FTSE tracker that pays dividends?

s20544

With savings rates so low, I recognise that I have to take some risk to get a reasonable return. I am not very knowledgable on stocks/bonds etc and do not want to pay hefty fees to advisers etc for my reasonably modest investment. Therfore, I see a passive FTSE tracker or something similar as a possible solution.

If I were to actually buy the FTSE shares outright, I would benefit/suffer from any change in the share value but would also receive the dividends.

My question is, with a FTSE tracker such as those offered by HSBC etc, would I also receive the benefit of any dividend payments? If not, does anyone know of any passive funds/structured savings products in which one would benefit from dividends? (I do not need the income and so would be happy to see the dividends reinvested).

(I beleieve the FTSE 100 has collectively paid about 3.5% in dividends in the last 12 months).

I assume that any FTSE tracker should should probably be viewed as a 5year+ investment? This being the case, I can not afford to put a significant ammount of my savings into this as I may need them in 2 or 3 years time to buy a house. In the current savings climate, the only alternative I see for myself is to invest in buy-to-let in a property that could (hopefully) be sold quickly if needed to release funds when needed. I have some knowledge of property and letting so I would be happy to actively manage this.

Thanks for any advice that can be offered.

le_loup

All trackers pay dividends. Buy inc units and you can take the dividend. Buy acc units and the dividends will be reinvested..

gadgetmind

As Le Loup says, pretty much any tracker will pay dividends if you go for income units. Other options are active funds, investment trusts or more fancy trackers and ETFs that target a subset of the market. For instance, I hold some Vanguard UK Equity Income units that targets high yield companies in the FTSE 100.

However, if you need your money in five years, then equities aren't really an option. You either need to stick to longer term deposit accounts or maybe look at corporate bonds and/or PIBs and prefs.

dunstonh

I am not very knowledgable on stocks/bonds etc

It shows. That isnt a criticism but you do need to be aware that not knowing what you are doing can cost you more in the long run.

Therfore, I see a passive FTSE tracker or something similar as a possible solution.

Currently you have savings. As an alternative for low interest rates, you are considering jumping up the risk scale missing out all the things in between (on 1-10 scale with cash at 1 then you are looking at around risk 7 or 8). That is quite a jump for someone that doesnt understand investments and only reason for investing is their perception of what is a low interest rate.

If not, does anyone know of any passive funds/structured savings products in which one would benefit from dividends?

Structured products are structured to give defined benefits on certain events. They wouldnt have dividends.

(I beleieve the FTSE 100 has collectively paid about 3.5% in dividends in the last 12 months).

It is also capable of 50% loss in 12 months.

I assume that any FTSE tracker should should probably be viewed as a 5year+ investment?

10 years ideally nowadays. 5 is the barest minimum you should really consider. The longer you are invested, the more likely you are not to suffer losses. The shorter the term, the more likely you will suffer losses. 5 years is around half an economic cycle. You are still hoping you get the better half if you only do 5 years.

This being the case, I can not afford to put a significant ammount of my savings into this as I may need them in 2 or 3 years time to buy a house.

In which case you shouldnt be investing.

In the current savings climate, the only alternative I see for myself is to invest in buy-to-let in a property that could (hopefully) be sold quickly if needed to release funds when needed.

Pretty awful idea.

N1AK

s20544 wrote: »

I assume that any FTSE tracker should should probably be viewed as a 5year+ investment? This being the case, I can not afford to put a significant ammount of my savings into this as I may need them in 2 or 3 years time to buy a house. In the current savings climate, the only alternative I see for myself is to invest in buy-to-let in a property that could (hopefully) be sold quickly if needed to release funds when needed.

If you are in a position where you may need the money in the medium term and couldn't risk a 0-50% decrease then I would strongly advise against buying shares or funds with the money. This is the rule I work on (don't invest it in funds if I can't afford to never see half of it again). I figure that if the stock market sharply drops more than 50% then I'll probably have bigger issues to deal with.

Buying property comes with considerable costs especially if you may be looking for a quick sale in 2-3 years. I'm not sure that investment would noticably beat savings and it comes with other risks.

jimjames

s20544 wrote: »

I assume that any FTSE tracker should should probably be viewed as a 5year+ investment? This being the case, I can not afford to put a significant ammount of my savings into this as I may need them in 2 or 3 years time to buy a house. In the current savings climate, the only alternative I see for myself is to invest in buy-to-let in a property that could (hopefully) be sold quickly if needed to release funds when needed. I have some knowledge of property and letting so I would be happy to actively manage this.

Thanks for any advice that can be offered.

As already stated trackers pay dividends either out as income or rolled up into the fund value. Other funds "equity income funds" can pay a high rate of income than a tracker and investment trust can pay a more consistent income by smoothing out the income over a number of years to avoid peaks and troughs.

BTL would be a very bad idea if you need money in 2-3 years. You cannot sell off part of a BTL as you can with an investment and have no idea of the price you will achieve or the time taken to get that price regardless of how good you are at managing the property in the meantime.

How would you cope for example if property prices dropped 30% over the next 3 years? Or even remained static so you make a loss when solicitors and estate agent fees are included.

doughnutmachine

sorry to slight derail this thread, but i've always understood trackers mirror the underlying index ie ftse 100 or 250. as i understand it the ftse 100 is a reflection of the capitalisation of the 100 largest companies on the stockexchange.

but how can a tracker match the ftse 100 if one company of the ftse 100 takes over another 100 company? it would mean the ftse100 becomes ftse99 after the takeover, so they let another company in to make it the ftse100 again. i just don't see how a tracker can match the increased value of the ftse100 by letting another company in?

Masomnia

doughnutmachine wrote: »

sorry to slight derail this thread, but i've always understood trackers mirror the underlying index ie ftse 100 or 250. as i understand it the ftse 100 is a reflection of the capitalisation of the 100 largest companies on the stockexchange.

but how can a tracker match the ftse 100 if one company of the ftse 100 takes over another 100 company? it would mean the ftse100 becomes ftse99 after the takeover, so they let another company in to make it the ftse100 again. i just don't see how a tracker can match the increased value of the ftse100 by letting another company in?

I guess you could say it's like the football league, people get promoted and demoted every quarter. If a company got taken over and delisted from the FTSE100 then whomever was top of the FTSE250 would be promoted up to the FTSE100.

The tracker fund would then buy shares in the company that had been promoted relative to how much their market cap represents of the FTSE100. The other companies in the FTSE100 would make up a smaller % of the total index as a new comapny had been added, so shares in everything else would be sold, providing the money.

lvader

The weighting of the companies also change.

jimjames

lvader wrote: »

The weighting of the companies also change.

Unlike most people's expectations the weighting of each company is not 1% ie not all have equal weighting. The top 4 companies make up something like 25% of the index.

doughnutmachine

thanks for the responses above, but i still dont get it. if a small company became the next "google/apple" and joined the ftse100, the combined capitalisation of the ftse100 would increase a lot (it would kick out the smallest ftse100 company and become the largest company in the uk).

i just dont see how the trackers could increase the value of their customers' investments, after all they wouldn't have had shares in the small company before it became an overnight success