Starting investing...

monkeydust_2

agree on the merits of spreadbetting - check out https://www.squaregains.co.uk for a short explanation of the mechanics.

Twmble

All in good time!

dunstonh

..and then there is the 3.30 at Newmarket

Tim_L

That is, if I may say so, precisely the sort of attitude that scares people away from spreadbetting, and even if tongue in cheek I'd have expected better from someone with financial nous who usually posts excellent and comprehensive advice.

Spreadbetting is no more similar to a punt on a horse than is investing in a unit trust or buying shares. Precisely the same rules of choice and risk assessment apply to spreadbetting on financial indexes or shares as apply to buying a tracker, buying a fund or buying a share. The only significant differences are that spreadbetting is currently completely tax free, and there are no trading charges outside the cost generated by the spread; against this you tend not to get dividend income, at least directly (in some senses it gets priced into the spread, just as dividends are priced into real shares). Financial spreadbetting firms are FSA regulated.

We've had hints on these boards on how to buy all sorts of stocks and shares type products, not least the quite dreadful (in my opinion) guaranteed equity bonds, as well as ways to cut costs of pension funds. Yet spreadbetting is to my mind the great undiscovered financial bargain: no management charges or commission, no tax at all, no trading charges, and they give you the option of investing without significant capital. If Martin were to put out a hint explaining how you could invest in a tracker while maintaining 5% gross interest per annum on the capital and with 0% annual management charges, no ISA limits, and controlable risk/return I think he'd get squashed in the rush. Yet it already exists for anyone able to get past silly prejudice about gambling!

The link monkeydust gave gives an option of trying the idea out with a virtual account, well worth a go to see how it works.

dunstonh

That is, if I may say so, precisely the sort of attitude that scares people away from spreadbetting, and even if tongue in cheek I'd have expected better from someone with financial nous who usually posts excellent and comprehensive advice.

It was very much tongue in cheek. I'm sorry if you took offence. With the recent threads on investing in gold and Palistine, i couldn't resist. Remember this thread is about someone who is just starting out. Going into spread betting at this stage, I just felt was a bit on the heavy side. However, you are correct, it is an option.

Twmble

TBH, I think what scares people from spreadbetting is the fact they can lose more than they put in, if they go in half prepared. People have different attitudes to risk.......

(Also, I think there might have been a bit of tongue in cheek in the above post - take it easy!)

T

cheerfulcat

Hi dunstonh

dunstonh wrote:

Before we go off on another trackers vs managed funds debate, lets try and keep it simple. A sector average managed fund in the same area as the tracker would probably beat the tracker when the market is not performing well or is volatile. In periods of extended growth, the tracker would probably beat the same managed fund.

The records of funds over ten years doesn't bear that out. The average fund even in the equity income sector did *not* outperform the index; the average fund *under*performed. I would go further; the average managed fund in *most* sectors underperformed the relevant index. The sectors where the average managed funds beat the index ( hardly ever by much, though ) are fairly predictable; smaller companies, value, emerging economies etc. They are also few and far between. I'm not saying that funds cannot beat the index; just that most of them don't, partly because of the way they are managed ( constrained by the index ). Only those funds where the manager is given full rein have the ability to outperform. And the great managers do so.

BTW, you are comparing the performance of an equity income fund with the FTSE All-share; I think that a better benchmark would be the FTSE High Yield.

So, depending on how you think the coming years are going to be, that is how you should invest.

I couldn't agree more.

Whenever i build and manage portfolios (which is daily), I do not place it all in one area and i use both managed funds and trackers. Nobody knows the future so hedging your bets and spreading it wide but averaging out to match your risk profile is the best way to do it.

Investing in the stockmarket isnt a "risk on" or "risk off" situation. Its a sliding scale of risk. You can have someone who is happy to invest in the low/medium risk scale of the stockmarket or someone that prefers the top end of the risk scale. Both will perform differently at different times. Both will say they invest in the stockmarket but both are doing it very differently.

