All-Country or S&P 500—The Answer Changes Not Based on the Product, but on the Stage of Life

Subtitle: Invisible Risk Hedges in Asset Formation, Asset Preservation, and Working Years

Introduction | Why the Debate Between All-Country and S&P 500 Never Seems to Align

There is often a debate about whether to choose All-Country or the S&P 500.

Should one invest in global equities?
Or should one invest in the S&P 500, which is the core of U.S. equities?

This question is quite familiar to those starting to invest.

However, this discussion often fails to align.

This is because, in many cases, only the merits and demerits of the investment products are discussed, while the stage of life the individual is currently in is overlooked.

For someone who already has a large amount of assets versus someone building assets little by little from their monthly salary, the meaning of buying the same product is completely different.

Even with the same S&P 500, the risk borne by a company employee in their twenties making monthly contributions is different from that of an elderly person investing their retirement money in a lump sum.

Even with the same All-Country fund, the role differs between buying it as the main driver of asset formation and buying it for the purpose of diversifying existing assets across the globe.

In other words, the question of All-Country versus S&P 500 is not really a comparison of products.

It is a question of whether you are currently in the asset formation phase or the asset preservation phase.

Chapter 1 | The Logic of Choosing the S&P 500 During the Asset Formation Phase

If you are investing from your monthly salary, the logic of choosing the S&P 500 is quite sound.

The S&P 500 is a representative large-cap U.S. stock index, and S&P Dow Jones Indices describes the S&P 500 as the primary indicator for U.S. large-cap stocks. The index consists of 500 major U.S. companies and covers approximately 80% of the investable market capitalization of the U.S. stock market. (S&P Global)

Of course, this is also a concentrated investment in the United States.

However, during the asset formation phase, such concentration is not necessarily a bad thing.

This is because individuals in the asset formation phase still have 'labor income.'

They have a salary.
They have the ability to contribute every month.
They do not need to withdraw from their assets for living expenses.
Even if there is a market crash, they do not need to sell immediately.
Rather, they can continue to buy even during a downturn.

This is extremely significant.

For young people or those who have a long time left to work, the time they can work itself acts as a risk hedge.

Even if stock prices fall, living expenses can be covered by salary.
There is no need to sell stocks.
Instead, one can continue to buy stocks that have become cheaper.

Because of this structure, the S&P 500 during the asset formation phase is not just a concentrated investment in the U.S.

It becomes an asset formation mechanism that combines three things:

labor income, time, and equity risk.

Therefore, it is quite rational for someone who is accumulating savings from their monthly salary to lean toward U.S. large-cap stocks, which have higher growth expectations.

Chapter 2 | The Logic of Choosing All-Country When You Have Significant Assets

On the other hand, for those who already have a large amount of assets, the story changes.

At this stage, not losing significantly becomes more important than aiming for maximum returns.

While assets are small, you cannot build them without taking risks.

However, as assets grow, taking too much risk can significantly damage the assets you already have.

Here, the investment question flips.

It is no longer 'how to increase them.'
It is 'how to live without reducing them.'

In that phase, the philosophy of All-Country becomes stronger.

The MSCI ACWI, which is often used as the benchmark for All-Country, covers large and mid-cap stocks in developed and emerging countries, accounting for approximately 85% of the world's investable equity market. (MSCI)

In other words, All-Country is not a product that 'does not buy the U.S.'

Rather, it is a product that includes the U.S. significantly while also diversifying widely into regions outside the U.S.

In this sense, All-Country is not a compromise.

All-Country is a structure designed to ensure you are not completely left behind, no matter where the world's winners move in the future.

If the U.S. remains strong, you will benefit from it.
If regions other than the U.S. grow, you can keep up with those changes.
You do not concentrate your assets too much in a specific country, currency, or market.

For someone who already has a large amount of assets, what is truly scary is not missing out on the highest returns.

What is scary is damaging your assets to the point where you have to change your lifestyle as a result of concentrating too much in one place.

