Investing in the World

Like Felix Salmon, what I would basically like to do with my savings is invest them in an instrument that reflects generic optimism about medium- and long-term global growth without asking me to develop more specific notions about what asset classes will do well:

Like most of the sensible people invested in index funds, I’d love to see a fund predicated on the idea that “I know that I don’t know”. I don’t want to be responsible for making asset-allocation decisions, because I’m not qualified to do so, and I’m likely to end up allocating assets to underperforming sectors of the global economy. So what I’m looking for is an everything bagel: an index fund or ETF which allocates its money to all the public asset classes in the world, apportioned according to market capitalization. It would include a lot of government bonds, of course, and a smattering of index-linked ones; it would have corporate debt and subordinated debt and convertibles; it would have MBSs and CDOs and securitized credit-card receivables; it would have local-currency bonds and stocks from BRICs and from frontier markets and from all the other emerging markets too; and of course it would have a large amount of money in developed-world equities too. Add the whole thing together, and you’ll have a single investment which is as diversified as you can get: a simple, unleveraged, all-in bet on the global economy.

But as he concedes “the management fees on this kind of thing would probably be prohibitive.” It seems to me that the solution for this would be Robert Shiller’s idea of GDP bonds, an idea that Salmon hates. The idea is that a GDP bond would pay out a fraction of the issuing country’s GDP. If countries all issued bonds like that, then it would be relatively straightforward to establish ETFs covering regions or the whole world.

That said, I’m not really persuaded that there’s actually much of a problem that this is the solution to. The big savings-related problems in America are that (a) people don’t save enough on average, (b) savers waste too much money “churning” investments, (c) people are too inclined to chase past returns thus buying high and selling low. Which is to say that we’re mainly looking at a failure of people to adequately take advantage of the opportunities that exist today, rather than a situation in which ordinary middle class investors are basically doing the right thing but are being limited by a lack of good investment products.