Good index fun for a longterm non-savvy investor?

jim_arm_chair

Im looking to take advantage of the current downturn and invest some cash savings in the market. I don't know much about investing so a simple low maintenance option would be best. 

Im investing long term (5+ years). This money is only a 1/5 of a larger pot of savings that I have with a money manager so I can accept some risk. 

Warren Buffett said "A low-cost index fund is the most sensible equity investment for the great majority of investors" so I was planning on going with one of these through Vanguard. Would the FTSE 100 Index Unit Trust Accumulation be a good choice? 

bowlhead99

jim_arm_chair said:

Would the FTSE 100 Index Unit Trust Accumulation be a good choice? 

No, it would be a terrible choice because the money within it is mostly allocated to the largest companies that happen to be listed on the London stock exchange, so it is quite heavily weighted to certain industry sectors such as oil, finance and big pharma.  It is a specialist index which has underperformed the UK FTSE250 and broader UK All-Share index for years, and the companies within it make up only about 4% of the world's total investible market capitalisation that you would get from something like the FTSE Global All Cap index. 

Warren Buffett most definitely did not say that putting a large chunk of your money in a quite specialist single-country index like the FTSE100 was at all a sensible equity investment for the great majority of investors.

 This money is only a 1/5 of a larger pot of savings that I have with a money manager so I can accept some risk. 

If you don't know much about investing and the other 4/5 of your savings are with a 'money manager', why do you not trust the money manager to also manage this 1/5 of your money and invest it appropriately? If he does not know what to do with this 1/5th, why do you trust that he knows what to do with the 4/5ths?

Im investing long term (5+ years).

5 years is not long term - it is perhaps half the length of a typical economic cycle of boom and bust. Over a cycle you will get up years, down years, flat years and probably a large crash. Overall you expect the ups to be more than the downs, if you leave it long enough. If you are only doing it for 5 years you may get some flat years and down years and very few of the ups. If you mean 15+ years then fair enough, you will likely get some growth even if there is a huge economic slump for part of the time.

JustAnotherSaver

Sorry that i can't help you with that but i'll tell you this....

when someone comes in saying "would XYZ be a good choice", they 99.999999999999% of the time, actually scratch that, they will 100% of the time (though watch this be the super rare occasion) get the replies ..... "we don't know what your situation is, what your attitude to risk is......" so on and so forth. Basically you'll get an answer....without getting an answer.

Not to say these people are right or wrong. I'm just letting you know that you're asking if 2+2=4 and you're going to get told ... well that depends.

jim_arm_chair

Bowlhead99 - I think my money manager is doing an OK job. The performance of the fund has been roughly inline with the FTSE100. When the FTSE is up my return is slightly less, when it's down (eg now) I don't lose as much as the market value. However if you work out the compound interest over the last 7 years (the timeframe I have data for) the returns are slightly less than the FTSE100. 

I was planning on leaving my managed fund as it is incase I want to take money out to buy a house in the next few years. However for my extra savings that are a comparatively small amount I can tolerate higher risk and / or wait longer to take money out. So that's why I was going to choose an index fund myself. Im not saying that I'm defiantly doing the right thing (this is why Im asking), but this is my logic. 

Albermarle

It's not clear why everything is so focused on what the FTSE 100 does.  Difficult to believe a professional money manager would be benchmarking against this index. 
As Bowlhead said it is just one of many indexes across the world and in fact one of the worst performers.

Thrugelmir

Albermarle said:

As Bowlhead said it is just one of many indexes across the world and in fact one of the worst performers.

 Views get mirrored. Words become self fulfilling. 

jim_arm_chair

I just picked the FTSE100 as an arbitrary benchmark. What I really want to do is follow Warren Buffett's advice and essentially "bet on the market" as I don't know how to pick winners and losers, and I hear that even for professionals it's a hard thing to do. I posted here as I don't know which is a sensible fund.  

So the FTSE250, UK All-Share or FTSE Global All Cap would all be more balanced options? 

bowlhead99

jim_arm_chair said:

Bowlhead99 - I think my money manager is doing an OK job. The performance of the fund has been roughly inline with the FTSE100. When the FTSE is up my return is slightly less, when it's down (eg now) I don't lose as much as the market value. However if you work out the compound interest over the last 7 years (the timeframe I have data for) the returns are slightly less than the FTSE100. 

So what you are saying is the manager's fund is performing similarly to the FTSE index without the extreme peaks and troughs - better volatility and only slightly lower overall returns. The manager will be achieving that through a portfolio approach mixing together different asset classes, e.g. equities, bonds etc.  If you want to go more 'gung ho' with a separate portion of your wealth by putting it 100% into equities, there will be better index funds available than the FTSE100  which are not so focused on particular industry sectors or restricted to a single stockmarket. 

Of course, you could just let your money manager know that you do not intend to use most of your money for property purchase and are willing to take more risk with a portion of it, so he could update his plan for you and maybe use a higher risk fund overall.

Still, having a lot of money invested in a fund that may achieve similar up and down performance to the FTSE with only slightly lower volatilty - as you currently have via the money manager - does not seem an ideal place to put the money that you might be using to buy a house in a few years. But we all have different circumstances and risks we're willing to take I suppose.

eskbanker

JustAnotherSaver said:

Not to say these people are right or wrong. I'm just letting you know that you're asking if 2+2=4 and you're going to get told ... well that depends.

You're missing the point though, the questions you're referring to aren't "asking if 2+2=4" (where there's a simple clear answer to a straightforward closed question, assuming it's not base 3 arithmetic ) but are more analogous to "what would be a good car for me?".

Thrugelmir

jim_arm_chair said:

I just picked the FTSE100 as an arbitrary benchmark. What I really want to do is follow Warren Buffett's advice and essentially "bet on the market" 

There's good reason why WB singled out the S&P 500. Easy to take one sentence out of context from a much longer article. 

Username999

jim_arm_chair said:

 What I really want to do is follow Warren Buffett's advice and essentially "bet on the market" as I don't know how to pick winners and losers, and I hear that even for professionals it's a hard thing to do. I posted here as I don't know which is a sensible fund.  

If you want to "follow Warren Buffett" buy BRK.B.