Why the MSCI World is Difficult to Beat
The MSCI World is considered a benchmark for globally diversified equity investments. It includes approximately 1,500 companies from 23 industrialized countries, offering a broad spread across sectors and regions. Nevertheless, the index is not perfectly diversified: over 70% of the index is represented by the USA, which poses a significant concentration risk. Particularly, the so-called “Magnificent Seven” (large US tech companies) comprise a substantial portion – in February 2025, their weight was about 23%.
Typical Mistakes When Trying to Beat the MSCI World
- Overweighting individual sectors or countries: Many investors rely on active stock picking or focus on specific industries (e.g., technology) to achieve higher returns. This increases the risk of losses during corrections in those areas.
- Market timing: The attempt to predict market phases and strategically enter or exit often leads investors to miss out on important booms or realize losses.
- Panic selling during setbacks: Short-term price declines unsettle many investors. Those who sell then realize losses and may miss the market’s recovery.
- Ignoring currency risks: Since the majority of the MSCI World is denominated in US dollars, exchange rate fluctuations can significantly affect returns for Euro investors.
How to Invest Successfully – Without Typical Pitfalls
- Long-term perspective: Long-term perseverance usually pays off: those who stick with it despite short-term fluctuations and do not sell in a panic benefit from the historical upward trend of global equity markets.
- Diversification across regions and sectors: To reduce the concentration risk in the MSCI World, investors should complement ETFs with other regions (e.g., emerging markets) and focus on various sectors (e.g., healthcare or industry) to cushion tech corrections.
- Currency hedging: For Euro investors, it may be advisable to use currency-hedged ETFs or invest specifically in regional markets outside the USA.
- Avoiding panic sales: “The most important thing is not to panic first,” advises Stephan Witt from FiNUM.Private Finance AG in Berlin. A rushed sale usually leads to realizing losses; holding long-term, however, pays off positively.
What Investors Should Do – Summary
| Strategy | Advantage | Avoided Risk |
|---|---|---|
| Hold long-term | Takes advantage of historical market returns | Panic sales |
| Diversification | Reduces concentration risk | Overweight of individual markets |
| Currency hedging | Protects against exchange rate losses | Unpredictable FX fluctuations |