Index trackers v EFTs...any thoughts?

spanner200

Hi,


Ive decided thst it was about time I start to invest for the futur, and I am looking to save £150 mer month into some sort of ISA wrapper. Originally I thought about using an index tracker, wither with F&C ISA All Share tracker or Fidelity Monybuilder UK Index, both of which have extremly low charges. I have been attempting to determine if there are any other 'hidden' charges as my understanding is not all funds publish TER's although I think next year they will be required to do this.

I have also been attempting to determine the extent, if any, of tracking error and whether the annualised total return includes dividents re-invested, as I have been told that sometimes the total return on a tracker will normally be given including them, whilst the total return on the All Share will be quoted without them (thereby giving bias). Anyway, as I was attempting to find all this information out (which isn't the easiest- bear with me as I'm an invester newbie!) I came across ETFs.

I understand that like index trackers they are attempt to track various indices, however they can be traded like shares, giving greater flexibility. However I am uncertain as to how this provides greater advantages over an index tracker, because as I said I am relatively new in the investment world, and I would rather invest in something that isn't too complicated for now- ETF's seem to require alot more managent, which I wouldn't mind, but want to be armed with the knowledge necessary to make informed decisions!

Any comments on both so that I can decided on which sort of investment I should take would be appreciated!

PS. as you need a broker with ETF's does this make them more expensive?

cheerfulcat

Hi, spanner,

I understand that like index trackers they are attempt to track various indices, however they can be traded like shares, giving greater flexibility. However I am uncertain as to how this provides greater advantages over an index tracker

Most managed funds are only priced once a day. If you were to place an order to sell now, you wouldn't actually get a result until tomorrow after the price has been set. With an ETF, you can sell at any time when the markets are open, and see the price before you sell. This is what makes them much more flexible.

I am relatively new in the investment world, and I would rather invest in something that isn't too complicated for now- ETF's seem to require alot more managent, which I wouldn't mind, but want to be armed with the knowledge necessary to make informed decisions!

ETFs don't really require any more management than ordinary trackers, though the possibilities for greater management are there because you can switch quickly from one to another, or in and out of an index; also because there is so much choice in the indices to track compared to UT index trackers. It is important not to let " more management " turn into overtrading, though.

I am a big fan of ETFs. They allow you to take temporary positions in interesting areas for very little outlay - the minimum purchase is one i-share and if you hold ETFs in a Squaregain ISA there is no purchase commission and just a £25 annual charge for the ISA wrapper. They are free of stamp duty as well. ( BTW i-shares are the Barclay's ETFs, almost the only ones available in a normal UK broker's account ).

There's a fair bit of information on the i-shares site, as well as a Motley Fool board ( of course )

HTH

Cheerfulcat