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    • switch76
    • By switch76 15th Oct 16, 12:10 PM
    • 107Posts
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    switch76
    FTSE 100 and other trackers
    • #1
    • 15th Oct 16, 12:10 PM
    FTSE 100 and other trackers 15th Oct 16 at 12:10 PM
    I'm interested in buying a FTSE 100 tracker and wondered if you could recommend one. I'm looking to get a better return than locking away money in a bank.

    What are the differences between a fund and an ETF? I would like the dividends reinvested so do I need an accumulation fund? What other things should I look out for?

    Is putting the money in over several months the best idea?

    Is the FTSE 100 expensive or cheap at the moment compared to it's usual P/E?

    Do you have ideas for other trackers that might be useful? I was thinking about tracking things like the S&P100 but thought that it wouldn't be a good idea because of the exchange rate and the chance that the pound will eventually strengthen against the dollar.
Page 2
    • HHarry
    • By HHarry 16th Oct 16, 10:07 AM
    • 361 Posts
    • 236 Thanks
    HHarry
    Ishares FTSE 100 ETF is available (ISF.L). I held mine through Hargreaves Lansdown - £11.95 to buy, and the same when you come to sell.

    I agree with the others about considering your options. That's quite a specific sector, at it's peak. Although I'm not sure there are any 'bargains' at the moment.
    • bowlhead99
    • By bowlhead99 16th Oct 16, 11:09 AM
    • 5,101 Posts
    • 9,006 Thanks
    bowlhead99
    Because US trackers seem to outperform global trackers. There doesn't seem to be a huge outperformance between global trackers and the FTSE 100 trackers from the ones I've seen so far.

    I have enough diversity in the equities I hold. I'm not going to buy lots of funds. Just one or two.
    Originally posted by switch76
    US trackers outperformed global trackers because when you line up the historic performance of 6 major world regions in a league table for a decade and one region happens to get in the top 3 more than it appears in the bottom 3, it will 'seem to outperform the average'. This doesn't mean it will do that in the next decade. The next decade will still be a coin toss whether it outperforms the average or not.

    If you only pick one region you are tossing a dice whether your returns will be well above, above, same, worse, a lot worse than the average returns of the world stock markets. It seems irrational to put your eggs in one basket and buy just one market, when you could buy all the markets in one fund.

    You might feel you want some 'home bias' because you live in the UK and therefore want to invest in UK listed companies, some of which are very multinational and some aren't. However, your portfolio of individual shares is probably already all or mostly UK listed as I doubt you can be bothered to research and buy many shares on the European or US exchanges let alone the Canadian, Korean, Indian, Japanese stockmarkets.

    So that would logically lead you to go somewhat more global with your fund exposure, because you can make your own proxy for the UK index by simply holding a bunch of diversified UK shares as you are already doing. But trying to 'go global' and then instead just going to the US because the US went up more than other countries when you look at charts for a limited time period in the past, seems flawed.

    The reason why you shouldn't invest in a FTSE100 tracker as mentioned in earlier posts is because its method of allocating most money to the biggest companies leaves it heavily weighted to certain industry sectors and largely missing others. Linked here (http://www.sectorspdr.com/sectorspdr/Pdf/All%20Funds%20Documents/Document%20Resources/10%20Year%20Sector%20Returns) is a chart from a US-based tracker provider showing the performance of different industry sectors over the last decade. Generally the difference between the top-performing sector and the bottom performing sector is 30%+.

    For example
    - in 2008, "financials" fell by 55% while "consumer staples" only fell by 15% and an equally weighted sector basket fell 35%
    -then in 2009, "technology" was up over 50% while "consumer staples" (which had done relatively well the year before) was down at the bottom of the chart next to "utilities" at below 15%.
    - financials had a good year in 2012, growing 29% while "energy" only did 5%. A stark contrast to 2007 when energy had been +36% and financials -19%.

    So, from this demonstration that all the sectors outperform at different times, you can conclude that an index missing some of them is going to be more volatile and potentially perform worse than a more balanced basket of assets.

    The second page of the link showed the worst sector performers over the decade under review were financials and energy, both under 5% annualised while technology was almost 10%. If you look at the FTSE100 composition, it was packed full of energy and financials (Shell and HSBC in the top two spots) and devoid of technology (no Microsoft or IBM or Apple or Google or Facebook or Yahoo). So, that explains neatly why the UK 100 did not do so well as the world average. Next year if tech stocks crash and car manufacturers take the top spot, the UK index is still not going to be up there because unlike US, Germany and Japan, we don't have any of those in our index.

