Which Index funds to invest in?

michael1234

I don't see why spreading the risk is some kind of utopia. Spreading the risk also spreads (thins) the reward and some folk have different attitudes to risk/reward than others.

masonic

michael1234 said:

I don't see why spreading the risk is some kind of utopia. Spreading the risk also spreads (thins) the reward and some folk have different attitudes to risk/reward than others.

I don't think anyone is suggesting it is a utopia. Even very diversified equity portfolios are capable of substantial falls, but reducing concentration tends to improve risk adjusted returns. And most in these parts do not believe they are talented stock pickers.

aroominyork

Diversifying 'thins' the reward if you have diversified away from whatever is going up. If you know what is about to go up then of course go 100% into it. But most of us don't have that insight, so we want to smooth the path through different market conditions.

michael1234

masonic said:

michael1234 said:

I don't see why spreading the risk is some kind of utopia. Spreading the risk also spreads (thins) the reward and some folk have different attitudes to risk/reward than others.

I don't think anyone is suggesting it is a utopia. Even very diversified equity portfolios are capable of substantial falls, but reducing concentration tends to improve risk adjusted returns. And most in these parts do not believe they are talented stock pickers.

No, but there is clearly a consensus that some investors would prefer to put their entire portfolio into cash, some bonds, some funds and some into stocks and many into a combination of all. Time to needing that cash and other factors including attitude to risk play a part. If cash is accepted for some scenarios then why not the other extreme and have the entire lot dumped into one tiny stock somewhere as the basis for another scenario? Someone somewhere might want to gamble like that and/or not care if he loses that investment. Its his cash so why should he pay a chunk of money to be told that's a bad idea?

masonic

michael1234 said:

masonic said:

michael1234 said:

I don't see why spreading the risk is some kind of utopia. Spreading the risk also spreads (thins) the reward and some folk have different attitudes to risk/reward than others.

I don't think anyone is suggesting it is a utopia. Even very diversified equity portfolios are capable of substantial falls, but reducing concentration tends to improve risk adjusted returns. And most in these parts do not believe they are talented stock pickers.

No, but there is clearly a consensus that some investors would prefer to put their entire portfolio into cash, some bonds, some funds and some into stocks and many into a combination of all. Time to needing that cash and other factors including attitude to risk play a part. If cash is accepted for some scenarios then why not the other extreme and have the entire lot dumped into one tiny stock somewhere as the basis for another scenario? Someone somewhere might want to gamble like that and/or not care if he loses that investment. Its his cash so why should he pay a chunk of money to be told that's a bad idea?

TBH, I think you're creating a straw man to argue against. The OP specifically mentioned risk reduction as a criterion for opting for index funds rather than individual shares, and has been sitting in mostly cash. That has set the parameters for the ensuing discussion.

There have been other threads where an OP has wanted to discuss speculative forms of investment and other contributors have obliged. It is just that there are relatively few on this forum who partake in such activity (I have not held an individual stock in over 10 years). It is right that risks are highlighted in such discussions, but nobody has had their freedom to discuss and exchange ideas curtailed. You are of course free to start a thread if you want such a discussion. I promise I will try to contribute if you @ me.

Likewise, there are many threads in which people want to discuss savings accounts. Even situations where they have a long term horizon and a very large amount in cash. Again, it is right that the risks (this time shortfall and inflation) are highlighted, but savings ideas have nevertheless been suggested for those who are sure they don't want to invest any of their money.

Bostonerimus1

...and we are back to the navel gazing that is the topic of asset allocation between sectors, geoghraphy and asset types. The OP should keep things simple and just buy a good multi-asset fund and pay the fund company to do the navel gazing, or just buy global equity and bond funds from one of the big firms like Vanguard, HSBC etc.

toothdoctor

FWRG, VWRP, ACWI, VHVG, PACW etc via a zero fee platform (T212/InvestEngine). Slow and steady, hope for the best

GeoffTF

In a world where investment conditions are the same everywhere, it does not matter where a company incorporates. In that case, financial theory tells us that the most diversified equity portfolio with the highest risk adjusted return is a market weighted portfolio. If you are worried that there will be a communist revolution in the US and your shares will be confiscated, it might make sense for you to underweight the US. The market does not believe that is likely. Do you know more than the market? Alternatively, what is it that worries you about the US having so many companies that make such big profits and keep growing them?

aroominyork

GeoffTF said:

In a world where investment conditions are the same everywhere, it does not matter where a company incorporates. In that case, financial theory tells us that the most diversified equity portfolio with the highest risk adjusted return is a market weighted portfolio. If you are worried that there will be a communist revolution in the US and your shares will be confiscated, it might make sense for you to underweight the US. The market does not believe that is likely. Do you know more than the market? Alternatively, what is it that worries you about the US having so many companies that make such big profits and keep growing them?

"Valuations, dear boy, valuations." Harold Macmillan.

Linton

GeoffTF said:

In a world where investment conditions are the same everywhere, it does not matter where a company incorporates. In that case, financial theory tells us that the most diversified equity portfolio with the highest risk adjusted return is a market weighted portfolio. If you are worried that there will be a communist revolution in the US and your shares will be confiscated, it might make sense for you to underweight the US. The market does not believe that is likely. Do you know more than the market? Alternatively, what is it that worries you about the US having so many companies that make such big profits and keep growing them?

One should not seek the most efficient risk adjusted return but rather the most appropriate risk and return for one's circumstances. If you have a 20 year time frame and are in employment you may have different attitudes to a retiree who would consider themselves lucky if they were still alive in 20 years time.

The efficient market hypothesis implies that every stock is currectly priced and so expected future profits should already be priced-in.  Hence all well diversified stable portfolios should produce much the same long term return, at least as far as the market knows.

One should not base one's investing on predictions of future events.  Just accept you have no idea how things will turn out and neither does anyone else, even the market. Look at the 2000 .com crash.

Perhaps the high valuation of US stocks arises from the large number of US-based investors who are wary of "international" investing.  If investors were more evenly spread across the world the results could be rather different and could more closely relate to the economic realities. By some measures the Chinese economy is already larger than that of the US with significantly greater value of exports. This is not reflected in global index funds.