Diversification advice

I am looking at opening a Stocks & Shares ISA with Invest Engine, and am not sure whether to invest in an ETF that attempts to mirror something like the S&P 500, where I’m effectively betting that the US economy will perform well in the long run, or a cheap global tracker fund, which should include plenty of US equities, so assuming that I cannot accurately predict long term trends in the global markets, should I opt for one of these instead to spread my bets more effectively?

The starting point for many would be to look towards a global all-cap weighted ETF that gives you exposure to the full breadth of the market and allows you to take advantage of the growth of any markets over the period of ownership. This would be justified on the basis that we just don’t know what will happen in the US over the course of your investing lifetime, and so it’s better to diversify your risk in case the US underperforms.

Some are happy with this approach, but one variation is that you use this to justify your core holding in a portfolio (so a sizeable percentage) while adding some satellite investments. These can help you tinker the overall composition of your portfolio by adding additional weight in areas where you believe there is value or are good prospects.

A global tracker will be about 55-60% US stocks anyway, so you can use global tracker as a fully diversified core holding, and ‘tilt’ your portfolio if you wanted by buying some S&P 500 to get a bit more US weighting/bias.