    UK100 will only be the top index in certain conditions and it is a poor one to have as your only fund. However if the markets favour our sectors it is perfectly possible for a UK index to outperform the US index, particularly if the pound recovers making dollars less valuable, because only half the revenues of the UK100 come from dollars. Or the US has a domestic slump while Europe and Asia and the emerging markets do better on average, the US will be the wrong place to be, and Global would have been better. So if, as you say, you are only going to buy one or two funds, it does not make any kind of sense for those to be specialist single-region funds, because you don't know what single region will be the best place over the coming decades.

    The same analysis of tracker performance by sector in the link can easily be done instead for geographic regions and asset classes (largecap equity, smallcap equity, corporate bonds, government bonds, real estate etc as well as all the different parts of the world). The message will be the same - in any given year the top sector will be tens of percent better than the bottom sector.

    So, as you don't know which countries and sectors are the best, because you don't have a crystal ball, if you only want one fund, it makes no sense to put your eggs in one basket (we acknowledge that this is only 10% of your assets and you do have other things going on your total wealth, but the point is the same).
    • dunstonh
    • By dunstonh 16th Oct 16, 5:35 PM
    • 85,092 Posts
    • 50,118 Thanks
    dunstonh
    Because US trackers seem to outperform global trackers.
    What about the many periods when they have underperformed?

    There doesn't seem to be a huge outperformance between global trackers and the FTSE 100 trackers from the ones I've seen so far.
    You need to change your reading material. Differences in short term periods tend can be relatively small but long term the differences show up.
    I have enough diversity in the equities I hold.
    How much do you hold in Japenese equity?
    How much in Asia equity?
    How much in Emerging Market equity?
    etc etc

    I'm not going to buy lots of funds. Just one or two.
    So, you should stick to multi asset funds then and not pick single sector funds. Otherwise you are investing badly.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • switch76
    • By switch76 16th Oct 16, 9:02 PM
    • 107 Posts
    • 24 Thanks
    switch76
    What about the many periods when they have underperformed?
    Originally posted by dunstonh
    Compared information over a 10 year period. The world tracker is 60% American anyway so won't do well if US listed equities don't do well.

    You need to change your reading material. Differences in short term periods tend can be relatively small but long term the differences show up.
    Originally posted by dunstonh
    Took the category performance over 10 years since one of these funds hasn't been going that long. 5.65% vs 6.5% annually.

    https://www.halifaxfundscentre.co.uk/index.php?section=sheet&idShareclass=F0GBR06I71

    https://www.halifaxfundscentre.co.uk/index.php?section=sheet&idShareclass=F000001G65


    How much do you hold in Japenese equity?
    How much in Asia equity?
    How much in Emerging Market equity?
    etc etc

    So, you should stick to multi asset funds then and not pick single sector funds. Otherwise you are investing badly.
    Originally posted by dunstonh
    Why do I need to replicate the whole market? If there are 25 sectors why do I need all 25? If I just have 10 or 20 of them it could do just as well.
    • switch76
    • By switch76 16th Oct 16, 9:20 PM
    • 107 Posts
    • 24 Thanks
    switch76
    US trackers outperformed global trackers because when you line up the historic performance of 6 major world regions in a league table for a decade and one region happens to get in the top 3 more than it appears in the bottom 3, it will 'seem to outperform the average'. This doesn't mean it will do that in the next decade. The next decade will still be a coin toss whether it outperforms the average or not.

    If you only pick one region you are tossing a dice whether your returns will be well above, above, same, worse, a lot worse than the average returns of the world stock markets. It seems irrational to put your eggs in one basket and buy just one market, when you could buy all the markets in one fund.

    You might feel you want some 'home bias' because you live in the UK and therefore want to invest in UK listed companies, some of which are very multinational and some aren't. However, your portfolio of individual shares is probably already all or mostly UK listed as I doubt you can be bothered to research and buy many shares on the European or US exchanges let alone the Canadian, Korean, Indian, Japanese stockmarkets.

    So that would logically lead you to go somewhat more global with your fund exposure, because you can make your own proxy for the UK index by simply holding a bunch of diversified UK shares as you are already doing. But trying to 'go global' and then instead just going to the US because the US went up more than other countries when you look at charts for a limited time period in the past, seems flawed.

    The reason why you shouldn't invest in a FTSE100 tracker as mentioned in earlier posts is because its method of allocating most money to the biggest companies leaves it heavily weighted to certain industry sectors and largely missing others. Linked here (http://www.sectorspdr.com/sectorspdr/Pdf/All%20Funds%20Documents/Document%20Resources/10%20Year%20Sector%20Returns) is a chart from a US-based tracker provider showing the performance of different industry sectors over the last decade. Generally the difference between the top-performing sector and the bottom performing sector is 30%+.

