MSCI World vs S&P 500: Which ETF is Better?

This was the question I sat with for a long time before I started investing. I went back and forth and eventually made a decision. There's no universally correct answer because it depends on your own situation, but at least I know the numbers now.

What is the MSCI World?

The MSCI World Index tracks around 1,400 companies across 23 developed countries. It is the most popular index for passive investing globally and is considered the standard building block for long-term wealth creation. Well-known ETFs include the iShares Core MSCI World and Xtrackers MSCI World.

Country breakdown (approx.): USA 70%, Japan 6%, UK 4%, France 3%, Canada 3%, Other 14%

What is the S&P 500?

The S&P 500 contains the 500 largest publicly listed US companies, from Apple and Microsoft to Berkshire Hathaway. It is the world's most important stock market index and the benchmark for the US economy.

Major companies in the S&P 500: Apple, Microsoft, Amazon, NVIDIA, Alphabet, Meta, Tesla, Berkshire Hathaway

Returns compared

Historically, the S&P 500 has marginally outperformed the MSCI World in most periods, mainly due to the strength of the US dollar and the dominance of American tech companies.

Historical returns compared (approx. p.a., in USD/EUR)

S&P 500: ~10–11% p.a. (last 30 years)

MSCI World: ~8–9% p.a. (last 30 years)

$200/month for 30 years at 9% → approx. $367,000

$200/month for 30 years at 10% → approx. $452,000

Difference: ~$85,000, but past returns are no guarantee of future performance.

Diversification: US concentration risk?

The most common criticism of the S&P 500: 100% US exposure. But consider this: the MSCI World is already ~70% US stocks. The diversification benefit of the MSCI World is real, but smaller than most people think.

The 30% non-US allocation in the MSCI World (Japan, UK, France etc.) has significantly underperformed US stocks over the past 15 years. This can change, but it's worth knowing.

Costs (TER) compared

Typical costs (TER)

S&P 500 ETFs: 0.03–0.07% p.a. (e.g. iShares Core S&P 500: 0.07%)

MSCI World ETFs: 0.12–0.20% p.a. (e.g. iShares Core MSCI World: 0.20%)

Over 30 years on a $50,000 investment, a 0.13% difference amounts to roughly $2,000–$3,000.

Which ETF suits you?

S&P 500 if you:

Believe in the long-term strength of the US economy
Want the lowest possible costs
Want direct exposure to the world's largest tech companies

MSCI World if you:

Want broader diversification across 23 countries
Don't want to depend entirely on the US economy
Prefer the classic "global portfolio" approach

The honest answer: I went back and forth on this for longer than I should have. In the end the decision matters less than actually starting, and staying invested when the market drops 20%. Time in the market beats timing the market every time.