I can also just convert it over to RAND and just put it in a normal EasyEquities account and buy JSE top 40 there , or ? It might be a bit confusing this question question , but I hope you can help . It'll be good to hear from you . Thank you so much again for the podcast . It's amazing and keep well .

So let's just talk about firstly the principle of earning dollars and was do I take the dollars , bring them back to RANDs and then buy the JSE , the Emerging Markets Index and the World Index , or do I take dollars , keep dollars and then buy the World Index or the World Index and all the S&P 500 ? So let's just talk about the currency for a second .

I think it always costs money to convert currency . So you know , if you don't have to try and keep your investments in the currency in which you've earned them . So if you've bought , if you've got dollars because you've earned dollars , then rather use dollar based investments .

So don't worry about bringing the money back to South Africa to convert and go through that whole process , rather use dollars to buy a dollar based investment .

So I think it sounds complicated when you kind of pose it in your question , but I think just simplicity is strip out as much of the cost as you can , keep your currencies as similar as you can , and then don't worry too much about the Euros or the Chinese currency or the Japanese currency or whatever .

And I always think if you're earning dollars , it's the world's biggest currency and investing in dollars doesn't mean you're only investing in America . If you buy the world index , you're buying companies right across the world .

You're actually getting an allocation to currencies across the world , so the fact that it eventually gets priced in dollars doesn't matter to you .

Now , if the dollar implodes one day because you get Donald Trump becoming president and he does some stupid stuff , the reality is that the investments that you own in the UK or Europe or Japan or whatever will be worth a lot more dollars . So you'll be making money . Don't worry about the currency . I think it's fine .

One currency for a very diversified exchange-traded fund makes all the sense in the world to me . So maybe that simplifies life a little bit for you on the one side .

On the other side , I think choosing between the MSCI world and the S&P 500 , it is a bit tricky because we've gone through a decade where the S&P 500 has performed incredibly well , it's done much better than pretty much every other . You know index around , and so the people that you know drive their cars at 120 k's an hour forward .

But only look in the rear of your mirror . They're going to tell you buy the S&P 500 . You know it's done so well . So they're telling you about what has happened . Buy the S&P 500 . It's done so well . So they're telling you about what has happened Now . What has happened is no guarantee of what's about to happen next week , next month , next year .

So sketch the scenario where the Democrats and Republicans drive their country to a standstill . They don't extend the federal budget . The country grinds to a halt . They can't pay their bonds . They don't extend the federal budget . The country grinds to a halt . They can't pay their bonds .

And then tell me that America is going to be a great investment for the next decade . I mean , I'm not saying that's going to happen . I'm just saying there is a real chance that politics could drive America into a wall completely unnecessarily . So I think worrying about the past and using that as the purest indicator of the future is really not smart .

Back to my example of you know . Get into your car , drive at 100 k's or 120 k's an hour on a windy mountain road , but only look in the rearview mirror and tell me that you're going to get to the bottom of the road . You're not , and that's what people do when they look at past performance only as a way of making the decisions about the future .

So I think you're gathering . I like the American index , I like the American market . I think some of those companies I mean when you talk about Apple or Microsoft or whatever it is those big multinationals listed on the S&P 500 , they are not pure American companies . They don't only operate in America and sell to Americans in the US .

Microsoft sells to everybody around the world . I'm using Microsoft right now and I can promise you I'm not in America .

So I think it's not that you're taking a bet on the US only when you buy the S&P 500 , but you're taking a much more concentrated view on America and there is a very good chance that Asia , whether it's India or maybe China , restores itself , or maybe Vietnam or maybe Indonesia or maybe Japan , become like the next sort of powerhouse for the next decade .

And you've got all your money in America . You're not going to participate in that . So the reality is , we need to be humble enough to say we don't know what we don't know . We don't know what's going to happen next week . We can't even get an app that can reliably predict the weather . How on earth can we predict what's going to happen in markets ?

So taking a very specific view on just the American market , I think is too specific . Rather , buy the world . I think the one thing to think about is whether you buy the MSCI world or you buy something called the ACWI , the MSCI All-Country World Index . My preference would be All-Country World Index because it includes emerging markets as well .

Unfortunately , the World Index doesn't include emerging markets , which makes it a stupid name , and so they had to innovate and they came up with All-Country world index , which is the one that actually is the world .

So confusing , stupid , but that's the reality , and so that would be the one I would consider buying , instead of just the MSCI world , because it could be that emerging markets are the flavor of the decade . For the next decade they certainly weren't . For the last decade .

It was almost like American market very high , emerging markets very low , and decade-long trends don't tend to stay like that for the next decade . What happens is things reverse . So I would be very careful of just taking a US-only view . And you sound relatively young . You said you've just started your professional career and then chucked it in for the boats .

Relatively young , you said you've just started your professional career and then chucked it in for the boats . So you're not investing for the next decade , you're investing for the next 30 , 40 , 50 years .

And if you're doing that and your time horizon is so long , then you really should be practicing diversification and that's why the All Country World Index would be my preference . How you do that ? Where you buy your exchange traded fund ?

I think look for a very low cost global platform , ideally somewhere in Switzerland or in Ireland or Luxembourg or Channel Islands , because if you're a global citizen , you certainly don't want it to be tied to one country .

You want to be able to add money and access it from around the world and you don't want that country where your portfolio lives to tax you twice . You want to be taxed once in the country of your tax domicile , not twice . So don't open an account in the US .

That's a nightmare , unless you plan to live in America and I think , for the rest , if you decide to come back to South Africa in the next while , then certainly consider adding the top 40 index as well , so that you get a nice spread , because if you're going to spend RANDs , it makes sense to invest some RANDs as well , because often growth rates are higher

in South Africa . So I think you can worry about that as a step two . But step one , get a global exposure . If you don't want to commit all your money just to the all-country world index , consider a low , low cost general equity unit trust as well .

Often then you're paying the fund manager to go and choose those businesses around the world that will deliver good growth for you . I hope that helps . Thank you so much for your questions and enjoy the boats .