    For example
    - in 2008, "financials" fell by 55% while "consumer staples" only fell by 15% and an equally weighted sector basket fell 35%
    -then in 2009, "technology" was up over 50% while "consumer staples" (which had done relatively well the year before) was down at the bottom of the chart next to "utilities" at below 15%.
    - financials had a good year in 2012, growing 29% while "energy" only did 5%. A stark contrast to 2007 when energy had been +36% and financials -19%.

    So, from this demonstration that all the sectors outperform at different times, you can conclude that an index missing some of them is going to be more volatile and potentially perform worse than a more balanced basket of assets.

    The second page of the link showed the worst sector performers over the decade under review were financials and energy, both under 5% annualised while technology was almost 10%. If you look at the FTSE100 composition, it was packed full of energy and financials (Shell and HSBC in the top two spots) and devoid of technology (no Microsoft or IBM or Apple or Google or Facebook or Yahoo). So, that explains neatly why the UK 100 did not do so well as the world average. Next year if tech stocks crash and car manufacturers take the top spot, the UK index is still not going to be up there because unlike US, Germany and Japan, we don't have any of those in our index.

    UK100 will only be the top index in certain conditions and it is a poor one to have as your only fund. However if the markets favour our sectors it is perfectly possible for a UK index to outperform the US index, particularly if the pound recovers making dollars less valuable, because only half the revenues of the UK100 come from dollars. Or the US has a domestic slump while Europe and Asia and the emerging markets do better on average, the US will be the wrong place to be, and Global would have been better. So if, as you say, you are only going to buy one or two funds, it does not make any kind of sense for those to be specialist single-region funds, because you don't know what single region will be the best place over the coming decades.

    The same analysis of tracker performance by sector in the link can easily be done instead for geographic regions and asset classes (largecap equity, smallcap equity, corporate bonds, government bonds, real estate etc as well as all the different parts of the world). The message will be the same - in any given year the top sector will be tens of percent better than the bottom sector.

    So, as you don't know which countries and sectors are the best, because you don't have a crystal ball, if you only want one fund, it makes no sense to put your eggs in one basket (we acknowledge that this is only 10% of your assets and you do have other things going on your total wealth, but the point is the same).
    Originally posted by bowlhead99
    Thank you for a thorough answer. I am more familiar with the UK and US markets so that is why those trackers appealed to me. I get more news about what is happening.

    I also think the pound will eventually strengthen. Markets tend to overreact and I think Brexit won't be as bad as markets think it will be.
    • dunstonh
    • By dunstonh 16th Oct 16, 9:32 PM
    • 85,092 Posts
    • 50,118 Thanks
    dunstonh
    Compared information over a 10 year period. The world tracker is 60% American anyway so won't do well if US listed equities don't do well.
    10 years is too short and is mostly a growth period. Especially the last 10.

    Why do I need to replicate the whole market? If there are 25 sectors why do I need all 25? If I just have 10 or 20 of them it could do just as well.
    There are 10 main sectors. There are multiple sub sectors which larger portfolios may consider. However, the 10 is fine for most.

    If you do not include sectors then you are starting to bring in management decisions ehihv you would only do if you think you can beat the market. So, what is it that believe makes your research and analysis better?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • switch76
    • By switch76 16th Oct 16, 10:10 PM
    • 107 Posts
    • 24 Thanks
    switch76
    10 years is too short and is mostly a growth period. Especially the last 10.
    Originally posted by dunstonh
    Lots of funds don't even last 10 years. No-one can predict what is going to happen so the greater familiarity with the US market is what appeals to me.

    I've never even heard of the FTSE World (ex UK) Index that the world tracker tries to replicate. Where do I get information about that?


    There are 10 main sectors. There are multiple sub sectors which larger portfolios may consider. However, the 10 is fine for most.

    If you do not include sectors then you are starting to bring in management decisions ehihv you would only do if you think you can beat the market. So, what is it that believe makes your research and analysis better?
    Originally posted by dunstonh
    It's not really management decisions. It's just taking the subsection of available sectors that the tracker has.
    • dunstonh
    • By dunstonh 16th Oct 16, 11:05 PM
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    • 50,118 Thanks
    dunstonh
    Lots of funds don't even last 10 years.
    But most do and trackers go back longer than most.

    No-one can predict what is going to happen so the greater familiarity with the US market is what appeals to me.
    So, that would be a management decision. The US underperformed during much of the previous economic cycle. You cant predict which is why you diversify with appropriate weightings rather than being too heavy in just one.

