How to invest in the Vanguard index fund?

bowlhead99

Johnsmith2016 wrote: »

Yes I read the monevator article also. Even mentioned what he has instructed his advisors to do with his wife's wealth in the event of his death . 90% in index funds, 10% in gilts. That's it lol.

edinburgher wrote: »

He is happy to advise the approach for his heirs

Of course he is. His wife who is not investment savvy and is over 70 already and will be left with more dollars than she can reasonably spend in her entire life, is being advised to invest them 90% into a fund that tracks the 500 largest companies in the US, which represent over half the market capitalisation of the entire planet by value, and earn their money in the currency that she wants to spend it in, and 10% into US government bonds which pay a guaranteed fixed return in your own currency.

Nothing wrong with doing that, instead of paying a fund manager like Warren to try to make you a slightly higher or more stable return which you don't really need.

It is something of a stretch to flip that over to the UK, as the OP has done, and completely reinterpret that advice as if it was tailor made for you.

Buffet's wife when he dies in 10 years will be an 80-year old millionaire with her own home and a wealthy family around her. By contrast, OP is a recovering bankrupt who is short on pension provision. Sorry if that sounds harsh, just drawing a contrast.

Buffet's wife would be investing in S&P500, covering all types of industries from 100 year old car manufacturing businesses like Ford to facebook and google and twitter, with exposure to over $20 trillion dollars worth of companies - over half the investible market capital of the developed world. By contrast, OP would be investing in FTSE 100, which is concentrated heavily in a few industries (oil, financial services, big pharma) and has no car manufacturers and under 1% in technology companies. He has exposure to just $3tn of market capitalisation; over 93% of the world market is outside the UK.

Buffet's wife's investee companies via her tracker fund would earn most of their revenue in USD, the currency in which her assistants will go to the shops and buy things for her. By contrast, the OP spends most of his money in pounds sterling yet his investee companies in the FTSE100 earn under half their income in sterling and most of it in dollars, euros, francs, reals, yen, won etc.

Buffet's wife's tracker fund holds a relatively static index which is good for her because it means it doesn't trade much. If she used an active fund she would pay short term capital gains tax at upwards of 30% every time her fund sells a company and makes a small gain before buying something else, which can eat the returns in a US actively managed fund that turned over its whole portfolio every two or three years. By contrast OP's FTSE100 index fund does not offer that advantage over a better balanced actively managed one, because here in the UK you do not pay tax on any profits made inside a UK open ended fund, you only pay tax if you sell your share in the fund for more than you paid for it, which is irrelevant to OP anyway as he's investing through ISA or SIPP.

If his octogenarian millionaire wife was left with a large pile of cash and no clear plan from someone she trusts what to do with it, she would be bombarded with cold calls from slimy wealth managers looking to see what pickings they could extract from her estate. It would be incessant. With a clear mandate exactly what to do with her funds, she can give those vultures the bird. By contrast the OP is not likely to get dodgy cold calls from expensive 'wealth managers to the uber rich', and being young and smart should be perfectly capable of spotting a scam.

So, the "Buffet advice" for his wife or family to use S&P500 focussed index funds is not to be reinterpreted by a UK investor with scant resources as 'all you need to do is track the main UK index'.

He does make the point that a lot of US investors could have done better using simpler US index products rather than pay managers to research and build a hedge fund to get a different result. He is probably right, if you are talking 'the average' fund, in the US, making domestic US investments, because it is difficult to find persistent outperformance in such a well-developed stockmarket with the tax rules the way they are. But he has not proposed that Berkshire Hathaway invest in the S&P instead of individual portfolio companies, because with enough billions of capital behind you the cost of directly recruiting a team of investment managers to engage in value investing and market timing, is pretty low.

edinburgher

All good points bowlhead and I don't disagree :beer:

But he has not proposed that Berkshire Hathaway invest in the S&P instead of individual portfolio companies, because with enough billions of capital behind you the cost of directly recruiting a team of investment managers to engage in value investing and market timing, is pretty low.

One of the more interesting themes in the letter from me is BH's attempts to pivot away from life as a business that invests in businesses to one that owns them.

Leading on from that, it's easier to accept the 'doublethink' of guidance that low cost passive products are probably a good bet for lots of us coming from a man who has dominated the world of active investments for decades! I thought his compliments towards John C Bogle came across as very sincere.

So, while attempting to slavishly duplicate a solution that he has advocated for his (American) octogenarian with funds that have a British accent isn't necessarily a good idea, I think there's nothing wrong with the idea of a suitably diversified, low cost portfolio that holds a very limited number of funds/ETFs.

But I digress from the original question!

