Index tracking funds

edindie

turbobob wrote: »

Why ETF's specifically (yes you could hold ETF's in a SIPP)? What is the advantage of them for you compared to say, a stakeholder pension investing in a tracker fund?

Sorry, I think I may have made a bit of a booboo. I thought ETFs and index trackers were the same thing. Apparently not.

I was trying to say I wanted to invest in something low cost which is exposed to share price increases, which I could hold for the long term and continually invest small amounts into.

Rollinghome

edindie wrote: »

Sorry, I think I may have made a bit of a booboo. I thought ETFs and index trackers were the same thing. Apparently not.

I was trying to say I wanted to invest in something low cost which is exposed to share price increases, which I could hold for the long term and continually invest small amounts into.

An ETF (an exchange traded fund) is bought from a stockbroker in the same way as shares (but without incurring the 0.5% stamp duty). It can be designed to track an index. The alternative is an index tracking unit trust fund such as those offered by L&G, F&C, etc. with an AMC of 0.5% or less.

Another alternative would be an Investments Trust, particularly a global growth IT, which often have TERs as low as unit trust tracker funds due to the greater efficiency of closed end funds and because the fund itself doesn't pay commission to anyone. They'll have a wide spread of assets and some IT managers offer savings schemes.

turbobob

edindie wrote: »

Sorry, I think I may have made a bit of a booboo. I thought ETFs and index trackers were the same thing. Apparently not.

I was trying to say I wanted to invest in something low cost which is exposed to share price increases, which I could hold for the long term and continually invest small amounts into.

No they aren't the same thing. Index tracking is a type of investment management, which just means the fund aims to replicate the performance of an index like the FTSE 100. The opposite of this would be an actively managed fund.

ETF's (exchange traded funds) are indeed index trackers. But other types of fund also are available in index tracking versions, like unit trusts or pension funds. The main difference is that these other funds are priced once a day, and by comparison ETF's are traded on the stock exchange and the price changes throughout the day like a share. There's also a much greater range of indices that can be tracked by ETF's now and it's expanding rapidly.

Something to bear in mind though is to buy ETF's you have to pay dealing costs to your broker each time, just like you would if you were buying a share. These can be as low as £1.50 each time (with regular monthly investments) but can be a lot more.

Considering that you were looking at saving for retirement then I guess you will have considered investing through a pension for its tax benefits? If so then to include ETF's you would probably be looking at a SIPP (Self Invested Personal Pension). These tend to have admin charges in addition to dealing costs, and really are for sophisticated investors. It's not likely to be a good option for £50 a month. I think a stakeholder pension is going to be better for small contributions, has a charge cap and by default tend to invest in tracker funds. Personal pension plans are in between the two and have more investment flexibility than stakeholders but less than a SIPP.

delmar39

edindie wrote: »

Sorry, I think I may have made a bit of a booboo. I thought ETFs and index trackers were the same thing. Apparently not.

I was trying to say I wanted to invest in something low cost which is exposed to share price increases, which I could hold for the long term and continually invest small amounts into.

Hi edindie I'd just go for a no frills index tracker, like the fidelity moneybuilder UK index, that I mentioned earlier. Don't complicate matters. I've had one for 4 years and have gained even in a poor market. If you leave it much longer the stock market could rise futher meaning that it'll have to come down for you to benefit fully. Whilst it would be good to go in when the market is below 4000, we don't live in an ideal world so get in quick. If you're leaving it there then it's the right thing to do in my opinion. My Dad was debating what to do with his lump sum when the stock market was down below 4000, he debated too long and missed the boat. A lump sum investment now wouldn't gain as much as it would have done a year or so ago. Get the application form downloaded and go for it. It's the one below - charge of only 0.1% cheapest one you can buy. Wrap it up in an ISA and go for £50 monthly investments (or £84 to get you a £1000 in each year).

https://www.fidelity.co.uk/investor/research-funds/fidelity-funds/moneybuilder-funds/moneybuilder-index.page

ozzage

Rollinghome wrote: »

You'd have to pay broker fees on each bargain to buy into an ETF so only really suited to lump sums. The cost advantage of an ETF over a low cost tracker can be minimal anyway. Bigger advantages if you actively trade.

While mostly true, it's worth bearing in mind that you can buy them for £1.50 per trade if you use one of the "regular investment" share schemes. For example from Interactive Investor or Halifax.

Rollinghome

ozzage wrote: »

While mostly true, it's worth bearing in mind that you can buy them for £1.50 per trade if you use one of the "regular investment" share schemes. For example from Interactive Investor or Halifax.

Sure, but even £1.50 a deal is 3% on £50, the sum mentioned by the OP, plus the spread, which is likely to remove any management cost advantage which can be very small anyway. Most unit trust trackers have no front-end charge (though there can be small additional costs). The main advantage of ETFs is in being able to trade instantly whenever markets are open.