    It's not really management decisions. It's just taking the subsection of available sectors that the tracker has.
    But what you are doing is a management decision by selecting just a few of the sectors.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • switch76
    • By switch76 16th Oct 16, 11:26 PM
    • 107 Posts
    • 24 Thanks
    switch76
    I could turn your argument back on you. Can you prove your world tracker will outperform the US tracker or the FTSE 100 tracker? Can you prove that trying to replicate the whole market will guarantee greater returns?
    • bowlhead99
    • By bowlhead99 16th Oct 16, 11:47 PM
    • 5,101 Posts
    • 9,006 Thanks
    bowlhead99
    Compared information over a 10 year period. The world tracker is 60% American anyway so won't do well if US listed equities don't do well.
    Originally posted by switch76
    FTSE All-World is 52% American (end of last month, $38 trillion tracked by the index of which under $20tn is US). The US ratio is higher if you are using a global index which excludes emerging markets or an index which is ex-UK.

    But sure, the global index is about half US so will have a bad year if US has a bad year. The obvious reason to buy it is for the half that is not US and doesn't have as bad a year.

    It's like saying, would you prefer to bet on throwing a 6 in a dice game, or throwing a number greater than 3 in a dice game, if the payout was about the same. Most of us would select 'greater than 3'. Your logic seems to be that if 6 never comes up, then 'greater than 3' will have a hard time, so you might as well just go for throwing a 6, because you know the number 6 and have not really heard of 'greater than 3' as a concept.


    I've never even heard of the FTSE World (ex UK) Index that the world tracker tries to replicate. Where do I get information about that?
    FTSE have a snapshot of their GEIS range together with methodology and other resources at http://www.ftse.com/products/indices/geis-series

    Lots of factsheets on a wide range of indices including all-world are at http://www.ftse.com/analytics/factsheets?allproducts=GEISAC&Index=Go

    Or the specific constituents of FTSE World (exUK) at end of September are at http://www.ftse.com/analytics/factsheets/Home/DownloadConstituentsWeights/?indexdetails=AWXUKS

    It's not really management decisions. It's just taking the subsection of available sectors that the tracker has.
    By deliberately selecting to structure your portfolio of investments using tracker(s) which don't include all the sectors, that can't be anything other than a 'management decision'.

    Maybe the manager in your head is telling you not to invest in US or Global funds because sterling is going to strengthen and you'll lose money. That might lead you to invest in UK listed investments for greater sterling exposure (though the FTSE100 as mentioned has lots of dollar and euro exposure anyway which is how it has gone up so significantly recently, and is missing sectors as previously noted). For broader UK content you would be better with the FTSE UK All-Share (which is only 80% FTSE100) or a mix of 100, 250 and Smallcap.

    But you are free to take the management decisions to invest in whatever markets you wish. You mention that you are more familiar with the US markets so that's why a US tracker appeals, because you get news on it. But you are not looking at selecting individual US stocks affected by the news, you are looking at getting a tracker and following the market for better or worse. So, why would that not work to follow all the other main global markets too?

    I mean, you will still hear if Samsung in Korea is having a bad time just like you will hear that Apple in USA is having a bad time. The general financial press covers world markets. The difference is that if you buy a US tracker, Apple is 3% of the fund portfolio whereas if you by a Global one, it is only 1.5% of the fund portfolio. To make Apple 3% of your portfolio when there are a lot more than 30 companies on the planet, seems like you are putting your eggs in too few baskets.
    • switch76
    • By switch76 17th Oct 16, 12:15 AM
    • 107 Posts
    • 24 Thanks
    switch76
    FTSE All-World is 52% American (end of last month, $38 trillion tracked by the index of which under $20tn is US). The US ratio is higher if you are using a global index which excludes emerging markets or an index which is ex-UK.

    But sure, the global index is about half US so will have a bad year if US has a bad year. The obvious reason to buy it is for the half that is not US and doesn't have as bad a year.

    It's like saying, would you prefer to bet on throwing a 6 in a dice game, or throwing a number greater than 3 in a dice game, if the payout was about the same. Most of us would select 'greater than 3'. Your logic seems to be that if 6 never comes up, then 'greater than 3' will have a hard time, so you might as well just go for throwing a 6, because you know the number 6 and have not really heard of 'greater than 3' as a concept.
    Originally posted by bowlhead99
    My logic is that a world index in a dice game is the average. 3.5 is the known score. Another tracker could score 1,2,3,4,5 or 6. No-one can predict with certainty. What makes people think a world index is superior (just because it covers the whole market)?


    By deliberately selecting to structure your portfolio of investments using tracker(s) which don't include all the sectors, that can't be anything other than a 'management decision'.

