Index trackers....best buy ???

I would just like to agree with the points made by a number of contributors to this thread about the the restrictive nature of this board.

It seems to me that the best way to deal with the issue is to have a general disclaimer, stating that the views expressed are those of individuals, and that any views expressed by the posters should be treated with caution.

It also seems to me that one of the big problems in this area is a lack of knowledge on the part of individuals and indeed on the part of many employed by major financial organisations.

All investments have risk attached to them.

Arguably its riskier to invest in cash than it is to invest in shares over the long term:

(i) Due to the potential eroding effects of inflation.
(ii) And the potential shortfall in return against investing in shares, or property, or other asset classes.

But of course that will depend upon various factors - timescale, an individual's attitude to risk, luck, etc, etc.

There are some general points to consider:

The greater the potential reward the greater the potential risk.
Diversification helps protect against risk but it comes at a cost, like all insurance, of reducing the potential returns as well as losses.

Risk can be spread between asset classes - cash, shares, property, etc.
Or Geographically - UK, Europe, Far East, North America.
Or Different Sectors
Or Different Company Sizes
You will get the.


Within each group or class of assets consider further spreading risk by splitting your investments between separate institutions.

How many people know that the Financial Services Compensation Scheme for Banks and Building Societies only pays compensation to a maximum value of £31700 - (100% of the first £2000 and 90% of the remaining £33000. One way of managing this risk would be to hold deposits in more than 1 bank or building society.

For investments that qualify, the maximum compensation figure is £48000 (100% of the first £30000 and 90% of the next £2000).

But payment will (the FSA's site says "may" worryingly) be paid out as a last result - ie, only if there is no likelihood of assets being reclaimed by the receiver/adminstrator. So almost certainly a long delay here at best - note the delay with split capital investment trusts. Or the uncertainty over the Rover pension scheme.

Its all very well saying a major bank, building society or financial institution won't go bust - history says otherwise - Barings, BCCI, Equitable Life (almost).


In my opinion an individual short access their objectives and their attitude to risk. If you have large sums in cash consider having it with more than one company.

If you are aiming for the top performing ISA's/Unit Trusts realise that this increases your chances of underperforming as well as, possibly, outperforming the market average. An indexed trust is likely to closely match (but underperform the market average) This year's best performing unit trusts/sectors often figure near the bottom of next year's tables and vice versa.

Consider diversifcation overseas - as the majority of most people's assets are in the UK. And property will be a large proportion of that.

I hope these points aren't construed as investment advice - they are just some points to consider.

And finally, if anyone thinks they are equipped to pick the best performing investment fund out of the several thousand on the market they are equally equipped to purchase individual shares.

Investment is a tough business - if it was easy we would all be very rich. I would say beware anyone who promises you high returns. Be sceptical. Ask questions. And try and understand as much as you can. Look at how the person selling you the product makes a living- will it be from the charges you incur?

I once read that if you managed a real return, after inflation, on 3%, it should be possible to safeguard your capital in the long term. Anything more and it requires progressively more risk. I ahve always thought it was a reasonable yardstick. Warren Buffet might not agree - but you will have to read his views elsewhere.

Good luck.

paul93anderson wrote:

Diversification helps protect against risk but it comes at a cost, like all insurance, of reducing the potential returns as well as losses.

Very true. The best one can do is, by thorough research, go for what you believe to be the optimum weighting in each asset class/sector/geographical area etc. looking ahead.

Within each group or class of assets consider further spreading risk by splitting your investments between separate institutions.

I would go further and say that, as far as funds are concerned, even split it between different supermarkets etc.

For investments that qualify, the maximum compensation figure is £48000 (100% of the first £30000 and 90% of the next £2000).

Should this not read £38,000 ?

Consider diversifcation overseas - as the majority of most people's assets are in the UK. And property will be a large proportion of that.

Yes, most investors are grossly over-exposed to their home economy.

And finally, if anyone thinks they are equipped to pick the best performing investment fund out of the several thousand on the market they are equally equipped to purchase individual shares.

Perhaps, but as someone who has invested in both funds and individual stocks for many years I would say that the necessary research disciplines are totally different. Have been fairly successful with funds, less so with shares. That's why I've specialised in the former - also find fund research far easier and more fun. Less volatility and more restful nights .

I would go further and say that, as far as funds are concerned, even split it between different supermarkets etc.

There are fund supermarket/wraps which give discounts on the charges the more you have. Indeed, there is one that allows family members to get charges on their individual holdings based on the total value of the family holdings. i.e. If 5 family members had £50,000 each, they would each have charges based on a holding of £250,000.

whiteflag wrote:

Hello Carnet , can you expand on the benefits of doing the above ?

Just to keep the value of the holding/portfolio with each separate institution below the maximum compensation level.

Can never be too careful - see Paul's examples above.

Of course, it all depends on the size of your overall pot and number of family members. For many investors one institution eg supermarket will remain more than adequate - although, hopefully, growth in values could require future changes.