Why I don't have a Europe Etf in my portfolio:
Since I've written about this a few times in comments over the past week, I thought I'd just compose a post about it. This viewpoint represents only my personal opinion. Since many of the community live in Europe, I am specifically addressing these people.
You always hear that with an All World Etf or a World Etf you have a lump risk with the USA because the USA portion is so high and the Europe portion is so low. I also started out with a world portfolio consisting of 70% World Etf, 20% Emerging Markets Etf and 10% Europe Etf as a strategy to match the weighting of my portfolio to the gross domestic products, but then switched to a 70/30 World/EM and I would like to explain why.
One question or confusion that comes up often and should be nipped in the bud is "I need to weight the Europe Etf at least 20% to match my Europe portion to GDP". This is not correct. Europe's GDP in the world has been around 20-25% in recent years. The Europe portion in the World Etf (if it has 70% weighting in the portfolio) + 10% extra Europe Etf equals about 24% Europe portion in the total portfolio if the remaining 20% of the portfolio does not include Europe.
Let's come back - why would you underweight Europe in your portfolio?
Besides the fact that it's simpler to save, rebalance and un-save 2 Etfs, your place of residence should play a crucial role in the weighting of your Etfs. I live in Germany and therefore also in Europe. If this also applies to you, then the following factors in Europe can directly or indirectly influence you, your salary, your assets or other circumstances of your existence:
European politics, migration, immigration, infrastructure, medical care, basic services, environmental disasters, regional crises & unrest, inflation & deflation, real estate prices, cost of living, violent conflicts, political tensions & sanctions, etc.
Even if you do not work in the free economy and/or your salary is at least indirectly linked to the European economy, your wealth accumulation is subject to a dependency on your place of residence and the associated circumstances (currency, economy, politics, environment).
Thus, Europe already plays an important role for most of us in the community, which is not represented in a percentage weighting and therefore some are not so clearly aware. If you weight Europe in your portfolio in such a way that it comes close to the gross domestic product and you also live and/or work in Europe, you are in my opinion overweighting Europe, since the above-mentioned factors, which of course have an impact on the European share in your portfolio, primarily have an impact on your life and possibly also on your asset accumulation.
Thus, European investors unintentionally enter into a high weighting, or dependency on Europe. For me, this is one reason to stick with a 70/30 split between the World Etf and the EM Etf. Another would be that the few percent more or less Europe in the portfolio will not make a big difference in my estimation either. Many roads lead to Rome.
With this train of thought I also say goodbye to you for an indefinite time 👋🏽 I will be operated tomorrow and according to my experience I will not be on social media for the time being.