    Maybe the manager in your head is telling you not to invest in US or Global funds because sterling is going to strengthen and you'll lose money. That might lead you to invest in UK listed investments for greater sterling exposure (though the FTSE100 as mentioned has lots of dollar and euro exposure anyway which is how it has gone up so significantly recently, and is missing sectors as previously noted). For broader UK content you would be better with the FTSE UK All-Share (which is only 80% FTSE100) or a mix of 100, 250 and Smallcap.

    But you are free to take the management decisions to invest in whatever markets you wish. You mention that you are more familiar with the US markets so that's why a US tracker appeals, because you get news on it. But you are not looking at selecting individual US stocks affected by the news, you are looking at getting a tracker and following the market for better or worse. So, why would that not work to follow all the other main global markets too?

    I mean, you will still hear if Samsung in Korea is having a bad time just like you will hear that Apple in USA is having a bad time. The general financial press covers world markets. The difference is that if you buy a US tracker, Apple is 3% of the fund portfolio whereas if you by a Global one, it is only 1.5% of the fund portfolio. To make Apple 3% of your portfolio when there are a lot more than 30 companies on the planet, seems like you are putting your eggs in too few baskets.
    Originally posted by bowlhead99
    Trying to follow many markets means a lot more work. I have an overview of what happens in the UK and US so I have an opinion about those markets. I would have to follow a lot more closely what happens in the rest of the world.

    The alternative would be just buying the world tracker but not knowing when to add more money or sell some of it.
    • bowlhead99
    • By bowlhead99 17th Oct 16, 1:28 AM
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    • 9,006 Thanks
    bowlhead99
    My logic is that a world index in a dice game is the average. 3.5 is the known score. Another tracker could score 1,2,3,4,5 or 6. No-one can predict with certainty. What makes people think a world index is superior (just because it covers the whole market)?
    Originally posted by switch76
    Given the choice, most people with outgoings of £30k a year would prefer a salary of £35k than rolling a dice for a salary of £10k or £60k depending on the whim of the market that year which is out of their control.

    Assuming that option 6 is always going to be £40k or £50k or £60k just because it was the last time three times you looked, is setting yourself up for failure. It is like watching a roulette wheel and confidently betting red because it mostly came up red when you watched the last 5-10 spins.

    Trying to follow many markets means a lot more work. I have an overview of what happens in the UK and US so I have an opinion about those markets. I would have to follow a lot more closely what happens in the rest of the world.

    The alternative would be just buying the world tracker but not knowing when to add more money or sell some of it.
    In your original post you said you were looking to put money into a FTSE tracker to get a better return than a cash deposit. As you know, stock market funds are long term investment vehicles and should only expect to beat cash in the long term rather than in any particular year. As such, we assumed you were putting money away for the long term.

    However, from the two paragraphs above it implies you are not looking to invest the money away for the long term at all, but instead looking to dip in and dip out, flipping your ownership of the fund at the right time to catch the good news events and avoid drops that follow bad news events. Needing to know when to buy some of it and when to sell some of it. That is a whole different kettle of fish. For most people it is the way to lose the 10% of your wealth that they invested in the endeavour, because they won't pick the buy and sell times accurately.

    From your questions in your original post, you don't know whether the FTSE 100 is expensive or cheap compared to 'normal'. You don't know whether you would get a better return from it by investing now or dripping over several months. You had not heard of a FTSE All-World index. You do not have other investment funds or ETFs.

    All of these things seem to point to the fact that despite being au fait with the kind of UK and US news that we all hear on the telly, you do not know much about the world of finance and prevailing valuations in the UK markets relative to other markets and other asset classes. As such, it seems unlikely that you would do a good job of actively managing a holding of a UK or US investment fund, buying a bit or selling a bit at the optimum times to maximise returns.

    In that circumstance the best thing to do is not to keep trying to actively buy and sell it in line with the news and your limited understanding of valuation techniques and current market levels in the context of currency movements and interest rates etc. It is simply to buy it and hold it for the long term, benefiting from market growth and compounded reinvested dividends over time.

    If you can agree with that passive approach as being for the best, then it follows that you will not be using news and valuation techniques to guide your investment, but simply riding the market to receive a nice long term return. As such, you can happily hold a 'global' fund without needing to actively follow the news in Korea or Indonesia. Take its 3.5 return because you would presumably be very annoyed if you only got the 1 when you were hoping for the 6.
    Last edited by bowlhead99; 17-10-2016 at 10:04 AM. Reason: typo
    • chucknorris
    • By chucknorris 17th Oct 16, 8:30 AM
    • 8,298 Posts
    • 12,358 Thanks
    chucknorris
    I'm interested in buying a FTSE 100 tracker and wondered if you could recommend one. I'm looking to get a better return than locking away money in a bank.