On this thread, I dont recall risk/reward being discussed much.

No; risk is IMHO much misunderstood. People are afraid of losing money where they can see it being lost, as when the nominal value of an asset falls, but they blithely bung large amounts of cash into deposit accounts where the after tax interest barely matches inflation.

whiteflag wrote:

PS which (UK)trackers are up 46% over the same period?

( Edit: sorry, got interrupted )

My mistake I think, whiteflag. Haven't time to check now but will get back.

dunstonh

The records of funds over ten years doesn't bear that out. The average fund even in the equity income sector did *not* outperform the index; the average fund *under*performed.

I'm afraid the figures i have do not match that. They show the the equity income funds outperforming the FTSE100 and FTSE all share over a 10 year period with the most significant difference in the last 5 years (with or without income re-invested). Checked it on both Lipper and Defaqto fund reseach.

BTW, you are comparing the performance of an equity income fund with the FTSE All-share; I think that a better benchmark would be the FTSE High Yield.

I havent checked but is there a tracker fund for the FTSE High Yield?

Tim_L

I wasn't offended, but I think attitudes sometimes need to be adjusted, and even throwaway remarks can be very influential depending on who makes them. Indeed if it hadn't been someone who I usually think is absolutely spot on with advice I wouldn't have corrected him!

There's nothing inherently scarey - or indeed risky - about spreadbetting: just as with normal investing you can lose everything you deposit. People's negative reactions to spreadbetting come from attitudes to gambling, not from attitudes to risk.

Neither is spreadbetting as a concept any more "heavy" than buying a unit trust: you buy something, if it increases in value you can sell it and take a profit, if it falls in value you lose money. It's exactly the same as what happens with shares, and even the trading screens look the same as you get with 'real' sharedealing services. Really, the only visible difference is the use of the word "betting".

It would be very interesting to compare the performance of the managed funds we were discussing earlier with the performance of a spreadbet tracking (say) the FTSE, bearing in mind that most of the actual capital value can be held outside in an interest bearing savings account so that there is a built in positive percentage offset to the profit and loss and essentially zero charges. I suspect that this combination would outperform most (but certainly not all) of the active funds in good or bad times. The main limiting factor to growth would be the over cautious use of stop losses (which also limit gains), but then again in a volatile situation these can be extremely useful.

But where spreadbetting scores very heavily indeed is in comparison to the type of single share, small scale "day trading" discussed in the post immediately preceding mine. The costs involved in trading in and out of positions is much lower with spreadbetting, and frankly the Halifax product mentioned seems to me quite considerably inferior any way you measure it. If you're starting out, probably it would be better not to have your returns swamped (win or lose) with trading charges?

Whether or not this sort of day trading is fundamentally any more or less risky than betting on horses depends on the expertise of the person doing it, and isn't a question of whether it's done using real trading or spreadbetting: personally I wouldn't do either but it certainly is possible to make a very good living betting on sports if you know what you're doing better than the bookies. Horses for courses, possibly?

cheerfulcat

dunstonh wrote:

I'm afraid the figures i have do not match that. They show the the equity income funds outperforming the FTSE100 and FTSE all share over a 10 year period with the most significant difference in the last 5 years (with or without income re-invested). Checked it on both Lipper and Defaqto fund reseach.

My figures come from the tables in Money Management which uses the FTSE 350 High Yield index as a benchmark.Anyway, I wouldn't like to quibble too much; I have no intention of putting people off managed funds! Just so long as they realise that it is important to pick one of the few which is not a closet tracker.

I came across a very well-balanced ( IMHO ) article in my research a while ago; you might like to have a look ( interesting date btw :-) )-

http://seattlepi.nwsource.com/business/mutu202.shtml

The conclusion? " The safest bet of all on this whole subject is that the debate over index funds vs. managed funds will go on, and on, and on..."

I havent checked but is there a tracker fund for the FTSE High Yield?

Not that I have found.