Tracker right way to go?

srcandas

Lokolo wrote: »

Too many people come on this forum nowadays read a couple of threads saying index funds and then shove money into random ones without fully understanding about what they are doing.

Lokolo that is a valid and sad observation. And I agree with you that some posters seeking advice often receive 2 or 3 replies and then say "OK I jumped in on that Angolan mine and set up a DD for the Bolivian seaside development fund"

But ignoring such 'get rich stupidity' is there any evidence that, to take this case, that investing in EM and FTSE trackers, even if selected somewhat arbitrarily (which the OP probably didn't do - no one has asked him), could for certain be beaten by the OP investing large amounts of time building a 'balanced - low risk' portfolio based on £150 per month?

For sure the long-term inmates here have a special fondness for detailed discussion/analysis and very enjoyable I find it.

And for sure all the posts saying "I made a fortune on that one; don't know how you missed out" can lead one to think gaining large sums is easy.

But it has to be accepted that the vast majority of investors will not be very knowledgeable or interested in being so. But equally I have not seen any reliable evidence that any non full time investor does significantly better than a tracker approach unless the investment pot is huge :beer:

JamesU

JohnRo wrote: »

I haven't quite read it all yet but I bought a book called Smarter Investing by Tim Hale. It is very accessible, well written and drills home the philosophy that over the long term your best chance for investment success is to track the markets and incur the least costs possible while doing so.

Once Hale's book is read for risk/time/return/asset allocation there is another book which complements ideas on index fund selection very well….the "FT guide to Exchange Traded Funds and Index Funds" ....how to use tracker funds in an investment portfolio.

http://www.amazon.co.uk/Financial-Times-Guide-Exchange-Traded/dp/0273727834/ref=sr_1_3?ie=UTF8&qid=1347918252&sr=8-3

The book provides a good introductory explanation to the key points to consider with low cost index investing, and describes in detail the various index options available from the main UK providers for each of the "25 essential" indices to consider in a portfolio asset allocation. Since publication two years ago, there have been numerous new low cost trackers added by UK providers of etfs and OEIC index funds, but it is quite easy to evaluate and incorporate these new funds within the existing structured frameworks already described in the book in order to improve further the flexibility, overall asset coverage and reduction on ongoing costs within a given portfolio.

Having just added the link above, I notice there is also a new second edition of the book hot off the press, have not read this one yet.

http://www.amazon.co.uk/Guide-Exchange-Traded-Funds-Index/dp/0273769405/ref=sr_1_1?ie=UTF8&qid=1347918252&sr=8-1

RPW, and anybody else interested in investing in index funds, the books above well worth a read.

JamesU

Lokolo

srcandas wrote: »

Lokolo that is a valid and sad observation. And I agree with you that some posters seeking advice often receive 2 or 3 replies and then say "OK I jumped in on that Angolan mine and set up a DD for the Bolivian seaside development fund"

But ignoring such 'get rich stupidity' is there any evidence that, to take this case, that investing in EM and FTSE trackers, even if selected somewhat arbitrarily (which the OP probably didn't do - no one has asked him), could for certain be beaten by the OP investing large amounts of time building a 'balanced - low risk' portfolio based on £150 per month?

For sure the long-term inmates here have a special fondness for detailed discussion/analysis and very enjoyable I find it.

And for sure all the posts saying "I made a fortune on that one; don't know how you missed out" can lead one to think gaining large sums is easy.

But it has to be accepted that the vast majority of investors will not be very knowledgeable or interested in being so. But equally I have not seen any reliable evidence that any non full time investor does significantly better than a tracker approach unless the investment pot is huge :beer:

Ha yes I agree, but what I don't want to happen is the OP to come back and complain if his EM falls 50%+ in a year because he didn't understand that this was a risk he was taking with an EM fund.

I totally agree that EM over a 10+ year period COULD bring back very nice returns, but it's not like we aren't all sad enough to check our investments on a monthly (or bi-daily in a lot of our cases ) so the things will be noticed.

Linton

srcandas wrote: »

Lokolo that is a valid and sad observation. And I agree with you that some posters seeking advice often receive 2 or 3 replies and then say "OK I jumped in on that Angolan mine and set up a DD for the Bolivian seaside development fund"

But ignoring such 'get rich stupidity' is there any evidence that, to take this case, that investing in EM and FTSE trackers, even if selected somewhat arbitrarily (which the OP probably didn't do - no one has asked him), could for certain be beaten by the OP investing large amounts of time building a 'balanced - low risk' portfolio based on £150 per month?

