ETFs vs Index Funds

GMNN

Thanks for all the responses. Interesting discussion on spreads and liquidity... I don't think I'm going to worry too much about that since I'm looking to stay invested over 5+ years.. Will just focus on finding the ETF / fund with the lowest charges for the index I'm interested in.

dunstonh

Will just focus on finding the ETF / fund with the lowest charges for the index I'm interested in.

and tracking error.

coastline

GMNN said:

Thanks for all the responses. Interesting discussion on spreads and liquidity... I don't think I'm going to worry too much about that since I'm looking to stay invested over 5+ years.. Will just focus on finding the ETF / fund with the lowest charges for the index I'm interested in.

Regarding ETF's I would imagine its best to stick with the " physical " type and not a " synthetic ".See the link below for pros and cons regarding ETF's. There's also the compensation scheme to consider .The likes of VWRL should be fine for a world tracker.
https://www.moneyadviceservice.org.uk/en/articles/tracker-funds-index-funds-exchange-traded-funds

Thrugelmir

GMNN said:

Thanks for all the responses. Interesting discussion on spreads and liquidity... I don't think I'm going to worry too much about that since I'm looking to stay invested over 5+ years.. Will just focus on finding the ETF / fund with the lowest charges for the index I'm interested in.

ETF's often use deriatives and lend stock.  Not always pure plays. 

dales1

coastline said:

Regarding ETF's I would imagine its best to stick with the " physical " type and not a " synthetic ".See the link below for pros and cons regarding ETF's. There's also the compensation scheme to consider .The likes of VWRL should be fine for a world tracker.
https://www.moneyadviceservice.org.uk/en/articles/tracker-funds-index-funds-exchange-traded-funds

This is all good advice.

ETF compensation protection is only really relevant if there is gross fraud by the platform (which is unlikely at most reputable firms).

However be aware that very many ETFs are based abroad eg Ireland to save tax, and so their dividends count as Foreign income for UK tax purposes.

If this is £300 or more pa you need to do a self assessment tax return (even though there may be no tax to pay given the £2,000 dividend "allowance" covering a "reporting" ETF eg Vanguard). It's not too hard really (but check excess reportable income).

ETFs are good in that you can trade them at the price on the screen immediately, rather than wait a couple of days to see what the fund price was when you dealt.

csgohan4

Following on from this thread, which ETF is the most common people use and why?

Seems VWRL is the commonest
https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf-usd-distributing

With the monevator description:
Exchange Traded Funds (ETFs) – These are basically index funds wrapped up in a share that’s quoted on the stock market, which you buy and sell like any other share. Buying ETFs therefore incurs trading costs that ramp up the expenses for small investors. There is though a far greater choice of ETFs than index funds – an ETF may be the only way you can get exposure to some markets.

Wouldn't ETFs be better in terms of exposure generally?? compared to Index funds

Audaxer

coastline said:

GMNN said:

Thanks for all the responses. Interesting discussion on spreads and liquidity... I don't think I'm going to worry too much about that since I'm looking to stay invested over 5+ years.. Will just focus on finding the ETF / fund with the lowest charges for the index I'm interested in.

Regarding ETF's I would imagine its best to stick with the " physical " type and not a " synthetic ".See the link below for pros and cons regarding ETF's. There's also the compensation scheme to consider .The likes of VWRL should be fine for a world tracker.
https://www.moneyadviceservice.org.uk/en/articles/tracker-funds-index-funds-exchange-traded-funds

That Money Advice Service page indicates both index funds and ETFs are covered by the Financial Services Compensation Scheme, but ETFs are not covered as far as I am aware.

dunstonh

Audaxer said:

coastline said:

GMNN said:

Thanks for all the responses. Interesting discussion on spreads and liquidity... I don't think I'm going to worry too much about that since I'm looking to stay invested over 5+ years.. Will just focus on finding the ETF / fund with the lowest charges for the index I'm interested in.

Regarding ETF's I would imagine its best to stick with the " physical " type and not a " synthetic ".See the link below for pros and cons regarding ETF's. There's also the compensation scheme to consider .The likes of VWRL should be fine for a world tracker.
https://www.moneyadviceservice.org.uk/en/articles/tracker-funds-index-funds-exchange-traded-funds

That Money Advice Service page indicates both index funds and ETFs are covered by the Financial Services Compensation Scheme, but ETFs are not covered as far as I am aware.

Correct. ETFs are not covered by the FSCS.

masonic

Audaxer said:

coastline said:

GMNN said:

Thanks for all the responses. Interesting discussion on spreads and liquidity... I don't think I'm going to worry too much about that since I'm looking to stay invested over 5+ years.. Will just focus on finding the ETF / fund with the lowest charges for the index I'm interested in.

Regarding ETF's I would imagine its best to stick with the " physical " type and not a " synthetic ".See the link below for pros and cons regarding ETF's. There's also the compensation scheme to consider .The likes of VWRL should be fine for a world tracker.
https://www.moneyadviceservice.org.uk/en/articles/tracker-funds-index-funds-exchange-traded-funds

That Money Advice Service page indicates both index funds and ETFs are covered by the Financial Services Compensation Scheme, but ETFs are not covered as far as I am aware.

It's not quite as simple as being able to say they are covered or not covered; it depends on the claim. If the claim is for the ETF provider running off with your assets, then they are not covered. If the claim is for your platform or broker losing your holdings, or administrators selling them to pay their fees, then you are covered. Similarly you'd be covered if you invested under advice and had a claim for unsuitability (which could arise as a result of the ETF provider running off with your assets).

DireEmblem

Thrugelmir said:

ETF's can be exposed to widened spreads in volatile market conditions. 

So will funds when they have to trade/swing price.