Therefore, if you already have significant assets, there are many situations where All-Country is a better fit than the S&P 500.

Chapter 3 | When Assets Become Sufficiently Large, the Role of Gold, Government Bonds, and Cash-Equivalent Assets Increases

Furthermore, if assets become sufficiently large, the idea that one should eventually just buy gold or government bonds can also hold true.

This is not because gold or government bonds are omnipotent.

It is because the purpose of the assets changes.

While assets are small, they must be increased.

However, once assets are sufficiently large, protecting them becomes more important than increasing them.

At this stage, the stability of life becomes more important than the expected return of stocks.

Government bonds, if issued by a country with high creditworthiness, make it easier to forecast future interest and redemption.

Gold does not generate interest or dividends. However, when distrust in currencies or the financial system itself rises, it can function as an asset outside the system.

Cash leaves you with the freedom to act quickly if something happens.

However, cash alone cannot protect your assets.

Cash and deposits are not a state of 'not investing.'

Rather, to be quite precise, it is a state of holding assets in your own country's currency.

If you save in yen, you are entrusting your assets to the purchasing power of the yen, Japanese prices, the Bank of Japan's monetary policy, the Japanese economy, and Japan's credit system.

More strictly speaking, a deposit is also a right to claim a refund from a bank.

In other words, saving money is not a 'state of choosing nothing.'

It is a state of accepting currency value changes and inflation risk in exchange for avoiding equity risk and price fluctuation risk.

Therefore, cash is a safe asset.

But it is not an absolutely risk-free asset.

Cash is a mechanism to protect the face value.

However, it is not a mechanism to completely protect purchasing power.

This is because, in modern monetary policy, a moderate, continuous rise in prices is considered a goal rather than having prices not rise at all.

The Bank of Japan has set a 'price stability target' of a 2% year-on-year increase in the consumer price index.

The U.S. Federal Reserve also states that a 2% annual inflation rate over the long term is most consistent with price stability and maximum employment.

In other words, inflation of about 2% per year is not just an abnormal situation.

Rather, it is an economic environment targeted by central banks.

If inflation progresses, even if the balance in your bank account remains the same, what you can buy will gradually decrease.

In that sense, gold and bonds also play a role in preparing for a decline in purchasing power that cannot be covered by savings alone.

Gold tends to function as an asset outside the system in phases where the value of the currency itself wavers.

Bonds, especially inflation-linked bonds, can be expected to adjust according to price increases, and even regular government bonds can sometimes mitigate the erosion of purchasing power through interest compared to just letting cash sit idle.

In other words, gold and bonds are not 'offense for increasing assets,' but defense to supplement value that cannot be protected by cash alone.

In short, each has a different role.

Stocks are a mechanism for increasing assets.
Government bonds are a mechanism for buying time and stability.
Gold is a mechanism for preparing for institutional distrust.
Cash is a mechanism for keeping options open.

For those who have sufficient assets, it is not necessarily required to increase them significantly through stocks.

Rather, the risk taken to increase them can sometimes become excessive for life as a whole.

Here too, the purpose of investment changes.

The correct answer for the asset formation phase and the correct answer for the asset preservation phase are not the same.

Chapter 4 | The Time You Can Work Is an Invisible Risk Hedge

What is important here is the time you can work.

Generally, investment risk tolerance is often discussed as a matter of personality.

People who can take risks.
People who cannot take risks.
People who can endure a crash.
People who get anxious and sell.

Of course, personality has an influence.

But what is even greater is the structure.

People who have time to work can cover living expenses with their salary even if there is a crash.

People who have a salary do not need to sell even if stock prices fall.

People who have the ability to contribute every month can continue to buy even during a crash phase.

In other words, the time you can work is itself a risk hedge.

The investment period referred to here is not the length of investment experience.

It is the time you can keep those funds in the market from now on.

It is not about how many years have passed since you started investing, but how much time you can wait before you have to withdraw the funds for living expenses that becomes important.