For sure the long-term inmates here have a special fondness for detailed discussion/analysis and very enjoyable I find it.

And for sure all the posts saying "I made a fortune on that one; don't know how you missed out" can lead one to think gaining large sums is easy.

But it has to be accepted that the vast majority of investors will not be very knowledgeable or interested in being so. But equally I have not seen any reliable evidence that any non full time investor does significantly better than a tracker approach unless the investment pot is huge :beer:

But what does "does better" mean? There are other factors than average % return, in particular the questions of risk and timescale. If one is investing to buy a house or retire in say 5-10 years in my view going in a big way for a FTSE tracker because it has low charges would be very foolish as the indexes volatility in the past 15 years has been high compared with the return. Some sort of balanced fund would be much more prudent.

Conversely if ones timescale is more like 30 years then going in a big way for a FTSE tracker would also in my view be foolish as there are better very long term investment sectors available. For that sort of time scale short term volatility is much less of an issue.

So countering the argument that low charges are essential, a FTSE tracker has low charges, therefore a FTSE tracker must be a good/safe/appropriate investment is important.

However in the case of the OP and many other people who just want to start investing with relatively small sums, then yes, the particular investments and their spread dont matter much. The education and experience gained in the first year or two could be more valuable than any financial return

JamesU

Linton, given there are dozens of FTSE indices that can be tracked at low cost and with different risk profiles, discussing things so generally as "FTSE tracker" is pretty meaningless. If you are referring to a single FTSE index e.g. FTSE100, might be best to point this out rather than confuse?

JamesU

Linton

JamesU wrote: »

Linton, given there are dozens of FTSE indices that can be tracked at low cost and with different risk profiles, discussing things so generally as "FTSE tracker" is pretty meaningless. If you are referring to a single FTSE index e.g. FTSE100, might be best to point this out rather than confuse?

JamesU

Good point - I am talking about a FTSE100 tracker or a FTSE AllShare. In my defense that would seem to be what most other people are talking about when they say "FTSE tracker".

R_P_W

Thanks for all the comments, looks like i kicked off a lively debate without intending to.

I do understand that investing money into emerging markets (or any markets) comes with high levels of risk, but £150 a month isnt't exactly something I'm going to be losing sleep over. On the other hand I dont want to be reckless either so maybe I need to look at spreading it about a bit more, maybe over 3 instead of 2. The £150 is just what I wanted to start with really and thought a tracker might be a good place to start rather than in investing in specific shares myself.

Lokolo

R_P_W wrote: »

Thanks for all the comments, looks like i kicked off a lively debate without intending to.

I do understand that investing money into emerging markets (or any markets) comes with high levels of risk, but £150 a month isnt't exactly something I'm going to be losing sleep over. On the other hand I dont want to be reckless either so maybe I need to look at spreading it about a bit more, maybe over 3 instead of 2. The £150 is just what I wanted to start with really and thought a tracker might be a good place to start rather than in investing in specific shares myself.

You can choose only 2 if you want, but it is limiting you in terms of diversity. Eggs in one basket.

If you take the view that "I don't care about this money" and ignore it for years then your current plan is fine...... but if you like to look at it and not see -50% on it, then you may want to diversify

srcandas

Lokolo wrote: »

You can choose only 2 if you want, but it is limiting you in terms of diversity. Eggs in one basket.

If you take the view that "I don't care about this money" and ignore it for years then your current plan is fine...... but if you like to look at it and not see -50% on it, then you may want to diversify

Lokolo can't let you get away with that. If you look at 100 FTSE and 100 EM companies with share buying on a monthly basis and calculate the type of Armageddon that would be required to see a 50% loss. Then find the low risk portfolio that guards against it. :beer:

Of course if you can do tell

King_Weasel

R_P_W wrote: »

The £150 is just what I wanted to start with really and thought a tracker might be a good place to start rather than in investing in specific shares myself.

1 As I'm sure you know, trackers aren't the only alternative to direct share investing. Managed funds versus trackers is a contentious area in itself.

2 I believe there isn't a huge difference between the FTSE100 and All-Share indices as large caps dominate both.

3 Shares in general are regarded as higher risk than bonds, for instance, but over your timescale I guess going so heavily for shares for the small monthly sum you're talking about could be right, but others here will know better than me.

4 My question: if we're talking trackers, should we consider ETFs? What are the pros and cons over unit trusts?