Index Trackers

mattih5

Hi,

I'm considering investing £50 a month into an index tracker as I want to put some money aside for several years.

Just a few questions though.....

Do index trackers under perform? i.e. can you loose the money you have invested?

Do you have to follow the indeces of the ftse 100 or do companies offer the ability to follow other markets?

How long do index trackers usually last for?

I'm not well up on them, I have done some research but it's a bit of a mine field. I have read some negative views and some positive views so I am a little unsure wha route to take.

Thanks

MPH80

Erm - they can under perform yes. If the market falls - so will the tracker. So there is a risk to your captial.

You don't have to follow the FTSE indicies - although they are the most common.

And they can last, generally, for as long as you want - most of the time - withdrawl penalties are low (if not non-existant) and you can withdraw your money.

M.

ReportInvestor

mattih5 wrote:

Do index trackers under perform? i.e. can you loose the money you have invested?

Those are two separate questions.

Yes they underperform their indices and often underperform other managed funds.

Yes, you can lose money if you invest in the stock market.

More about trackers on this MSE link

The Motley Fool is a fan of regular saving into trackers unlike some of the posters on MSE

dunstonh

Do index trackers under perform?

In true terms, they match the index they are tracking. If that index performs lower than other indexes, then you will get back less than the others.

can you loose the money you have invested?

No. However, you can get back less than you pay in. To lose everything would be a catastrophic event and we would move into anarchy. i.e. not going to happen.

Do you have to follow the indeces of the ftse 100 or do companies offer the ability to follow other markets?

Its your money. There are over 6000 funds out there. You do what you like. If you choose a FTSE100 tracker (which has been the worst performing UK index in the last 5 years) then that is your choice.

How long do index trackers usually last for?

No timescale, they are open ended.

I'm not well up on them, I have done some research but it's a bit of a mine field. I have read some negative views and some positive views so I am a little unsure wha route to take.

Trackers tend to do better than managed funds (in the same sector) when the markets are going up but do worse when the markets are more volatile or going down.

This makes them neither better or worse than managed funds.

As mentioned on another recent thread, a fund of funds may be the better solution for someone paying £50pm. This gives a large asset spread and doesnt tie all your money to one sector and area.

you may want to peek at http://forums.moneysavingexpert.com/showthread.html?p=1815376#post1815376 to get an idea of some tracker figures and other sectors over the last 5 years.

cheerfulcat

mattih5 wrote:

Hi,

I'm considering investing £50 a month into an index tracker as I want to put some money aside for several years.

Just a few questions though.....

Do index trackers under perform? i.e. can you loose the money you have invested?

Do you have to follow the indeces of the ftse 100 or do companies offer the ability to follow other markets?

How long do index trackers usually last for?

I'm not well up on them, I have done some research but it's a bit of a mine field. I have read some negative views and some positive views so I am a little unsure wha route to take.

Thanks

Index trackers underperform by almost exactly the amount of charges, so choose a cheap one.

You can certainly lose money, as with any other stock market investment. However, over the long term, regular investment into a tracker should pay reasonably well.

There are plenty of indices to choose from, and you don't even have to track the stock market. The widest selection of trackers comes from Barclays in the form of iShares or ETFs.

There is normally no fixed period of investment with a tracker.

TBH, I am a great fan of trackers for people who want some stock market exposure without having to find and monitor shares or funds. They will never perform as well as funds managed by the " star " managers but then nor will most other funds.

mattih5

Thanks all for your advice.

I've read over all your comments and the links you have provided.

One last question, I would like to start learning how to invest with the stock market, if I have some spare cash which I would like to see grow, what route would you all take?

EdInvestor

mattih5 wrote:

Thanks all for your advice.

I've read over all your comments and the links you have provided.

One last question, I would like to start learning how to invest with the stock market, if I have some spare cash which I would like to see grow, what route would you all take?

I would open an account with Halifax Sharebuilder, which has extremely low charges designed for regular savers, and start buying shares in big blue chip companies, which preferably pay good dividends. I would by one share per month,a different sector each time ..., a bank, an oil company, a utility, a telecom company, you get my drift...:)

After I'd accumulated around 15 companies altogether, I would go around and top up the amounts with my next contributions, and also with my dividend money which would now be coming in.

Meanwhile I would watch how my shares behave so as to learn how the stockmarket works.

mattih5

Excellant just what I wanted to hear, I needed some reassurance.

I've read about this here -> http://www.fool.co.uk/news/foolseyeview/2000/fev001113c.htm

What type of costs are involved?

mattih5

Is the Halifax one the cheapest or are their alternative ones?

EdInvestor

Hi Mattih5,

Well spotted The HYP idea has become very popular since then and there is now a special board devoted to it here..

The Sharebuilder costs 1.50 a trade only and is easily the cheapest.It's ideal for someone building up an HYP with regular savings. Suggest you ask advice over at the Fool where several people are doing exactly this.

dunstonh

The HYP has become popular during a period that has favoured "income" rather than "growth". If you take the period before the crash, income was not as good as growth and the future will have periods where growth beats income and vice versa.

It is best not to base all your investments on the flavour of the month.