S&P 500 vs VDHG

Question

I know this has been asked before , and I do know this main difference between the two funds.. I think… I’m new to investing and currently have holdings in Vdhg. Although looking at the performance of the s&p 500 I’m wondering is this a better option long term. What are pros and cons of the two funds ? 
TIA

Answer

It’s a fair question Todd.

Pros of S&amp;P:
– If US outperforms, this will provide the best way to benefit from that

Cons of S&amp;P:
– Betting everything in a single market.

Pros of VDHG:
– Diversified portfolio of Aussie + Global shares, not just US.  Not reliant on any one market doing well long term.

Cons of VDHG:
– If US market outperforms rest of the world, VDHG will lag.  Only partial exposure to US.

Underlying your question is very likely one big assumption: that the US continues to have the strongest performance compared to other markets.  You may want to bet on that happening, but how do we know that’s the case?  We don’t.  Someone will say «but they have the best companies».  Sure, but it’s fair to say that that’s why they’re priced much more highly than other markets (to account for better outlook of stronger earnings growth).  So their ‘superiority’ in theory may be priced in already, meaning no excess returns can be expected.

At the end of the day, nobody really knows which markets will perform best over the long run.  Markets often have periods of strong/weak performance relative to each other.  Sometimes ASX will be the strongest, sometimes US, sometimes Asia or Europe.

By all means, invest in a way that makes the most sense to you.  But I would caution against assuming recent trends will continue.  For what it’s worth, Australia and the US have actually performed the same since about 1900.

Article: https://www.linkedin.com/pulse/australia-v-us-share-markets-its-our-turn-next-ashley-owen-cfa—dwg9c#:~:text=The%20Australian%20and%20US%20share,inflation%20per%20year%20since%201900.

Happy investing.

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Todd Rossiter McLaren

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