    What are the differences between a fund and an ETF? I would like the dividends reinvested so do I need an accumulation fund? What other things should I look out for?

    Is putting the money in over several months the best idea?

    Is the FTSE 100 expensive or cheap at the moment compared to it's usual P/E?

    Do you have ideas for other trackers that might be useful? I was thinking about tracking things like the S&P100 but thought that it wouldn't be a good idea because of the exchange rate and the chance that the pound will eventually strengthen against the dollar.
    Originally posted by switch76
    I'm almost fully invested (just my shares, I also have (more in) property) in the ftse 100 right now, I was going to invest in the Vanguard all word high dividend income ETF (I liked the diversity, but it also comes with less income)). But I decided to take on the risk (low diversity) of the ftse 100 because when I invested in was low(ish) and was producing a better dividend (it still is). I did have some ftse 250 also, but I switched out before the Brexit vote, I am happy with what I have done. But I am also aware of the risk that I have taken on, and that it could all go wrong. Bowlhead may (would) argue that the risk isn't worth the small reward, and for himself he would probably have a point, but I'm happy enough with my decision. There will probably be a point in time when I do switch everything into the worldwide etf, my horizon is still about 20 years away, so for now I am content to be in the ftse 100
    Last edited by chucknorris; 17-10-2016 at 8:35 AM.
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    • dunstonh
    • By dunstonh 17th Oct 16, 11:01 AM
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    • 50,118 Thanks
    dunstonh
    I could turn your argument back on you. Can you prove your world tracker will outperform the US tracker or the FTSE 100 tracker? Can you prove that trying to replicate the whole market will guarantee greater returns?
    Originally posted by switch76
    If you are asking that then it suggests you are not ready to invest yet as you dont understand it.

    Nothing can be guaranteed.

    By making random management decisions without any analysis and research you would be relying on luck to get the best returns. You could get lucky for a period but its unlikely you will be consistently lucky and you will likely underperform in the long run.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • switch76
    • By switch76 17th Oct 16, 11:44 AM
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    • 24 Thanks
    switch76
    If you are asking that then it suggests you are not ready to invest yet as you dont understand it.

    Nothing can be guaranteed.

    By making random management decisions without any analysis and research you would be relying on luck to get the best returns. You could get lucky for a period but its unlikely you will be consistently lucky and you will likely underperform in the long run.
    Originally posted by dunstonh
    You can't say that since I have been investing and am happy with it.

    The world tracker is by definition, average. Some geographical sectors will perform better than it and some will perform worse than it. Why would it would require luck for the US or FTSE tracker to avoid underperforming?
    • dunstonh
    • By dunstonh 17th Oct 16, 12:09 PM
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    dunstonh
    You can't say that since I have been investing and am happy with it.
    Being happy does not mean you are right. At the moment, you think you have the investment ability of a fund manager. Yet most of them do not out-perform.

    The world tracker is by definition, average.
    Discrete performance will be average or thereabouts. That is the nature of trackers. Cumulative performance over time is what matters.

    Some geographical sectors will perform better than it and some will perform worse than it. Why would it would require luck for the US or FTSE tracker to avoid underperforming?
    The FTSE 100 has spent the bulk of the last 25 years as one of the worst performing stockmarkets in the developed world.

    The US stockmarkets have done well in the current cycle but the previous cycle the US was a consistent underperformer. A number of events specific to the US (or hitting the US hardest) occurred. If you had your strategy in that cycle then you would have got less. You are not going to get consistent out performance.

    If you only invest in those you are reliant on those two sectors being the best. What happens if Brexit turns out to be a disaster for the UK economy? What if a US nuclear plant has an event like Japan or the US finally decide that it is time to reign in their over spending (or China makes them do it)?

    By limiting yourself you are increasing the risks and limited sector investing tends to result in lower returns over the long run. Yes, you may get discrete periods where you do better but you wont keep that up.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • switch76
    • By switch76 17th Oct 16, 12:10 PM
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    switch76
    Given the choice, most people with outgoings of £30k a year would prefer a salary of £35k than rolling a dice for a salary of £10k or £60k depending on the whim of the market that year which is out of their control.

    Assuming that option 6 is always going to be £40k or £50k or £60k just because it was the last time three times you looked, is setting yourself up for failure. It is like watching a roulette wheel and confidently betting red because it mostly came up red when you watched the last 5-10 spins.

    In your original post you said you were looking to put money into a FTSE tracker to get a better return than a cash deposit. As you know, stock market funds are long term investment vehicles and should only expect to beat cash in the long term rather than in any particular year. As such, we assumed you were putting money away for the long term.

