Best way to hold short term UK tracker

bristol_pilot

For this sort of thing I would use an ETF (ishares or similar), the main advantage is you can sit in front of your computer screen and time your purchase and sale precisely. Just like you would with speculating on individual company shares. Any gain is likely to be within your capital gains tax allowance.

NISAs are better suited to those seeking to build a portfolio for the longer term.

Ryan_Futuristics

Legal & General FTSE 100

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-uk-100-index-class-c-accumulation

0.09% charge, and no spread (difference between buy and sell price ... Always watch out for that one - often a hidden 5% charge)

ColdIron

£25 + VAT account closure fee though

scarletjim

Right, I've applied to open an account with X-O, though presumably they won't look at it until tomorrow.

At £5.95 per deal, and otherwise only the fund charge, that works out quite a bit cheaper than other options. Of course ColdIron is right, in my situation the difference in charges will only amount to maybe £10-20 between the options, but of course ETFs give me more control to sell exactly when I want to, and I like that.

In case it's of use to anyone else, I will post back how I get on and anything additional learned etc.

scarletjim

I promised to post some feedback once I'd done this:


It's actually very easy, once my account was set up, I added £10k via debit card, and purchased a FTSE100 fund called 'VUKE.L'. Initially I was confused by 'Settlement = 2 Days', and I was (foolishly) wondering whether that meant I'd only buy at the price in 2 days, too unknown and dangerous for what I was trying to do. But obviously that's not the case, it means when the funds are required (as I understand it).


I wondered whether I'd become obsessed with watching the FTSE100, but it tended to be that I'd look maybe twice a day, 2 or 3 days a week, and forget at other times. That may well be very dangerous if something major happened, as anyone not paying attention would sell after everyone else, and hence get a lower selling price.


I eventually sold this morning, making about £580 profit. The observant amongst you might note that this is nowhere near the 6800 point I initially targeted - I guess I just lost my bottle. Having got to 6630ish, and seeing a profit of nearly £600 on the table, I started thinking how annoyed I would be if a big financial disaster happened and it dropped back, and didn't get to that point again for many months. But of course that's a stupid logic, that could happen at any time, it could have happened on the day I bought, it's always going to be a gamble. (EDIT: Also, obviously the trading fee is important here - at only £5.95 per trade with X-O, it made little difference to my eventual £580 profit, but if I were trading more often with smaller profits, say looking to gain £100 each time, then the fees would eat into my profit considerably, and presumably due to luck over time, I'd end up losing overall),


So how do I feel about my first trade in and out? Satisfied with the results, but accepting that I was lucky for it to move as it has in the last few weeks. Will I trade again in the same way? Probably yes, next time it drops several hundred over a short space of time then levels out. Will I stick to my target next time? Probably not, realistically I expect I will set a target, then cave in when I get to say 80% of that gain (if I do of course!).


Anyway thanks to everyone for their help.

Ryan_Futuristics

There are plenty of guides out there to day trading the FTSE 100 ... And you made a profit a lot of people would have had to spend 3 weeks cleaning toilets to make - so good job

But here's what usually happens:

You do the first 3 or 4 no problem (maybe a few worrying moments), but at some point you buy in at what looks like a cheap point, but is actually the start of a bear market or drawdown ... Within a short space, all your previous profits are lost, and your options are either: cut your losses and come out having lost money, or stay in the market and wait it out

This could take weeks or years - but this is now dictating your returns, and all you've really done is bought in at a bad moment

This isn't a worst case scenario, it's a statistical certainty - it's why gamblers can't win with systems like this ... So day trading an index puts you in a group of investors who generally make much weaker returns than buy-and-hold investors (and just as often lose money)

That's not to say I'm against market timing - there are better systems though ... You might want to look at 'trend following' (at simplest you look at when the market crosses the SMA200 - quite good at showing whether things are going up or down - and have a stop loss point)

jimjames

No one seems to have mentioned the Aberdeen UK tracker. It's an investment trust so traded as any other share meaning you can sell at any point.

racing_blue

kidmugsy wrote: »

Why not gear up by buying a 2 x ETF or 3 x ETF? What a thrill!

I appreciate you are probably joking, but my (bitter!) experience is that volatility in the underlying index can seriously hurt leveraged ETFs.

take a 3x ETF which is revalued daily depending on the performance of the underlying index

You invest £100 on day one, the index rises by 10%, so your investment rises in value by 30% of £100.

Your investment is worth £130 on day two, but index falls by 10% so your investment drops in value by 30% of £130

By the end of day two your ETF is worth 91% of its original value, while the index is at 99% of its original value.

Repeat and rinse a few times and you get massacred

scarletjim

Ryan_Futuristics wrote: »

You do the first 3 or 4 no problem (maybe a few worrying moments), but at some point you buy in at what looks like a cheap point, but is actually the start of a bear market or drawdown ... Within a short space, all your previous profits are lost, and your options are either: cut your losses and come out having lost money, or stay in the market and wait it out

Yes I can certainly see how that could happen. I can't remember it in recent years, but I remember when the FTSE100 was at about 6900 maybe 13-15 years ago. The tech bubble burst, and it fell to somewhere in the early 6000s. It would have been easy to think of that as a temporary correction, and buy in big. But after that, a combination of big financial scandals, the impact of 9/11, and other economic factors, all meant that it fell much more, below 5000 I think, and never got back above 6000 until recent years. So riding that one out would have meant tying up the (already diminished) capital for say 10 or more years with no return / interest. So yes I absolutely see what you're saying. But...

...my only query is, how heavily could it fall? I mean realistically, and using history as a guide? Could anyone on here see it realistically falling below 5000 again? How many heavy long-term bear markets have we seen in the last 10 years?

That said, it would only take one such scenario to hurt that investment for a very long time, which is why I would never risk what I couldn't afford to pretty much entirely lose. Thanks for the reality check though.

bowlhead99

scarletjim wrote: »

...my only query is, how heavily could it fall? I mean realistically, and using history as a guide?

Well from December 1999 to early 2003 it fell from almost 7000 to around 3500.

From summer 2007 to early 2009 it fell from about 6650 to around 3500.

Could anyone on here see it realistically falling below 5000 again?

Yes, of course. And the two relatively recent low points (2003 and 2009) which were 5.5 and 11.5 years ago respectively, were 3500 which is 30% below your 5000 level. Personally I don't think 3500 is likely now we've had QE and inflation and so on since the last one but low 4000s is perfectly possible and would not be out of tune with history, and if we were actually down at 4000, people would be saying 3000 is possible.

Of course, when we talk about the time taken to regain the peaks, people always use the headline capital figure they hear in the paper. In reality the FTSE100 has been paying 3% dividends out every year through thick and thin, so after a decade that's 30% extra in your pocket above the headline index level, and assuming you were reinvesting the dividends while the markets were cheap it would be more than that.

How many heavy long-term bear markets have we seen in the last 10 years?

It depends on what you mean long-term. You have zero long term markets in a ten year period because the long term is more than 10 years.

But if we see another big dip in the next year or two you will have had three 35-50% bear market losses in a decade and a half. And it can take a while to recover from them (we have been gradually coming out of the last one for five and a half years).

Past performance is no predictor of the future. If you look to other markets and go back 25 years: the Nikkei 225 index in Japan in late 1989 was over 37000. By April 2003 it was 7700. It more than doubled from there to 18300 by 2007. Then by 2009 it was down at 7300 again. Today it's getting back up towards 15000 but that's still not 37000, is it?

So, it is good that when speculating with bets on single country indexes, you're not betting more than you can afford to lose (or afford to write off and forget about for a decade or three).