Ftse

CoasterJunkie

Hello all,

I'm a new member so apologies if this question is in the wrong forum/area whatever...

My question is... I have a tracker account with nationwide that tracks the FTSE.

As you are probably aware, the FTSE lost 100 points yesterday ???!!

I know that the value of investments can go up or down but do I cash them in or hang on?

I got caught out a number of years ago with a Virgin ISA and don't wish to repeat the experience.

If you work in this field...what do companies do to mitigate the risk to their customers? Does the money stay invested whatever... or do fund managers sell and buy as the markets change? Basically, after the poor efforts of Virgin fund managers - what are we paying their fees for exactly??

Many thanks in anticipation of your replies...I would contact a financial adviser but:

A: I'm too tight and
B: I don't trust anyone else with my (very) hard earned cash!


FAB website by the way...:j

Hereward

A tracker has no risk mitigating services as it owns all of the stocks in a particular index; if you had a managed fund, these in theory will have some sort of protection arranged, but it will depend on the managed fund.From you post I assume that you are quite risk adverse, and as mentioned in other threads trackers can be quite high risk as they are focused on one particular index/sector. As to withdrawing money from your fund, investing in shares is a long term thing as this should smooth out any bumps along they way; however there are no guarantees in life, so you could lose your investment.

dunstonh

As you are probably aware, the FTSE lost 100 points yesterday ???!!

No it didn't. One of the FTSE indexes lost 100 points. The FTSE tracker you have is almost certainly the FTSE All Share and not the FTSE100.

If you work in this field...what do companies do to mitigate the risk to their customers?

With trackers, absolutely nothing is done.

It is the advisers responsibility to make sure that the investment funds you are in match your risk profile. You have chosen a medium/high risk fund and you should expect the volatility that goes with it.

Does the money stay invested whatever... or do fund managers sell and buy as the markets change?

With a tracker, there is no management. With a managed fund there is and there is usually some downside protection.

Basically, after the poor efforts of Virgin fund managers - what are we paying their fees for exactly??

Virgin did nothing wrong. They had a FTSE tracker exactly the same as you have now. No different at all except perhaps a small difference in charges.

Many thanks in anticipation of your replies...I would contact a financial adviser but:

A: I'm too tight and
B: I don't trust anyone else with my (very) hard earned cash!

Ok, had you seen an independent financial adviser, you would have been recommended funds appropriate to your risk profile. Instead, you have chosen to do it yourself and invest above your risk profile. You left one investment but then re-invested into exactly the same thing.

Paying for advice, when advice is needed, is not money wasted. The small level of charges you would have incurred for the advice would have easily been covered by the fact the investments you would have had, would have been more suitable for your risk profile.

cheerfulcat

Hi, CJ.

I know that the value of investments can go up or down but do I cash them in or hang on?

If you cash in now you will crystallise your loss. If you are to stay invested, though, you will have to get used to the markets moving up and down, as that's what they do. A drop in prices can also be seen as a buying opportunity...

what do companies do to mitigate the risk to their customers? Does the money stay invested whatever... or do fund managers sell and buy as the markets change? Basically, after the poor efforts of Virgin fund managers - what are we paying their fees for exactly??

Companies don't do anything to mitigate risk, that's your job. Fund managers have different mandates for different funds but most of them are quite rightly very limited in being able to come out of the market completely. Some may use derivatives to balance risk. You need to find the funds which suit the amount of risk you are prepared to take.

BTW, while some trackers are managed, most are not, so you aren't usually paying managers' fees.

CoasterJunkie

Hi all,

Thank you for your replies. I don't mean to sound disrespectful to your profession dunstonh, I guess I took too much notice of the salesmans blurb when opening this account. 'Should perform very well, good track record..etc etc...'

I am not too adverse to risk and I do appreciate the pitfalls. The amateur 'players' like me take notice of the newspaper headlines rather than tracking the long-term performance of these things.

Is this loss the papers report a particularly steep one (historically)?

I take it the FTSE All Share 'soaks up' these fluctuations over the longer term as opposed to the FTSE100.

Anyway, I waffle on. Thanks again for your replies. You have cleared up some of my misconceptions. :hello:

dunstonh

I don't mean to sound disrespectful to your profession dunstonh, I guess I took too much notice of the salesmans blurb when opening this account. 'Should perform very well, good track record..etc etc...'

You saw a tied salesman (assuming nationwide). You did not see an independent financial adviser. The salesman at nationwide has about 3 funds to choose from. An IFA has tens of thousands. There is a world of difference between a tied salesman and an independent financial adviser.

Is this loss the papers report a particularly steep one (historically)?

Ignore history. The current situation cannot be compared to anything that has happened before. HOWEVER, May and October do have a history of jitters more than any other months. A 10% drop is not of concern. If it is a concern to you, then your investments dont match your risk profile.

I take it the FTSE All Share 'soaks up' these fluctuations over the longer term as opposed to the FTSE100.

Not really. Its just a larger number of companies that you are invested in. Whilst the FTSE100 is only large cap, the all share has small, medium and large cap companies so has less focus on one particular area. For example, a FTSE100 tracker would have returned nothing over the last 5 years but a FTSE250 tracker would have been up there with the best performing UK funds. An All share tracker would be somewhere between the two.

