Index Funds

[MrBurns]

Anyone have a view on Index Funds ?

I've been told they are the best way of investing a large amount
ie: over $500K

Looks like smoke and mirrors to me , are they safe ? there's a long line of Trustees and this and that who the **** would know where their money was ?

I'm sceptical as you may have gathered.

 

[professor_frink]

Anyone have a view on Index Funds ?

I've been told they are the best way of investing a large amount
ie: over $500K

Looks like smoke and mirrors to me , are they safe ? there's a long line of Trustees and this and that who the **** would know where their money was ?

I'm sceptical as you may have gathered.

Generally, if someone I know asks me about how they should look at getting involved in the market when they don't have the knowledge, or the time to really get amongst it themselves, then I'll tell them to look at an index fund as a low cost cost way to outperform a managed fund

What are you skeptical on here, index funds that come from a company like Vanguard, or is it ETF's that you aren't sure about? I don't think there is likely to be a problem with either(though am happy to be corrected by anyone else with more knowledge on them). Vanguard have been around for roughly 40 years, and I can't say I've ever heard of any dramas with ETF's(and you can find an ETF to do almost any job you want in the states)

 

[MrBurns]

Thanks prof, the thing is all I know is property, shares especially of late don't instill me with confidence and funds of any sort are a mystery -

My concerns are -

Can these things disappear like Lehman Bros ? or have redemption restrictions ?

and -

If they are a general mix of the market then why not just take the big 4 banks plus BHP and RIO and spread it among them ?

 

[robots]

hello,

good one professor (the signature), hope everyone having a blast

life is just rolling on for us all here in Australia, get out and enjoy the planet brothers

thankyou
robots

 

[professor_frink]

good one professor (the signature)

Thanks prof, the thing is all I know is property, shares especially of late don't instill me with confidence and funds of any sort are a mystery -

Whilst an index fund isn't going to protect you from the market heading lower, it's an easy way to get diversified exposure in one hit without having to pay as much in fees or tax as you would if you were getting into an actively managed fund.

If you want some more info on index funds in general, then have a look at the Vanguard site, there's a fair bit of information on it for you to trawl through.

My concerns are -

Can these things disappear like Lehman Bros ? or have redemption restrictions ?

I've never heard of an index fund disappearing and taking investors money with them. Not saying it can't happen, but I'd rate it as a pretty low probability. There are some in the US that are actually leveraged or short so I guess they could go under, but a standard one should be fine. Redemption restrictions I'm not quite sure on, that should be covered in the PDS of any company you are looking at. If this is in the fine print of the PDS of a company like vanguard, you could always look at sticking some money in an ETF, that way you will only be limited by the liquidity available in the market at the time you wish to sell. Have a look at the ETF for the top 200 on our market today for an idea on what the depth looks like(ticker code STW)

and -

If they are a general mix of the market then why not just take the big 4 banks plus BHP and RIO and spread it among them ?

Whilst it can vary depending on who you put your money with, some do actually optimise the portfolio they offer. From the vanguard site:

For broader indexes containing many illiquid stocks, it is often impractical and unnecessarily costly to try to own every stock in the index. So for broad indexes such as the S&P/ASX 300 Index, or the MSCI World ex-Australia Index, it is generally preferable to own a broad representative sample of the index. This way the portfolio still tracks the index closely, but the costs of trading in many illiquid stocks in the small, "tail-end" of the index are reduced. The fund still holds small capitalisation stocks but rather than holding every stock in the index, a representative sample is held.

 

[MrBurns]

Whilst an index fund isn't going to protect you from the market heading lower, it's an easy way to get diversified exposure in one hit without having to pay as much in fees or tax as you would if you were getting into an actively managed fund.

If you want some more info on index funds in general, then have a look at the Vanguard site, there's a fair bit of information on it for you to trawl through.



I've never heard of an index fund disappearing and taking investors money with them. Not saying it can't happen, but I'd rate it as a pretty low probability. There are some in the US that are actually leveraged or short so I guess they could go under, but a standard one should be fine. Redemption restrictions I'm not quite sure on, that should be covered in the PDS of any company you are looking at. If this is in the fine print of the PDS of a company like vanguard, you could always look at sticking some money in an ETF, that way you will only be limited by the liquidity available in the market at the time you wish to sell. Have a look at the ETF for the top 200 on our market today for an idea on what the depth looks like(ticker code STW)



Whilst it can vary depending on who you put your money with, some do actually optimise the portfolio they offer. From the vanguard site:

Many thanks, your wisdom is much appreciated

 

[Spek]

shares especially of late don't instill me with confidence

An index fund is only an interest in a bundle of shares making up the index.

Low admin costs and probably a very good simple long term investment with market this low.

Clearly though when the market is going down your only prospect in an index fund is to follow it down. You also need to consider the added risk on top of shares of the fund itself going under through mismanagement or otherwise stuffing up.

 

[MrBurns]

An index fund is only an interest in a bundle of shares making up the index.

Low admin costs and probably a very good simple long term investment with market this low.

Clearly though when the market is going down your only prospect in an index fund is to follow it down. You also need to consider the added risk on top of shares of the fund itself going under through mismanagement or otherwise stuffing up.

Easier to keep it in the bank !

 

[Spek]

Easier to keep it in the bank !

My thoughts exactly.

This might pan out as a nice middle ground though

http://news.smh.com.au/business/new-anz-account-invests-in-shares-20081120-6c7q.html

 

[basilio]

I think one of the best ways to invest cheaply in the market is through Argo Investments. It is essentially a cash box that invests in other companies.

What make them different is that they don't just follow an index, they make intelligent choices which sometimes means staying in cash when the market is overbought.

Finally the directors are not greedy. Very modest costs in relation to the funds invested. Much better I believe than any alternatives. Check it out.

 

[drsmith]

This might pan out as a nice middle ground though

http://news.smh.com.au/business/new-anz-account-invests-in-shares-20081120-6c7q.html

More information: http://www.anz.com/aus/invest-and-i...ent-Account/How-The-Account-Works/Default.asp

With the bank account above the funds are invested in http://www.spdrs.com.au/etf/fund/fund_detail_STW.html and for the privilege the bank claims a management fee of 1% per annum. The transaction fee of 0.25% is small relative to brokerage for small transactions so this is more suited to smaller investment amounts and transactions.

This is ideal for someone starting a regular saving plan with small monthly amounts to invest but for larger amounts, investment directly into the index fund through a stockbroker would be a more cost effective alternative.

Listed managed funds such as Argo are also an alternative to the index fund for those seeking a diversified portfolio of shares but the returns and fees do vary depending on the investment manager's strategy and these can only be purchased through a stockbroker.

 

[Spek]

With the ANZ account above the funds are invested in http://www.spdrs.com.au/etf/fund/fund_detail_STW.html and for the privelage ANZ cream off a management fee of 1% per annum. The transaction fee is small relative to brokerage for small transactions so this is more suited to smaller investment amounts and transactions.

This is ideal for someone starting a regular saving plan with small monthly amounts to invest but for larger amounts, investment directly into the index fund through a stockbroker would be a more cost effective alternative.

If that 1% per annum includes backing by a 4 pillar bank as opposed to an opes type operator, and potentially govt guaranteed for free on top of that, it may not be a bad thing.

The mispricing (if not outright ignorance) of fundamental risk is what got us into this current mess in the first place.