Looking into investing into a Low cost index fund

life_nit

Been doing some research lately and I like the sound of this method of investment for the long-term 30+ years.

http://beginnersinvest.about.com/od/mutualfunds1/a/aa080804.htm

Above article features some interesting points regarding investing into low cust index funds.

Does anyone have any advice on which they feel offer the greatest low cost fund in the marketplace?


Looking to invest around 15k. Am I'm thinking of having a 50/50 split or around that between a low cost index fund and a low cost bond fund.

Also not sure about whether to gradually deposit funds this way through dollar cost averaging or dump it in from the get go. (going to do more research first)


Would appreciate any comments/suggestions regarding this method.

psychic_teabag

That looks like an American site. One useful site for uk passive investors is the http://monevator.com blog which covers topics such as portfolios, platforms, ETFs vs UTs, etc.

BLB53

Looking to invest around 15k. Am I'm thinking of having a 50/50 split or around that between a low cost index fund and a low cost bond fund.

Also not sure about whether to gradually deposit funds this way through dollar cost averaging or dump it in from the get go. (going to do more research first)

With 30 years to invest, I would go for a higher % of equities, both UK and global - more like 80/20.

Equities are volatile so I would drip feed the money into the trackers on a regular monthly basis otherwise you risk injecting your lump sum at the top of the market. Having said that, with a time span of 30+ years it probably will not make much difference.

Be sure to choose low cost trackers, certainly no higher than 0.5% TER.

life_nit

BLB53 wrote: »

With 30 years to invest, I would go for a higher % of equities, both UK and global - more like 80/20.

Equities are volatile so I would drip feed the money into the trackers on a regular monthly basis otherwise you risk injecting your lump sum at the top of the market. Having said that, with a time span of 30+ years it probably will not make much difference.

Be sure to choose low cost trackers, certainly no higher than 0.5% TER.

Thanks BLB53,

Agree with a lot you've said there, with my time horizon being more than 30+ years. I can definitely take on a higher % of my capital into an index fund than a 50/50 split.

Looking at this at the moment, having dealt with Fidelity before and it being the best I can find at the moment:

Fidelity MoneyBuilder UK Index

Annual Management Charge 0.10%
Total Expense Ratio (TER) 0.30%

https://www.fidelity.co.uk/investor/research-funds/fund-supermarket/factsheet/summary.page?idtype=ISIN&fundid=GB0003875324

I'm going to try and compare the market a bit more deeply before I begin to invest. As I really want to minimise the expenses to the maximum with which fund I choose. (Looking at a FTSE All share index).

If you have any opinion on it or know of a fund that might be cheaper I would appreciate the help.

Kind regards,

Daniel

Jegersmart

Hi Daniel

Tracker funds can certainly have their place in a portfolio as long as you understand the "features" of what you are investing in. By this I mean that a tracker is a "dumb" fund and just follows the index it attempts to proxy as closely as possible. The Moneybuilder UK Index is cheap, but if you invest at the wrong time it can take a long time to make any gains. For example if you had invested in January 1999 when the FTSE was at 6800 to 7000 you would still be down about 15-20% over the 13 year period, but of course as the fund pays dividend you probably still would have made a profit - somewhere along the lines of 2.5% per year in divi (approximation) - so you would be "up" say 15% in 13 years perhaps? (can't be bothered to do the maths). Over 10 years as the market crashed in 1999 however, you would have made around 62% gain in that 10 year period. As you can see with index trackers timing can be - almost literally - everything.

If you compare this tracker fund with all UK income equity funds over the same period (and that period is quite good for the tracker) there are 53 funds that have been around for over 10 years, and about 35 of those have outperformed the tracker net of fees. I suspect but don't know for sure that if you looked further out the tracker would be worse off still.

I don't want to start a debate as to whether an active or tracker fund is better, but I do want to point out that trackers are far more sensitive to timing that others. If I was ever going to use a tracker I would wait until the market tanks and buy in and gradually as new highs approach sell out of it into other investment options.....I couldn't stand to think that I would have made perhaps 20% in a 13 year period personally - then you might as well stick it in a bank account imho....

HTH

J

psychic_teabag

life_nit wrote: »

If you have any opinion on it or know of a fund that might be cheaper I would appreciate the help.

The HSBC tracker has a higher AMC, but slightly lower TER (0.27%)

Ilya_Ilyich

One important consideration is diversification - by using the All-share as your sole equity index you'd be getting okay exposure to the UK market but no international exposure. It's generally a good idea to spread your investments throughout the globe so that if the UK performs poorly for a period you still have investments elsewhere that'll grow well and make up for it somewhat. If you're determined to use low-cost index funds for your investments you should consider holding funds for multiple regions (e.g. an all-share tracker, a US tracker, an Asia tracker etc) or a fund that covers multiple regions (e.g. there are FTSE all-world trackers).

You might want to look at the Vanguard LifeStrategy funds. These are pre-built 'portfolios' of index trackers that give you exposure to equity markets worldwide (as well as three different types of UK bond index) for pretty low fees. I personally hold the 80% equity fund as a significant part of my long-term investment plan. It's available through a number of investment platforms; I personally use Hargreaves Lansdown who charge a £2pm fee on top of the fund's management charge; even with this added fee I think it's pretty good value.

Whether you should opt for a lump sum investment or pound-cost-averaging approach may depend somewhat on whether you'll be adding to it or not -- the risk of a lump sum is that the markets fall shortly after you invest, but if you're planning to buy more every month then you help make up for this by buying cheaply.

Linton

Low cost shouldnt be your sole criterion. Far more important is what the fund invests in. The FTSE (100 or Allshare) has basically gone nowhere in say 12 years but I guess the wild fluctuations have made it pretty good for drip feed investing. I suggest you choose perhaps 3 -5 equity funds with a geographic or industry sector spread and then a couple of bond funds. For long term equity investment perhaps try something like the Far East and/or emerging markets. However whether you can find very low cost funds available which actually deliver the goods is still very much open to question.

JamesU

Jegersmart wrote: »

I don't want to start a debate as to whether an active or tracker fund is better, but I do want to point out that trackers are far more sensitive to timing that others. If I was ever going to use a tracker I would wait until the market tanks and buy in and gradually as new highs approach sell out of it into other investment options.....I couldn't stand to think that I would have made perhaps 20% in a 13 year period personally - then you might as well stick it in a bank account imho....HTHJ

I do not understand this (and do not want to get into an active vs passive debate either). Why is timing the buying or selling of an actively managed vs passive tracker different? Is it because you think actively manged funds control risk better?

JamesU

dunstonh

The UK stockmarket has been poor for a very long time. You find most sector allocated portfolios have been lowering their allocations to the UK for the last few years. If you take a medium risk portfolio, you often find only 10% is allocated to UK equity. So, what is it about UK equity that appeals to you?

I'm going to try and compare the market a bit more deeply before I begin to invest. As I really want to minimise the expenses to the maximum with which fund I choose. (Looking at a FTSE All share index).

HSBC, L&G, Blackrock Vanguard all offer cheaper.

webnibbler

Ilya_Ilyich wrote: »

You might want to look at the Vanguard LifeStrategy funds. These are pre-built 'portfolios' of index trackers that give you exposure to equity markets worldwide (as well as three different types of UK bond index) for pretty low fees. I personally hold the 80% equity fund as a significant part of my long-term investment plan.

IMO the Vanguard LifeStrategy funds are one of the best index offerings out there at the moment. They have really taken passive investing to the next stage in the UK and it's for the others (HSBC, L&G etc.) to catch up now. I've also got the 80% on HL which has had the effect of reducing the annual cost by hundreds.