Investing large sum in world tracker fund

Consideredspender

Thrugelmir said:

Consideredspender said:

Thruglemere:
To answer your question:
Because my research has led me to understand that index trackers on average outperform managed funds AND the world seems a nice broad diversification within the stocks asset class AND it makes sense to me that there is always a part of the world growing AND it gets my investment out of the British economy, which I sadly lack faith in. Does this make sense? You may pick up me having read Andrew Craig's Own the World :-:smile:

And thanks for your comment!

Personal opinions and decisions drive individual markets up and down. The UK markets are throwing up interesting opportunities thanks to the boycott by so many. 

I'm sure that is the case case, and i have seen mention of the same in financial headlines. However, I don't feel qualified to make wise judgements stocks wise and would thus prefer to diversify geographically (and obviously sector, etc...) as much as possible. I hope this is an area you manage to gain success in.  I may not be clever enough to go against market sentiment and make a strong gain, but I just hope to go with the market and stay with or even beat inflation. My gain isn't to be rich but to hold on to the wealth I have.

Consideredspender

Hi all, 
I really appreciate all the response and the considerate warnings that I shouldn't invest beyond my comfort level. In light of this, it would be great to understand what - perhaps with concrete examples -  you wise people would suggest I invested in in order to preserve the value of my money. I'm just getting my head around the options.
Thanks again! 

Alexland

Consideredspender said:

Sorry, I don't recall where I read about tracking error. However, it makes intuitive sense to me that if a fund performs its 'syncing up' with the index it tracks less frequently, then it will track less accurately. Now, I guess sometimes this may result in better gains than the index but on the flip side at other times it will perform worse. Perhaps in relatively stable markets this small difference may not be worth worrying about?

Trading is also a cost and source of tracking error so index funds will often use optimal sampling techniques where they will only hold a representative proportion of the index (most of it) and allow a certain drift (as it's almost 50/50 if it would have a positive or negative effect) in order to keep costs down. Most of the index fund will naturally rebalance without the need for trading because of course the underlying assets will go up and down with the market. A good way for them to rebalance back to the market is by using the trades that support fund inflow/outflows or for ETFs modifying the basket of securities required for the creation/redemption process with authorised market participants.

As an investor all you really care about is that the fund manager is giving you as close as possible the movements in the index by keeping costs low, doing a fairly good job and having the security of owning the underlying assets. There are some products, to avoid, that do synthetic replication where they use complicated financial transactions often with counterparty risk to copy the movements without actually owning the shares.

Albermarle

Consideredspender said:

Hi all, 
I really appreciate all the response and the considerate warnings that I shouldn't invest beyond my comfort level. In light of this, it would be great to understand what - perhaps with concrete examples -  you wise people would suggest I invested in in order to preserve the value of my money. I'm just getting my head around the options.
Thanks again! 

The issue what is your personal comfort /risk tolerance level ? You can find basic questionnaires online to indicate  this , or if you look around the websites of some well known companies , like Aviva , Standard Life etc they will have similar.
Or more basically you can just really be honest with your self and think what would you really feel if £200K dropped to £180K , or £150K , or £120K . At what point would you be a bit concerned but not that much that you would have sleepless nights and/or panic and try to withdraw the money . If you could shrug off losing the £80K knowing that day it will come back , then you have a higher risk appetite. If you would be panicking at losing £20K then you have a low risk appetite. If you are a typical investor ( not necessarily typical of this forums contributors ) then you would be in the middle somewhere and your idea of 60% equity ; 40 % cash ( or some other similar combination ) would be about right .

shinytop

Consideredspender said:

steampowered said:

If you are concerned about short term drops, perhaps you could consider putting most of your money into an equity fund and a portion (perhaps 30%) into a bond fund?

Or selecting a multi-asset fund rather than a 100% equity fund?

That will reduce your likely returns, but will also reduce your likely volatility.

You can rebalance into higher equity exposure over time. It makes sense to increase equity exposure as markets drop, and reduce it as they rise, though you can never be sure whether you are calling it right or not.

Logically, short term drops are nothing to be worried about when you are investing for a 15 year time scale, but they can be challenging emotionally.

Many thanks for your comments. I do like the idea of a gradual exposure to the markets in order to mitigate timing woes. What I didn't say earlier was that I got the impression bond returns were very poor at the moment (investment grade, anyway) and thus that is why I was largely staying away from them and just plumping for cash. I was led to believe the old school split between equities and bonds was something that worked well many years ago when bonds paid a decent return, but was less realistic an option nowadays. Do I miss understand this? 

