Ask Money: should DIY investors stick with just one fund?

Money Observer answers a reader’s question related to our Model Portfolios and the wisdom of relying exclusively on a tracker fund.

December 15, 2018

Looking at the Money Observer Model Portfolios in the November Grow Money section, it appears that a FTSE World index tracker does better than most of the other holdings. It seems there is a strong case for personal investors such as myself to choose only one fund, which would be the best world equity tracker.

What are the pros and cons of doing this, and which are the best and cheapest world equity trackers, please?
Mike Dexter, by email

Money Observer replies: If you want to invest in a FTSE World tracker, you could use the iShares Core MSCI World ETF recommended on cost grounds by our sister broker, interactive investor, as one of its new Super 60 shortlist of funds. It’s important to remember, however, that the FTSE World index is heavily weighted to the US economy, which is why it has outperformed our model portfolios over the past six years. If the US economy slows relative to other parts of the world, world indices will look less impressive and so will trackers following them, because they can’t change their regional weightings to adjust to the changing economic environment. 

Moreover, it’s important to recognise that the Model Portfolios are designed for various different investment aims, timeframes and risk profiles. For income models in particular, a high weighting to the US does not make sense, given that it is a relatively low-yielding market. The private investor benchmarks also shown are more appropriate for the aims of the Model Portfolios.

If you need help with a tax, pension or financial planning problem, please email: moneyobserver.ed@moneyobserver.com

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