Question about DIY Index Trackers

wottsy2000

So I'm just starting to think about some long term investment options and am considering putting something in an FTSE index tracker. I need to do quite a bit more research before i commit, but have a few questions i can't seem to find answers to.

My main one is this: why can't i just create my own portfolio of shares on something like E-toro matching the portfolio of one of the cheap FTSE funds? This would avoid the fees on those accounts and offer a bit more flexibility if i needed it. I know there must be some reason why this is a bad idea, otherwise no one would pay for a tracker. But, as i say, i am new to this.

As an example, why can't i just go on the motif investing website, find a motif i like the look of, and recreate it for myself rather than paying $10 or whatever they charge?

Thanks
Dan

webnibbler

In theory you could buy the constituents of an index, but you would have to buy many 100s to get close to matching a FTSE index. Although most index take a sample of the entire market it's still many investments. You would also need to cap weight your investments and buy or sell shares as they enter or leave the index. A lot of work and very expensive trading fees. Best left to the computers I would say.

colsten

The FTSE 100 is far too narrow an index. It hasn't grown as well as the FTSE 250, for example, and you should cast your net a lot wider - like globally.

monevator.com has lots of good articles on how to pick the funds you think are right for you.

colsten

webnibbler wrote: »

In theory you could buy the constituents of an index, but you would have to buy many 100s to get close to matching a FTSE index.

you'd have to but exactly 1 FTSE 100 tracker if you wanted to track the FTSE 100. Although limiting yourself to the FTSE 100 might not be the smartest move.

webnibbler

colsten wrote: »

you'd have to but exactly 1 FTSE 100 tracker if you wanted to track the FTSE 100. Although limiting yourself to the FTSE 100 might not be the smartest move.

Very true.

I was thinking of something like FTSE AllShare with my comment. The 100 just doesn't appeal as a long term investment. It's more for the media to get excited about.

dunstonh

why can't i just create my own portfolio of shares on something like E-toro matching the portfolio of one of the cheap FTSE funds? This would avoid the fees on those accounts and offer a bit more flexibility if i needed it. I know there must be some reason why this is a bad idea, otherwise no one would pay for a tracker. But, as i say, i am new to this.

Are you sure the dealing costs of 30-120 odd shares will make it cheaper?
How often will you rebalance the holdings to ensure your tracking error is reduced?
How much will it cost you to rebalance the shares?
Why would you solely wish to invest in something that tracks the FTSE? (not very balanced)