I want to buy an Index Tracker ISA

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
30 replies 32.6K views
ProsaicProsaic Forumite
212 Posts
edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
Being new to this malarkey I've been reading all weekend about what a good idea index trackers are.

I'm looking for a low-cost tracker stocks & shares ISA

I want a 15 year investment before I'd look at taking anything out of it, but cannot afford the minimum £1000 start off fees of some accounts. Just want a beginners step in the world of investments really

I've stumbled across the Fidelity Moneybuilder UK Index Fund, which can be started using £50 a month ( most I can afford with 2 kids to spend on) and seems very cheap at 0.3%

Is this a good investment? It tracks the FTSE All-Share

Any advice greatly appreciated :)
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Replies

  • dunstonhdunstonh Forumite
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    on a crude risk scale of 1 to 10, a ftse all share tracker would come out at 7. Making it medium/high risk in nature. Is it good? that would depend on your risk profile. As a first timer to this and only having a small amount to put away monthly, I would be more inclined to look at a fund of funds.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • cheerfulcatcheerfulcat Forumite
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    I like trackers for regular investments, especially for newcomers to the market. There is no point in paying more for a general managed fund when most of them are closet index trackers anyway.

    It is worth looking at ETFs, which are index trackers traded as shares. The great advantage of this is that they can be traded at any time during market hours, unlike UTs/OEICs, which are priced once a day.
  • ProsaicProsaic Forumite
    212 Posts
    Thanks for the replies. I've dipped my toe in the investment water by reading the Motley Fool book religiously ( and this site) and trackers seem a good starting point

    Does anyone know if the Fidelity one is better than say Legal & General?

    My understanding is that they are all very much alike, so it comes down to the fees from what I can see

    As I said, I'm looking at a 15 year investment so I'm hoping the market generally rising over a period of time like that should see a return.

    One other thing, with the tracker I've been looking at- would I accrue compound interest?

    Sorry to ask these questions, but I am somebody who 6 months ago thought sticking my money in the current account was a good investment! Thank Goodness for this site
  • cheerfulcatcheerfulcat Forumite
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    Hi, Prosaic,

    Have you looked at the Motley Fool site as well? Probably a better place for your questions - here's a link to the Index Trackers board, for starters.

    FWIW, the L&G tracker is generally considered the cheapest.
  • dunstonhdunstonh Forumite
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    I have no problem with trackers and indeed utilise them within portfolios. However, if it is going to be your only fund, then it doesnt give much diversification. A prime example is to look at FTSE100 trackers which havent made anything in the last 6 years.

    This is why the general consensus is that fund of funds are good for smaller transactions. It gives the diversification and means you dont put your eggs all in one basket.

    Whilst costs are important to consider, they shouldnt be the driving factor in the decision for which sector(s) to invest in.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • ProsaicProsaic Forumite
    212 Posts
    Thanks. I'm looking now. There doesn't seem to be much between these trackers other than fees to be honest :D

    thanks for your help
  • cheerfulcatcheerfulcat Forumite
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    A prime example is to look at FTSE100 trackers which havent made anything in the last 6 years.

    If you had made regular monthly investments into a FTSE 100 tracker for the last six years you would have made a nice profit. Trackers are not ideal for lump sums, except where ( by luck or good judgement ) one has bought at the bottom...
  • EdInvestorEdInvestor
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    One other thing, with the tracker I've been looking at- would I accrue compound interest?

    Interest is what you get on a cash savings account.

    With a share investment, what you get is dividends. Each company will pay you a different dividend as a reward for holding their shares - varying between nil and around 10%. This is called the "yield".

    With a tracker you get the "market yield", that is the average of all the shares in the index you are tracking. At the moment the market yieled is a bit over 3% IIRC.

    You should compare the yield each tracker fund pays, there can be quite a variation.The fund manager usually deducts the charges off the yield - and may slip and extra stealthy one in, hoping you won't notice.Some index tracker funds pay no yield - meaning they confiscate 3% of your returns :mad:

    Some funds pay out the dividend to you, usually quarterly. These are called Income funds.Others reinvest this divi money for you back into the fund, these are caled Accumulation funds.
    Trying to keep it simple...;)
  • Debt_Free_ChickDebt_Free_Chick Forumite
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    Prosaic wrote:
    Does anyone know if the Fidelity one is better than say Legal & General?

    A tracker is a tracker, is a tracker :D

    I wonder if you have really understood the concept. I don't mean to appear rude, but if you understand what a tracker is, then - in theory - they all perform the same. They "track" the index and I assume in your case you're looking at the FTSE-100 index. This is the index for the 100 biggest companies listed on the London Stock Exchange.

    If you ignore fees for a moment ... if the index rises by 10% then both L&G and Fidelity and every other tracker available rises by 10%. If the index falls by 10% then all trackers fall by 10%.

    That's the theory. In practice, there are two issues that result in the tracker fund failing to match the index, exactly. Firstly, there are fees - so if one tracker's fees are lower than any other, that fund should perform better than the others. And then there is tracking error. This occurs as the funds cannot track the index every minute of every day. Any failure to match the index is a "tracking error". The lower the error rate, the closer the tracking fund's performance will be, compared with the index.

    Of the two, lower fees is the more influential, so go for the tracker with the lowest fees first. Then look at the tracking error - if the tracking error for the lowest charging tracking fund is on a par with the other funds, then go for it.

    You should, however, carefully consider whether a tracker fund is what you really want. Trackers tend to do well in rising markets as they have to follow the index. If the market (index) is rising strongly, then so will your tracker. However, in falling markets, tracker funds will again follow the market (index) and will lose money if the index is heading downwards. If the market is selling (e.g.) Vodafone like crazy, then your tracker fund will sell Vodafond like crazy too, even thought there might be good reasons for holding on to it.

    With a discretionary or specialist fund, the fund manager decides which stocks to sell and when - so in falling markets, a specialist fund might fall by less than the index, simply because the fund manager decides to hold on to stock that the market is selling. Or to buy stock that the market is ignoring.

    Be sure to understand that you are buying a "sheep" fund .... it follows the herd ;)

    If you are comfortable with all of this and have good reasons not to go with an active, specialist fund .. then go with the tracker with the lowest charges.

    Otherwise ... keep doing the research and let us have some more questions to answer :D
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • Debt_Free_ChickDebt_Free_Chick Forumite
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    Fidelity MoneyBuilder UK Index Fund

    Tracks the FTSE-All Share index

    Charges 0.3%

    Tracking error 0.11% (36 months to 1.8.2005)

    Legal & General

    Tracks the FTSE-All Share index

    Charges 0.5%

    Tracking error ... can't find it :(
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
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