S&P500 or NASDAQ for US exposure?

skillboy

Hi All

I am thinking of buying an S&P500 or NASDAQ low cost tracker fund for exposure to the US market. I prefer these two rather than the Dow Jones as:

My risk tolerance is high
My aim is simply long term capital growth
My timeframe is at least 15 years.

I was kind of leaning towards the NASDAQ to give myself more exposure to tech companies but would like to hear people's opinions on which they would choose and why.

Also if anyone can recommend some low cost trackers for the above it would be much appreciated.

Thanks

Glen_Clark

I use VUSA , an ETF (held in www.x-o.co.uk )
Total Expense Ratio 0.09%
AFAIK, No one can beat that.
http://funds.ft.com/uk/Tearsheet/Summary?s=VUSA:LSE:GBP

kidmugsy

Are you a market-timer? Is this the right time?

kidmugsy

kidmugsy wrote: »

Are you a market-timer? Is this the right time?

(My new policy is that any time is a good time to buy except when value looks unusually bad. Case-Schiller says that value does look unusually bad.)

Wilkins

Glen_Clark wrote: »

I use VUSA , an ETF (held in www.x-o.co.uk )
Total Expense Ratio 0.09%
AFAIK, No one can beat that.
http://funds.ft.com/uk/Tearsheet/Summary?s=VUSA:LSE:GBP

I like VUSA but haven't bought yet. Illogically, if I had some I think I would hold.

skillboy

Are you a market-timer? Is this the right time?...

Are you asking this because both indices have gone up a lot in the past year or so?

Quite a few people have been saying that time in the market is more important than timing the market. So there is never a good or bad time to invest... thoughts?

Glen_Clark

kidmugsy wrote: »

Are you a market-timer? Is this the right time?

Asset prices (including stock markets) are being pumped up by money printing. So you need to know the future level of money printing. That kind of inside information is hardly likely to be found on an internet forum. Why do you think bankers pay so much to hire (ex) politicians?

bowlhead99

skillboy wrote: »

I was kind of leaning towards the NASDAQ to give myself more exposure to tech companies but would like to hear people's opinions on which they would choose and why.

If your chosen method to access this geographic region (half the world's investible market cap) is through an index tracker, weighting your exposure to the largest companies out there - I don't know why you would then restrict your interest to one part of it (Nasdaq vs AMEX). S&P 500 (which covers the largest companies in both exchanges), supplemented perhaps by Russell 2000 for smaller US listed companies, would do the job.

If you want an element of tech/growth weighting fine - the S&P500 does have an element of tech. Apple, Google, IBM etc all feature heavily. If you want to be overweight tech, perhaps add a dedicated tech fund or a Nasdaq tracker to your core broad investment.

Otherwise your question is just "should I go Nasdaq-only and ignore the large established industrials, oilers, financial companies and consumer businesses etc etc which don't feature on Nasdaq", to which I would say no; if you are playing a 15 year guessing game it seems strange to only focus on the smaller exchange of the two available, rather than both.

Of course, it's not for me to tell you what to buy. I agree with you that DJIA is too restrictive in its scope of companies covered without being growth focussed so wouldn't want to track that. This is not to say the companies within it can't grow profits and perform very well - I wouldn't eliminate them - but you will get those companies in the SP500 anyway.

kidmugsy wrote: »

(My new policy is that any time is a good time to buy except when value looks unusually bad. Case-Schiller says that value does look unusually bad.)

Schiller's CAPE does say prices are above long term averages, just not by the same amount as the regular P/E appears. Like any measure it has its flaws and critics of course.

skillboy wrote: »

Quite a few people have been saying that time in the market is more important than timing the market. So there is never a good or bad time to invest... thoughts?

Well if you look at the historic indexes there are clearly some very bad times to invest, though you should successfully make it out the other side if you keep investing during your 15 year term. That is what drives the common cliche "time in the market". It doesn't specifically mean there is no such thing as a bad time to invest because clearly there are 'warning signs' about toppy markets visible from time to time.

"Even the most bullish investor would admit that sluggish economic growth, a lackluster labor market and political discord are hardly the logical bedfellows of a stock market at new highs," Nicholas Colas, chief market strategist at ConvergEx, told the Financial Times. [ a November article]; sensible comment though clearly one man's opinion is not necessarily better than another - he could have made the same comment some time ago and missed some nice growth since then. Though on the flipside, the fact he could have made the comment some time ago and missed a bit of growth since then by trimming back his exposure, doesn't make his point wrong.

If you follow an index approach, you are weighting yourself higher into the largest companies by value, which are inherently quite likely to be ones which have gone up most in recent years. E.g. the indexes were heavy in tech before the dotcom crash of 1999/2000 and heavy in financials in 2007/8, and if you were an index investor you might have got hurt quite hard by those.

If you wanted to pay more money for active management, you could perhaps have your eggs more evenly spread across baskets in terms of company type and sector even if you had fewer eggs. Of course there is an endless debate about whether that works long term in a developed market like the US, and the fees certainly add up over 15 years.

Investing a lump sum in an index fund that absolutely has to follow the index, at all time highs, seems like it could be a risky endeavour. If instead you are dripping into it over 15 years, only a few percent of your ultimate pot is invested this year or next, so I wouldn't worry about it so much.

Glen_Clark

bowlhead99 wrote: »

"Even the most bullish investor would admit that sluggish economic growth, a lackluster labor market and political discord are hardly the logical bedfellows of a stock market at new highs," Nicholas Colas, chief market strategist at ConvergEx, told the Financial Times. [ a November article]; sensible comment though clearly one man's opinion is not necessarily better than another - he could have made the same comment some time ago and missed some nice growth since then. Though on the flipside, the fact he could have made the comment some time ago and missed a bit of growth since then by trimming back his exposure, doesn't make his point wrong.

Absolutely - reminds me of the drunk at the bar. Because people wrongly predicted he would fall down several drinks ago doesn't mean he can keep drinking forever. Eventually, inevitably, the man will fall down.

The real state of the economy is probably better illustrated by the mass migration of customers from Tesco and Morrisons to Poundland and Lidl, than it is by politicians spin and their manipulated statistics.

Jegersmart

skillboy wrote: »

Are you a market-timer? Is this the right time?...

Are you asking this because both indices have gone up a lot in the past year or so?

Quite a few people have been saying that time in the market is more important than timing the market. So there is never a good or bad time to invest... thoughts?

Well I am personally now long XSPS.L (an inverse SPX ETF):)

The SPX has gone up by most 200% in 5 years, the last year or so hasn't been bad but a longer time horizon should be looked at for context.

Whilst US exposure in a portfolio is desirable at a lot of times I personally don't have any right now. I usually tend to buy unpopular sectors/geographies that have been hammered, not buy into geographies that have seen a parabolic gain over 5 years! This is of course just my opinion and experience, others will disagree.

FWIW, I am buying gold miners and Brazil in tranches now as well as looking at Indonesia and other more "frontier" type investments for my SIPP's. I think patience is key though, as I suspect we need at least a healthy pullback on the indices to reset some of the indicators that indicate to me at least that the market has "got ahead of itself".....

Good luck in any case, wish you all the best.

J

skillboy

thanks for all your valuable comments...