    However, from the two paragraphs above it implies you are not looking to invest the money away for the long term at all, but instead looking to dip in and dip out, flipping your ownership of the fund at the right time to catch the good news events and avoid drops that follow bad news events. Needing to know when to buy some of it and when to sell some of it. That is a whole different kettle of fish. For most people it is the way to lose the 10% of your wealth that they invested in the endeavour, because they won't pick the buy and sell times accurately.

    From your questions in your original post, you don't know whether the FTSE 100 is expensive or cheap compared to 'normal'. You don't know whether you would get a better return from it by investing now or dripping over several months. You had not heard of a FTSE All-World index. You do not have other investment funds or ETFs.

    All of these things seem to point to the fact that despite being au fait with the kind of UK and US news that we all hear on the telly, you do not know much about the world of finance and prevailing valuations in the UK markets relative to other markets and other asset classes. As such, it seems unlikely that you would do a good job of actively managing a holding of a UK or US investment fund, buying a bit or selling a bit at the optimum times to maximise returns.

    In that circumstance the best thing to do is not to keep trying to actively buy and sell it in line with the news and your limited understanding of valuation techniques and current market levels in the context of currency movements and interest rates etc. It is simply to buy it and hold it for the long term, benefiting from market growth and compounded reinvested dividends over time.

    If you can agree with that passive approach as being for the best, then it follows that you will not be using news and valuation techniques to guide your investment, but simply riding the market to receive a nice long term return. As such, you can happily hold a 'global' fund without needing to actively follow the news in Korea or Indonesia. Take its 3.5 return because you would presumably be very annoyed if you only got the 1 when you were hoping for the 6.
    Originally posted by bowlhead99
    This is not money I am relying on for day to day spending. To continue the dice comparison, 1.1 is the value of bank savings. I would be happy with 2,3,4,5 or 6. I do not want to play a game where I could get -25.

    If I roll the dice 3 or 5 or more times and take an average, the expected value is still 3.5. It could be higher, it could be lower but I don't see what the disadvantage is of rolling the dice.

    I am seeking to hold this investment long term. However I may decide to add spare money in the future or take out a little of it. I have more of an opinion about whether to do so for the FTSE or US. It feels more like relying on chance for a world tracker.

    I am still open minded about what to buy if there is a good reason to do so.

    I've admitted that I haven't invested in funds before so that's why I asked lots of questions in my original post.
    • switch76
    • By switch76 17th Oct 16, 12:27 PM
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    switch76
    Being happy does not mean you are right. At the moment, you think you have the investment ability of a fund manager. Yet most of them do not out-perform.
    Originally posted by dunstonh
    It is right for me and achieved what I wanted it to achieve. By your argument, there would be no retail investors trading individual shares or anything else because they do not have as much information and experience as the professionals. People should buy a multi-asset fund because anything else means having an opinion.


    Discrete performance will be average or thereabouts. That is the nature of trackers. Cumulative performance over time is what matters.
    Originally posted by dunstonh
    Over all time periods it will be the average. It is the benchmark that you are judging against all other investments.


    The FTSE 100 has spent the bulk of the last 25 years as one of the worst performing stockmarkets in the developed world.

    The US stockmarkets have done well in the current cycle but the previous cycle the US was a consistent underperformer. A number of events specific to the US (or hitting the US hardest) occurred. If you had your strategy in that cycle then you would have got less. You are not going to get consistent out performance.

    If you only invest in those you are reliant on those two sectors being the best. What happens if Brexit turns out to be a disaster for the UK economy? What if a US nuclear plant has an event like Japan or the US finally decide that it is time to reign in their over spending (or China makes them do it)?

    By limiting yourself you are increasing the risks and limited sector investing tends to result in lower returns over the long run. Yes, you may get discrete periods where you do better but you wont keep that up.
    Originally posted by dunstonh
    You dismiss the UK because it has underperformed. You dismiss the US even though it outperformed. You have focused on the negatives only. Why is there not a 50/50 chance of there being positive news?
    • bowlhead99
    • By bowlhead99 17th Oct 16, 12:53 PM
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    bowlhead99
    You can't say that since I have been investing and am happy with it.
    Originally posted by switch76
    I'm sure lots of people are happy with their results of investing as long as it gets more than cash.

    But for the risks taken, perhaps they should have been earning much more of a premium to compensate them than they actually received - but they don't realise this because they were generally investing in positive markets, and got a good result more by luck than judgement. Perhaps they should have done more analysis and research about how much they would have lost during negative markets and what better results they should have set out to achieve in order to see them through the bad times.