Investor.gov, affiliated with the U.S. SEC, also emphasizes not the length of investment experience, but the period during which those funds can be kept invested until the financial goal is reached, i.e., the investable period.

The idea is that the longer the investable period, the easier it is to accept assets with high price volatility, and the shorter the period, the easier it is to choose low-risk, low-volatility assets.

Conversely, for those who have already retired and are withdrawing living expenses from their assets, the same crash has a different meaning.

You have to sell for living expenses when asset prices are falling.

This is quite severe.

This is because you are withdrawing assets before stock prices recover.

Therefore, the S&P 500 for someone in their twenties or thirties and the S&P 500 for someone in their seventies are not the same risk, even if they are the exact same product.

The former is supported by labor income and time.

The latter carries the danger of overlapping living expense withdrawals with a market crash.

Without looking at this difference, discussing only All-Country versus S&P 500 will not yield an answer.

Chapter 5 | Past Crashes Are Material for Judgment, but Not a Guarantee

Looking at past history, the U.S. stock market has recovered in the long term despite experiencing major crashes.

Regarding the S&P 500, there is data summarizing the historical returns of stocks, bonds, and short-term government bonds since 1928, and in discussions of long-term investment, it is often viewed in terms of total return including dividend reinvestment. (Stern School of Business)

The recovery period after a crash varies depending on which index you look at, whether you include dividends, or whether you adjust for inflation.

Even so, for U.S. stocks, there is a history of recovery over a long period of time even after a major crash.

This fact becomes one piece of judgment material for people in the asset formation phase.

However, that does not necessarily mean it will continue in the future.

This point is important.

Because it returned in the past, it will return in the future.
Because the U.S. was strong in the past, the U.S. will be strong in the future.
Because long-term investment was rewarded in the past, it will definitely be rewarded in the future.

You cannot say that definitively.

In fact, if you look at the Japanese stock market, simple optimism is not possible.

The Nikkei Stock Average finally updated its high set during the bubble period of 1989 in 2024. (AP News)

In other words, if you choose the wrong country or era, it may take decades to recover.

Therefore, the recovery power of U.S. stocks in the past is an important material, but it is not an absolute guarantee.

It should be treated as material for probability judgment, not as a belief.

Investment is not about aiming for a one-shot reversal.

What is important is not to guess the winning stock, but to build a structure that allows you to continue participating in the market.

Chapter 6 | Population Growth Is the Invisible Foundation Supporting U.S. Stocks

So, even if the past strength of U.S. stocks is no guarantee of the future, why is there a certain rationality in choosing the S&P 500 during the asset-building phase?

One reason is that the United States is a country that can expect population growth.

If the population increases, the number of consumers increases.

If the number of consumers increases, demand for housing, food, medical care, education, telecommunications, automobiles, finance, entertainment, and services is likely to increase.

If demand increases, corporate sales are more likely to grow.

If corporate sales grow, it is more likely to lead to employment, investment, research and development, and shareholder returns.

In this sense, population growth can be the foundation for economic growth.

Of course, an increase in population does not necessarily mean the economy will grow.

If the increased population has no income, consumption will not grow significantly.

If there are no jobs, population growth becomes a social burden rather than purchasing power.

If there is a shortage of housing and infrastructure, it manifests as a rise in the cost of living rather than growth.

If only consumption increases and supply cannot keep up, it becomes inflation rather than prosperity.

Therefore, population growth is not a sufficient condition for economic growth.

However, in the long term, the economic premises are quite different between a country with a continuously growing population and one with a continuously shrinking population.

Especially when looking at the asset-building period of twenty or thirty years, countries where the population is likely to grow tend to have expanding consumer markets, labor markets, housing markets, and service demand.

On the other hand, in countries where the population continues to decline, shrinking demand, labor shortages, and increased social security burdens tend to become a drag on the economy.

In countries where the population is growing, new housing is needed.

New schools are needed.

New jobs are needed.

New transportation networks are needed.

New services are needed.

In other words, society itself has room to expand.

This room for expansion is a widening of the market for companies and a source of growth expectations for investors.

