Whar are your thoughts on pound cost averaging into a tracker fund ???

silver4444

Ladies and Gents,

What are your thoughts on the following statement ???

"If your investment horizon is long-at least 25 or 30 years- there is only one sensible approach. Buy every month, automatically and whenever else you can spare some money. The single best choice is a total stock-market index fund".

I am looking at investing for approximately 15yrs and using my annual Stocks and Shares ISA allowance to invest into a Fidelity MoneyBuilderUK Index Tracker Fund ( FTSE ALL SHARE index).

Any constructive criticism would be gratefully accepted.

Regards,

Silver4444

dunstonh

The single best choice is a total stock-market index fund".

If you like average performance and want to invest and forget and put all your eggs in one basket then fair enough.

The UK has historically been the best sector around once every five to seven years. So, in that 25 year period, you will get 3-4 years of best performance. However, that is historic. Going forward, it is likely to be far less frequent as other economies overtake the UK.

Invest and forget in a single fund is not a good option.

silver4444

Thanks for your reply DunstonH.

How many funds would you recommend to invest in, as a minimum, to give a reasonable spread of risk for a long term investment ?
I am comfortable with taking risk and
I am looking to invest for the long term to supplement a pension.

Regards,
Silver4444

pamaris

If you want to do index funds, you can sector diversify really easily by purchasing ishares ETF's through selftrade. (https://www.ishares.co.uk) There is no commission for purchasing, only an annual fee of £25... If you are "referred" by a friend you get £50 and they get £50 though, which will pay for your first 2 years. ETF's are like index trackers but they are technically shares which are traded on the stock market.

Otherwise, there are plenty of unit trusts that have historically performed very well... though I don't know how they will fare in the future against trackers. Personally, I've done ETF's for my ISA, and managed unit trusts with good performance records for OH's, just to see how they compare.

nrsql

If you don't have the time or inclination to choose and monitor funds then it's not a bad plan. It'll avoid the bigger mistakes that could be made in getting a poor UK fund and should do a lot better than cash over that term.

Depending on how much you want to invest then consider other regions as well. You can probably invest a min of £50 per month per fund and sticking to index trackers would be a good idea as above.
Later you will probably find that you will consider this the core of your investment and will use other funds to target areas that you think will do well - later still will probably feel confident enough to target individual managed funds and have the fun of monitoring these decisions against the performance of the trackers.

benood

I've been putting a regular amount away each month for 10 years and am showing a pretty good average annual rate of return of just under 12% even after the recent falls.

I haven't just stuck with a single fund, however. My IFA is quite good at suggesting new funds from time to time when I worry about being over exposed to one theme/sector. I haven't chopped and changed funds once purchased as yet.

silver4444

Thank-you all for your advice so far.
So further to the above, is there a minimum number of funds that I should be looking at to give a sufficient diversification ???

jamesd

To see part of why an all shares tracker isn't the best idea, see this chart comparing one of the most popular UK equity income funds with the all-share index.

There's no perfect number of funds but you're unlikely to use more than 15 unless you're at the high risk end of things. I am and I currently hold 12.

Someone might start with a UK equity income fund. Then add a global growth fund for broad non-UK coverage. If inclined to lower risk, might add a UK corporate bond fund, if inclined to higher, a global emerging markets fund. Perhaps add a European fund to get more exposure there and outside the UK. And then that chart from earlier becomes this one with some example indexes and funds in these sectors to show you how they might compare. Without too much pain the list is now at five funds.

You vary the amount of money in each to reflect your own tolerance for the degree of up and down movement you'll accept, called volatility or less accurately, risk - volatility becomes risk (of loss) only when you are forced to sell the investments and they are at a low point.

I suggest that you read Ok then - How do I choose a S&S ISA to get an idea of what a sector allocation is and how you can use that as a guide to how much of your money you might put in different areas. The discussions linked from that one are also worth reading.

Note that the funds and indexes I have used are not an indication that I hold them and are not a recommendation specifically for you. They are just examples to illustrate how you can do it and how the volatility levels of the sectors and their long term growth prospects compare.

jon3001

Index funds can be great, cheap components of your portfolio. Large pensions funds are using them for asset allocation. Who knows if those managed fund's performance will persist? As Jonathan Clements said "Performance comes and goes but costs go on forever."

If you want to understand how to implement your own asset allocation strategy then you could start here:
"Investment Strategies for the 21st Century, Frank Armstrong"

William Bernstein has also written some fairly accessible books:
"The Intelligent Asset Allocator"
"The Four Pillars of Investing"

silver4444

Jamesd and Jon3001,
Thank-you for your detailed advice.
You have given me plenty to consider and hopefully I can now start planning a strategy for my investments.

Thanks again.
silver4444