EdInvestor

CoasterJunkie wrote:

My question is... I have a tracker account with nationwide that tracks the FTSE.As you are probably aware, the FTSE lost 100 points yesterday ???!!

How long have you had it? If it's tracking the FTSE100, here's a snapshot of it's performance for the past year:

One year of the FTSE100

There's also probably some dividend income going in. How does that look now? Not too bad I'd have thought, unless you only started investing about a month ago

I know that the value of investments can go up or down but do I cash them in or hang on?

Investing in shares is a long term game, 5 years are reckoned to be a minimum.

I got caught out a number of years ago with a Virgin ISA and don't wish to repeat the experience.

Was it invested in a tracker fund too? If so, why did you choose the same fund again?

If you work in this field...what do companies do to mitigate the risk to their customers?

Nothing.THey invest in what they say they will, it's up to you to choose investments which fit your risk profile.There are of course less risky ways to invest in shares than through index trackers Suggest you try "Equity Income" funds.

Basically, after the poor efforts of Virgin fund managers - what are we paying their fees for exactly??

To invest in what they say they will invest in and make as much dosh as possible by so doing.Not to switch into cash the minute the market falls. This is basically not allowed, except for hedge funds.

If you want to switch into cash because you think the market is too risky, YOU must switch your money out of this fund and into another one (such as the cash fund, or a bond fund, or whatever ).It is not the fund manager's job to do this for you.

I must agree however that it might help a lot if this simple point was explained to people more clearly. They might have lost a lot less on their endowments and pensions if they had known a few years ago they could switch the money into a safe fund.Mind you, most people were probably invested in With-profits funds at that time, on the mistaken advice that there was no need to worry about market falls, their money would be safe.

zag2me

I had the same thing happen to me but luckily I had 50% of my isa in a FTSE tracker and 50% in a managed uk growth fund. The tracker lost about 10% of its value, the managed fund lost around 4%. So I can vouch for a managed fund they seem to do alot better in these circumstances.

Playing the stockmarket is a bit of fun for me over and above my cash isa so the risk isnt huge to my savings, but I would warn anyone getting into this that there are short term losses and gains you have to get used to! I guess thats why people say you should invest for a minimum of 5 years.

EdInvestor

dunstonh wrote:

Its just a larger number of companies that you are invested in. Whilst the FTSE100 is only large cap, the all share has small, medium and large cap companies so has less focus on one particular area. For example, a FTSE100 tracker would have returned nothing over the last 5 years but a FTSE250 tracker would have been up there with the best performing UK funds. An All share tracker would be somewhere between the two.

I don't think the reason for the underperformance of the FTSE100 is really related to the number of companies it tracks. Rather it's because the composition of the FTSE100 changed quite dramatically for a few years during the tech boom. In came a load of previously unheard of companies, ousting from the top 100 a load of old name companies which tend to do well through thick and thin (these ended up in the 250, so it did well).

When the bubble burst, these tech companies in the FTSE100 crashed and took the index down with them, while the old names performed splendidly - and are now back in the FTSE100 where they were before and the techie firms have dropped out.So a tracker in 1999 is invested in totally different companies from a tracker today.

One of the main risks with all the tracker funds is that they are weighted by market cap ( size of company).This means that more than 60% of your money will be in the top 20 largest companies. Most of these companies are either banks/financials or involved in mining/oil and gas.

So if those two sectors do well - or badly - expect your tracker to react accordingly.The lack of sector diversification makes trackers much more risky than other types of equity funds which spread your money across a broader range of sectors.

cheerfulcat

Hi, CJ,

CoasterJunkie wrote:

Hi all,

Thank you for your replies. I don't mean to sound disrespectful to your profession dunstonh, I guess I took too much notice of the salesmans blurb when opening this account. 'Should perform very well, good track record..etc etc...'

Whether from a tied or an IFA salesman, you shouldn't buy a financial product without understanding it; don't just take his or her word for it, go and research it before investing.

I am not too adverse to risk and I do appreciate the pitfalls. The amateur 'players' like me take notice of the newspaper headlines rather than tracking the long-term performance of these things.

Is this loss the papers report a particularly steep one (historically)?

Sorry, CJ, pet peeve;I know that everyone uses it but it's wrong. The word is averse, not adverse. I don't mean to single you out, it just bugged me a bit more than usual today. Sorry! Anyway...the FTSE 100 has dropped about 10% in this correction. Not a huge loss and taken in context - there has been a tremendous run up in the past few months - was very much to be expected. It might be useful to look at a chart of the FTSE 100 over the longer term.

Chrismaths

And of course 80% of the All share is the FTSE 100, 17% FTSE 250, 3% Small Cap. Plot a chart of the all share against the FTSE 100, and you will see little difference, even over relatively large time periods.
IMO, Market cap should only be a consideration for liquidity, not for weightings. If you have a set of companies, some will be overvalued, some undervalued. By weighting by market cap you proportionally tend to get more of the overvalued ones. One of the criteria by which I judge funds is how little attention they pay to market cap weighted benchmarks. The less the better!