ChesterDog

bowlhead99 wrote: »

Of course he is. His wife who is not investment savvy and is over 70 already and will be left with more dollars than she can reasonably spend in her entire life, is being advised to invest them 90% into a fund that tracks the 500 largest companies in the US, which represent over half the market capitalisation of the entire planet by value, and earn their money in the currency that she wants to spend it in, and 10% into US government bonds which pay a guaranteed fixed return in your own currency.

Nothing wrong with doing that, instead of paying a fund manager like Warren to try to make you a slightly higher or more stable return which you don't really need.

It is something of a stretch to flip that over to the UK, as the OP has done, and completely reinterpret that advice as if it was tailor made for you.

Buffet's wife when he dies in 10 years will be an 80-year old millionaire with her own home and a wealthy family around her. By contrast, OP is a recovering bankrupt who is short on pension provision. Sorry if that sounds harsh, just drawing a contrast.

Buffet's wife would be investing in S&P500, covering all types of industries from 100 year old car manufacturing businesses like Ford to facebook and google and twitter, with exposure to over $20 trillion dollars worth of companies - over half the investible market capital of the developed world. By contrast, OP would be investing in FTSE 100, which is concentrated heavily in a few industries (oil, financial services, big pharma) and has no car manufacturers and under 1% in technology companies. He has exposure to just $3tn of market capitalisation; over 93% of the world market is outside the UK.

Buffet's wife's investee companies via her tracker fund would earn most of their revenue in USD, the currency in which her assistants will go to the shops and buy things for her. By contrast, the OP spends most of his money in pounds sterling yet his investee companies in the FTSE100 earn under half their income in sterling and most of it in dollars, euros, francs, reals, yen, won etc.

Buffet's wife's tracker fund holds a relatively static index which is good for her because it means it doesn't trade much. If she used an active fund she would pay short term capital gains tax at upwards of 30% every time her fund sells a company and makes a small gain before buying something else, which can eat the returns in a US actively managed fund that turned over its whole portfolio every two or three years. By contrast OP's FTSE100 index fund does not offer that advantage over a better balanced actively managed one, because here in the UK you do not pay tax on any profits made inside a UK open ended fund, you only pay tax if you sell your share in the fund for more than you paid for it, which is irrelevant to OP anyway as he's investing through ISA or SIPP.

If his octogenarian millionaire wife was left with a large pile of cash and no clear plan from someone she trusts what to do with it, she would be bombarded with cold calls from slimy wealth managers looking to see what pickings they could extract from her estate. It would be incessant. With a clear mandate exactly what to do with her funds, she can give those vultures the bird. By contrast the OP is not likely to get dodgy cold calls from expensive 'wealth managers to the uber rich', and being young and smart should be perfectly capable of spotting a scam.

So, the "Buffet advice" for his wife or family to use S&P500 focussed index funds is not to be reinterpreted by a UK investor with scant resources as 'all you need to do is track the main UK index'.

He does make the point that a lot of US investors could have done better using simpler US index products rather than pay managers to research and build a hedge fund to get a different result. He is probably right, if you are talking 'the average' fund, in the US, making domestic US investments, because it is difficult to find persistent outperformance in such a well-developed stockmarket with the tax rules the way they are. But he has not proposed that Berkshire Hathaway invest in the S&P instead of individual portfolio companies, because with enough billions of capital behind you the cost of directly recruiting a team of investment managers to engage in value investing and market timing, is pretty low.

Yes, but apart from that...

:rotfl:

Shashy

Pincher wrote: »

I think you need to think more like a woman.

Work for money?
Invest the measly amount you make?

These are all inferior survival strategies.
Marry a rich man, and get HIM to do all the hard work.

When a woman wants to create an income stream, she gets an alimony!
Mrs. B doesn't have to invest anything.
She has plenty already.

Women know hard work is something ugly women do: and stupid men.

Meaningless nonsense.

Pincher

Shashy wrote: »

Meaningless nonsense.

Sell, sell, sell, the beauty industry is coming to and end.
A pillar of the western economy will crumble.
Women who work and pay their own way don't need hairdos, nails and leg waxing. How many people will lose their jobs?

msallen

Shashy wrote: »

Meaningless nonsense.

You've not come across Pincher's posts before then?

Johnsmith2016

Bowlhead - thank you for writing such a detailed reply, much appreciated.

Two things -

1. If you don't mind me asking, where do you invest your money... or what would you recommend as an alternative ?
2. What is the ETF - how does it differ to standard index funds? Does it have benefits or negatives by comparison ?

EdGasket

1. He's got a Post Office savings account
2. ETF = Exchange Traded Fund; you can buy and sell just like a share for a known price at any point in the trading day unlike conventional funds where you don't know at exactly what price your trade will go through. ETF's typically have very low ongoing charges compared to regular funds though there will be the dealing cost and a little Buy/Sell spread on the price. You shouldn't have to pay a 'platform' charge with ETFs.