The strength of the United States is not just that it has many giant corporations.

It lies in having a structure where the population grows, immigrants enter, the labor force is supplemented, the consumer market expands, and capital and companies from all over the world easily gather there.

The S&P 500 is not just a product that buys 500 U.S. companies.

More accurately, it is also a product that rides on the massive U.S. consumer market, labor market, financial market, and technology market.

Of course, there are limits to this view.

Even if the population grows, if inequality becomes too wide, the purchasing power of the middle class will weaken.

If immigration policy changes, the premise of population growth also changes.

If fiscal deficits or rising interest rates become a burden, they can squeeze corporate profits.

Since U.S. companies are earning money all over the world, the future of the S&P 500 cannot be explained by the U.S. domestic population alone.

Therefore, it is dangerous to blindly trust the S&P 500 based solely on population growth.

But even so, the long-term premises are different between investing in a country with a growing population and one with a shrinking population.

In a country with a growing population, future consumers increase.

In a country with a shrinking population, future consumers decrease.

This difference is hard to see in terms of a few years.

However, over an investment period of twenty or thirty years, it has quite a significant meaning.

The rationality of choosing the S&P 500 for those in the asset-building phase does not lie solely in past returns.

It lies in betting on the possibility that the United States will continue to connect population, consumption, corporate profits, technological innovation, and financial markets.

In other words, choosing the S&P 500 is not just buying a market that won in the past.

It means riding the American-style growth structure where the population grows, consumption increases, companies earn money, and those profits are reflected in the stock market.

Chapter 7 | Risk Tolerance is Determined by Structure, Not Personality

What is truly important in investing is not to misjudge which structure you are in.

People who have a monthly salary.
People who can continue to work for a long time.
People who do not need to take living expenses from their investment assets.
People who can continue to buy even if the market crashes.

These people can easily take on stock risk.

Conversely,

People who already have a large amount of assets.
People who are living by drawing down their assets.
People with low labor income.
People who are forced to sell during a crash.

For these people, the burden of the same stock risk becomes greater.

Therefore, risk tolerance is not just mental toughness.

It is a structural matter determined by income, age, asset amount, living expenses, available working time, and whether or not you are drawing down assets.

From this perspective, the debate over All Country or S&P 500 is quite clarified.

If you are in the stage of building assets from your monthly salary, the S&P 500 is rational.

If you already have a large amount of assets, All Country is more likely to be rational.

Furthermore, if your assets become sufficiently large, you may focus on gold, government bonds, and cash-equivalent assets.

Each judgment is not contradictory.

It is just that the stages of life are different.

Conclusion | The Correct Answer to Investing Changes with Asset Amount and Time

All Country or S&P 500?

There is no universal answer to this question.

If you are in the stage of building assets, you must take risks.
If you are in the stage of protecting assets, you must reduce risks.
If you have time to work, you can wait for a crash.
If you have little time to work, you need a design that avoids the crash itself.

Therefore, what you should really look at in investing is not just the product name.

What you should look at is your current location.

Is labor income the main player?
Are investment assets the main player?
Are you in the stage of building from now on?
Are you already in the stage of protecting?
Are you on the side that can buy during a crash?
Are you on the side that is forced to sell during a crash?

If you get this wrong, the meaning of the same investment product will change.

Ultimately, investing is an act of buying future profits, and at the same time, it is a question of how you use the time left to you.

When you are young, working time absorbs risk.
As assets grow, the need to take risks diminishes.
As you age, the assets themselves support your life.

Therefore, the final summary is as follows.

The asset-building phase is the S&P 500, which rides on the U.S. growth structure backed by population growth and consumption expansion.

The asset-preservation phase is All Country, which does not lean too heavily on a specific country or market.

After you have sufficient assets, gold, government bonds, and cash-equivalent assets.

This is not about the superiority or inferiority of products.

It is a story that the purpose of investment changes according to the stage of life.

And perhaps, the most dangerous thing in investing is not buying risky products.

It is misjudging which stage you are in.

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