discovering superior alternatives to the MSCI World: AI recommends top ETFs for retirement planning
After decades, an Exchange-Traded Fund (ETF) based on the MSCI World index has been considered the preferred choice for personal retirement savings. However, is this lasting trend about to change? An artificial intelligence has identified the best ETF for long-term wealth accumulation — the results are unexpected.
Financial security in retirement is increasingly vital for many individuals in Germany. Private retirement savings are, therefore, no longer optional — Exchange Traded Funds (ETFs) are a popular way for individuals to grow their wealth over the long term.
The key advantage of ETFs lies in their broad diversification. Instead of investing in individual stocks, investors can diversify their holdings by investing in entire industries, countries, or even the global economy through an ETF. Additionally, the management costs are usually significantly lower than with actively managed funds, as ETFs simply replicate an index.
But which ETF is the optimal long-term choice for private retirement savings?
The MSCI World index is traditionally regarded as a leading retirement ETF. It tracks the performance of about 1,500 companies from 23 developed countries and benefits from the long-term growth of the global economy. Despite crises, the index has reached new highs over time.
However, might there exist an ETF that is even better suited for retirement savings? An artificial intelligence has tackled this question.
The ideal ETF for retirement savings according to AI — can the MSCI World keep up?
Determining the optimal ETF for long-term wealth accumulation involves various methods and a variety of opinions. One exciting approach is to ask an artificial intelligence (AI) for its assessment. Modern AI models have access to extensive databases and consider a broad array of factors when making their assessments — from historical returns to risk metrics to present market trends.
For this experiment, we posed the question to the most well-known AI: ChatGPT, developed by OpenAI, specifically the latest version, GPT-4. For clarity, some answers were shortened while maintaining their original content.
So we inquired directly: What is the best ETF for retirement savings?
ChatGPT: The ideal ETF for retirement savings depends on several factors, such as age, risk tolerance, investment horizon, and personal preferences. In general, broad-based, low-cost ETFs with long-term growth potential are best suited for retirement savings. Here are some of the best ETF types for retirement savings:
1. Global Equity ETFs (Broad Diversification)
These ETFs are ideal for long-term investors as they offer broad diversification and minimize the risk of individual regions:
•iShares MSCI ACWI UCITS ETF (ISIN: IE00B6R52259) → Global ETF (Developed & Emerging Markets)
•Vanguard FTSE All-World UCITS ETF (ISIN: IE00BK5BQT80) → Similar to MSCI ACWI, but with FTSE index
•iShares Core MSCI World UCITS ETF (ISIN: IE00B4L5Y983) → Focuses on developed countries (no emerging markets)
2. Emerging Markets ETFs (Long-term Growth Potential)
If you are willing to assume a higher degree of risk:
•iShares MSCI Emerging Markets UCITS ETF (ISIN: IE00B4L5YC18) → Invests in emerging markets such as China, India, Brazil
•Xtrackers MSCI Emerging Markets UCITS ETF (ISIN: IE00BTJRMP35) → Low-cost alternative
3. Sustainable ETFs (ESG-compliant)
If sustainability is important to you:
4. Dividend ETFs (For passive income in retirement)
If you prefer to live off dividends in retirement:
•Vanguard FTSE All-World High Dividend Yield UCITS ETF (ISIN: IE00B8GKDB10)
•SPDR S&P Global Dividend Aristocrats UCITS ETF (ISIN: IE00B9CQXS71)
5. Bond ETFs (For more security in retirement)
If you wish to become more risk-averse as you age:
•iShares Core Global Aggregate Bond UCITS ETF (ISIN: IE00BDBRDM35) → Global bond ETF
The best retirement savings strategy
•Young (under 40 years) → A high allocation of equities (80-100%), focusing on MSCI World / All-World ETFs
•Middle-aged (40-55 years) → A mix of equity ETFs (60-80%) and bond ETFs (20-40%)
•Close to retirement (55+) → More stability through a higher bond allocation (50% or more)
If one ETF had to be chosen
ChatGPT: If there were only one ETF to choose for retirement savings, I would recommend the Vanguard FTSE All-World UCITS ETF (ISIN: IE00BK5BQT80).
•Broad diversification → Includes approximately 4,000 companies from developed and emerging markets
•Low cost → TER of only 0.22%, resulting in low fees
•Broad market coverage → Involves both large and mid-cap companies
•A good mix of growth and stability
•Strong long-term performance (estimated 7-9% annually) → Excellent for retirement savings
If you don't want to automatically reinvest dividends, there's also an accumulating version (IE00BKS7L097).
Does this ETF surpass the MSCI World in terms of retirement savings?
In general, the AI's assessment is valid. While the MSCI World covers around 1,400 companies, they are all from developed markets, with emerging markets like China being absent. The FTSE All-World Index, on the other hand, includes over 4,000 stocks, including those from emerging markets.
The potential advantage lies here: Emerging markets like India can offer significant growth opportunities, opportunities that MSCI World investors might overlook. However, investing in emerging markets also involves higher risks, and the future development of these markets remains uncertain.
Despite the broader diversification of the FTSE All-World Index, the U.S. still accounts for 65% of the portfolio. This keeps the risk for investors who wish to include emerging markets in their strategy manageable. Over the last five years, the FTSE All-World Index has achieved an average annual return of 9.96%.
In comparison, the MSCI World has a US share of around 74%, with an average annual return of 11.7% over the past five years. Currently, the MSCI World is outperforming — and with lower risk.
Ultimately, it comes down to individual risk tolerance and personal preferences: Those who prefer broader diversification and the potential of emerging markets might consider the FTSE All-World. Those who prefer a more stable performance with lower risk are well-positioned with the MSCI World.
For further information, read: The 3 best ETF strategies for long-term gains and Buy & Hold forever
Investors in Germany seeking financial security in retirement might find Exchange Traded Funds (ETFs) particularly beneficial for long-term wealth accumulation. The update from an artificial intelligence suggests the Vanguard FTSE All-World UCITS ETF (ISIN: IE00BK5BQT80) could potentially outperform the traditional MSCI World index for retirement savings. This ETF offers a broader diversification, including emerging markets like China, which might provide significant growth opportunities, while maintaining a manageable risk level due to a lower US share compared to the MSCI World.
