Beginner question about index funds

isalore

Hi!
I´m new here and started researching about investing in index funds yesterday, please excuse my English and my complete lack of knowledge in the subject! . So my plan, theoretically, is the following (correct me if I´m wrong): I have 200$ to invest in index funds monthly, I would invest 50$ monthly in 4 different index funds internationally for diversification in case one index fund goes bad, another one might do better. Am I right by doing this or have I completely misunderstood the basic concept of it? Would it be better to invest the total amount of 200$ monthly in just one index fund instead of investing 50$ in several different ones?

Really appreciate any help I can get on this matter, I´m completely clueless!

Thanks!

bostonerimus

You've understood that buying regularly is important as is splitting your money between funds that own differed asset classes. You can do that by buying a single mult-asset fund that is made up of a range of index funds so it's well diversified.

I would take a little time to understand the basic principles of asset allocation and managing a portfolio of funds so that you can develop a plan that you full understand before you actually invest.

isalore

bostonerimus wrote: »

You've understood that buying regularly is important as is splitting your money between funds that own differed asset classes. You can do that by buying a single mult-asset fund that is made up of a range of index funds so it's well diversified.

I would take a little time to understand the basic principles of asset allocation and managing a portfolio of funds so that you can develop a plan that you full understand before you actually invest.

Thank you!
A quick question, are there disadvantages of buying index funds individually instead of buying a multi-asset fund like you mentioned? Like not earning as much money as I could do with a multi-asset fund, or any other traps that a beginner should be aware of?

dunstonh

Would it be better to invest the total amount of 200$ monthly in just one index fund instead of investing 50$ in several different ones?

There are around 10 main sectors. So, unless you can invest into 10 different funds, you are better off sticking to multi-asset funds. otherwise you wont get decent diversification with just 4 funds.

Plus, with just £200pm, its not worth building a bespoke portfolio.

isalore

dunstonh wrote: »

Plus, with just £200pm, its not worth building a bespoke portfolio.

Thanks alot for helping me out. How much money would be the minimum per month for a "bespoke portfolio"? And what exactly is a bespoke portfolio? I googled it but I don´t really understand it.

Thanks again!!

Alistair31

Just stick with something simple.

BLB53

Keep things simple and start off with Vanguard Lifestrategy. Use a low cost platform like Vanguard Investor.

isalore

Alistair31 wrote: »

Just stick with something simple.

How do you mean exactly? Like sticking with one fund or multi-asset fund? Thank you!

Vortigern

isalore wrote: »

I have 200$ to invest in index funds monthly, I would invest 50$ monthly in 4 different index funds...

Are you in the UK? Or the USA? Or elsewhere?

Are you investing pounds or dollars?

bowlhead99

isalore wrote: »

Thanks alot for helping me out. How much money would be the minimum per month for a "bespoke portfolio"? And what exactly is a bespoke portfolio? I googled it but I don´t really understand it.

A bespoke portfolio means something personalised to your needs and preferences at quite a detailed level, rather than just buying an "off the shelf" fund which gives you a general mix of investments targeted to a rough level of risk or performance.

IMHO, if you're building a detailed portfolio for yourself out of lots of different building blocks (individual index funds or active funds), but starting from nothing, you probably need to be investing at least £2k a month. That would be £24k a year, meaning that if the smallest building block within your overall portfolio was ~4%, it would be £1000 of the £24000; or half of one month's contribution per year. I suppose you could do it as a quarter of a months contribution twice a year. Any smaller than £2k a month, the individual components are awkwardly small to waste your time and transaction costs worrying about.

When you're splitting your monthly investments into small pieces, you may incur higher transactions costs and more complexity than you need, especially as you try to rebalance from year to year as the ratios of your holdings change with the markets. it's probably easier to have fewer funds; allow the fund manager to control the ratios of the different assets instead of trying to build it for yourself.

tacpot12

If you invest in four different index funds, you would normally invest in four funds that attempt to track four different indexes. e.g. FTSE 100/S&P500/S&P Latin America 50/Euro stoxx 50

Investing in four different funds that attempt to track the same index would mean that you were not diversifying at all.