OP, although my circumstances are different, I wanted to invest a similar sum as you (it was a pension transfer from a works scheme to a SIPP) in tracker type funds.  I too was worried about large drops so I invested equally in VSL60 and HSBC Balanced in three monthly chunks.  In the end it probably didn't make a lot of difference but it made me worry slightly less.  I use II, which is fixed price so good value for this sort of amount.     

sandspider2000

Just commenting as I can't find a way to subscribe to this thread. Watching with interest.

ColdIron

sandspider2000 said:

Just commenting as I can't find a way to subscribe to this thread. Watching with interest.

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Consideredspender

Alexland said:

Consideredspender said:

Sorry, I don't recall where I read about tracking error. However, it makes intuitive sense to me that if a fund performs its 'syncing up' with the index it tracks less frequently, then it will track less accurately. Now, I guess sometimes this may result in better gains than the index but on the flip side at other times it will perform worse. Perhaps in relatively stable markets this small difference may not be worth worrying about?

Trading is also a cost and source of tracking error so index funds will often use optimal sampling techniques where they will only hold a representative proportion of the index (most of it) and allow a certain drift (as it's almost 50/50 if it would have a positive or negative effect) in order to keep costs down. Most of the index fund will naturally rebalance without the need for trading because of course the underlying assets will go up and down with the market. A good way for them to rebalance back to the market is by using the trades that support fund inflow/outflows or for ETFs modifying the basket of securities required for the creation/redemption process with authorised market participants.

As an investor all you really care about is that the fund manager is giving you as close as possible the movements in the index by keeping costs low, doing a fairly good job and having the security of owning the underlying assets. There are some products, to avoid, that do synthetic replication where they use complicated financial transactions often with counterparty risk to copy the movements without actually owning the shares.

Thanks for the information. Sounds like you deem the HSBC fund to meet your good investment criteria for a tracker, and thus a good option. I will seriously consider this as option instead of the vanguard ETF.

Consideredspender

Albermarle said:

Consideredspender said:

Hi all, 
I really appreciate all the response and the considerate warnings that I shouldn't invest beyond my comfort level. In light of this, it would be great to understand what - perhaps with concrete examples -  you wise people would suggest I invested in in order to preserve the value of my money. I'm just getting my head around the options.
Thanks again! 

The issue what is your personal comfort /risk tolerance level ? You can find basic questionnaires online to indicate  this , or if you look around the websites of some well known companies , like Aviva , Standard Life etc they will have similar.
Or more basically you can just really be honest with your self and think what would you really feel if £200K dropped to £180K , or £150K , or £120K . At what point would you be a bit concerned but not that much that you would have sleepless nights and/or panic and try to withdraw the money . If you could shrug off losing the £80K knowing that day it will come back , then you have a higher risk appetite. If you would be panicking at losing £20K then you have a low risk appetite. If you are a typical investor ( not necessarily typical of this forums contributors ) then you would be in the middle somewhere and your idea of 60% equity ; 40 % cash ( or some other similar combination ) would be about right .

Thanks, that all makes sense. I will try and assess risk tolerance and proceed accordingly.

Consideredspender

shinytop said:

Consideredspender said:

steampowered said:

If you are concerned about short term drops, perhaps you could consider putting most of your money into an equity fund and a portion (perhaps 30%) into a bond fund?

Or selecting a multi-asset fund rather than a 100% equity fund?

That will reduce your likely returns, but will also reduce your likely volatility.

You can rebalance into higher equity exposure over time. It makes sense to increase equity exposure as markets drop, and reduce it as they rise, though you can never be sure whether you are calling it right or not.

Logically, short term drops are nothing to be worried about when you are investing for a 15 year time scale, but they can be challenging emotionally.

Many thanks for your comments. I do like the idea of a gradual exposure to the markets in order to mitigate timing woes. What I didn't say earlier was that I got the impression bond returns were very poor at the moment (investment grade, anyway) and thus that is why I was largely staying away from them and just plumping for cash. I was led to believe the old school split between equities and bonds was something that worked well many years ago when bonds paid a decent return, but was less realistic an option nowadays. Do I miss understand this? 

OP, although my circumstances are different, I wanted to invest a similar sum as you (it was a pension transfer from a works scheme to a SIPP) in tracker type funds.  I too was worried about large drops so I invested equally in VSL60 and HSBC Balanced in three monthly chunks.  In the end it probably didn't make a lot of difference but it made me worry slightly less.  I use II, which is fixed price so good value for this sort of amount.     

Thanks, shinytop. A concrete example helps me immensely. So you invested a third of you sum every month for 3 months? I will look at the two funds you suggest. And, although probably obvious, could I ask for any rational for your fund choices?