    The world tracker is by definition, average. Some geographical sectors will perform better than it and some will perform worse than it. Why would it would require luck for the US or FTSE tracker to avoid underperforming?
    When engaging in risky activities you know there is a risk of getting it wrong. We know that in the long term the result is positive, which is why we are all investors of one sort or another, but in any one particular year the result can be all over the shop.

    As mentioned in the discussion of the sectoral analysis, the difference between best and worst place to invest can be 30%, and the bottom end of the scale is often a really bad result which we really really want to avoid, whereas, investing in a bit of everything gets you somewhere in the middle of the extremes and a long term acceptable result without the same huge swings of volatility.

    What you seem to be asking is why would it require luck to pick one super specialist fund and it be as good as the average and avoid underperforming?

    The obvious answer is that half the global market underperforms the global average and half outperforms with the average global result in the middle and it is a coin toss to avoid the bottom half of the table. So your chance of avoiding the worse-than-average result that you don't want, is a coin toss.

    In other words, picking the specialist funds out of a hat requires luck to avoid underperforming and avoid hitting the worst results in the league table which everyone wants to avoid. Whereas, if you were to invest in line with the market average you could guarantee you would not get the worst result in the league table, without really requiring any luck.

    I assume you didn't like the earlier analogy of getting a known "average" £35k salary rather than picking out of a hat to get anything from £10k to £60k on the roll of a die. Here's another:

    Imagine if at your birth your parents could have the choice of you having a life that was exactly as long as the national life expectancy from the middle of the bell-curve (80-odd years) or just go for picking a number out of a hat and giving you a life which might be 5 or 10 or 20 or 50 or 90 or 100 because you might get taken out in a car accident or early onset cancer or you might not.

    I'm pretty sure they would prefer to go for "the average" rather than take a coin toss and have the risk of significant underperformance of that average. This is because most people are naturally cautious rather than genuinely not caring and observing that the average of what you could pick out of the hat was still 80-odd years so it didn't matter.

    In your world, the ones who gamble with actually picking an age out of the hat rather than taking "the average" do not require any luck to avoid underperforming the average. Whereas Dunstonh and I are suggesting that you do need luck to avoid underperforming the average when you pick something out at random. If fortune is not on your side, you have a high (50%) chance of not doing as well as all the other investors whose wealth you will be competing with to buy goods and services in twenty years' time.

    If you are the type of person who genuinely doesn't mind dying at an unacceptably young age in pursuit of getting that birthday card from the monarch at age 100, then sure, pick an age out of the hat or pick a specialist regional equities tracker out of the list.

    Personally I am still chuckling a bit that you rejected investing in a global tracker because you "wouldn't know when to buy more or sell some", when your opening post was along the lines of you not knowing whether UK 100 was expensive or cheap and you didn't know whether to buy now or invest slowly etc, so evidently you don't really know when to buy or sell some for the UK market either.

    What you are experiencing is something common to us all - we like to think we have a smart head on our shoulders and are reasonably well informed but we don't really know what will happen next. In such circumstances, "invest in everything" can become quite sensible.

    I saw Chuck's comments above about liking the FTSE100 Particularly for the dividend level - this appears nice because the collapse of sterling added more than a couple of £billion of value to the dollar-denominated dividends it paid out in the 3rd quarter, more than offsetting the couple of billion of cuts from miners who can no longer afford to pay what they used to.

    If you have a particular investment thesis, and can afford to put your eggs in fewer baskets due to having large total wealth, it's not my place to say this is inherently wrong. If Chuck misses out on some gains or makes some unnecessary losses due to following his convictions, he can always sell another investment property, which might be annoying but not the end of the world because he already has enough to retire comfortably on.

    I'm not in that position and we generally see that other people who have not invested in funds before are not either, hence the words of caution when someone suggests they will go all out for a single country index. If you have done proper research about investment options then that is fine. Your OP suggested you hadn't. And this is a discussion forum after all. We are not trying to say we have the perfect, guaranteed best or only solution. Just attempting to explain why it is a sensible and reasoned solution.
    Last edited by bowlhead99; 17-10-2016 at 1:00 PM.
    • dunstonh
    • By dunstonh 17th Oct 16, 1:00 PM
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    dunstonh
    You dismiss the UK because it has underperformed.
    No. I dismiss the FTSE100. For my UK allocations I tend to use FTSE250 or UK Equity income. On my active portfolios, I will adapt the UK fund for the economic cycle.

    All my portfolios have a UK equity content.

    You dismiss the US even though it outperformed.
    No I dont. All my portfolios have US equity content.

    The difference is that they would not be the only two sectors I would invest in. You are disregarding the rest of the world.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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