Is it worth popping $10,000 in an index fund? If so: how?

[MaxInBXL]

Hi all,

I've got some very small savings lying around generating 6.51% interest in a Ubank account. I've been interested in investing in securities hoping to get a better return over a short-medium-term time scale, say 3 years. Because the sums involved are so small (10k-20k) seeking active management doesn't make a lot of sense as I understand I'll get gouged by high costs. I'm therefore quite tempted to simply capture general market-beta by investing in index funds.

So let's say I wanted to put 10000 AUD and invest them in a cheap index (the larger the better: ideally World, else just US etc..) fund, how would you recommend I proceed and what type of fees would I be looking at?

From reading these forums it seems I'd need to set up an account with Comsec for a one-off or yearly fee. I'd also incur the fund's management costs themselves. What other fees would I be looking at? Entry / exit fees? I'm very new to this, so sorry if these questions are obvious but looking at different product files it's not always easy to se the bigger picture regarding costs.

Finally: is it even possible to invest such as snall amount in index funds, and if so: do you think it makes any sense compared to just parking it in in Ubank ?

Thanks for all input even comments telling me I'm a newb and that this doesn't make any sense at all (provided you tell me why)

 

[Tysonboss1]

Hi all,

I've got some very small savings lying around generating 6.51% interest in a Ubank account. I've been interested in investing in securities hoping to get a better return over a short-medium-term time scale, say 3 years. Because the sums involved are so small (10k-20k) seeking active management doesn't make a lot of sense as I understand I'll get gouged by high costs. I'm therefore quite tempted to simply capture general market-beta by investing in index funds.

So let's say I wanted to put 10000 AUD and invest them in a cheap index (the larger the better: ideally World, else just US etc..) fund, how would you recommend I proceed and what type of fees would I be looking at?

From reading these forums it seems I'd need to set up an account with Comsec for a one-off or yearly fee. I'd also incur the fund's management costs themselves. What other fees would I be looking at? Entry / exit fees? I'm very new to this, so sorry if these questions are obvious but looking at different product files it's not always easy to se the bigger picture regarding costs.

Finally: is it even possible to invest such as snall amount in index funds, and if so: do you think it makes any sense compared to just parking it in in Ubank ?

Thanks for all input even comments telling me I'm a newb and that this doesn't make any sense at all (provided you tell me why)

It may be best to dollar cost average the funds in over a few months.

 

[Joe Blow]

Hi Max,

It is not permitted for ASF members to advise you how to invest your money. It is considered to be the provision of financial advice which only licensed financial advisers are legally allowed to provide to you.

If you are unsure how to invest your money, the following links from the ASIC consumer website are a good starting point:

Getting good advice
Choosing your adviser

 

[MaxInBXL]

Hi Max,

It is not permitted for ASF members to advise you how to invest your money. It is considered to be the provision of financial advice which only licensed financial advisers are legally allowed to provide to you.

If you are unsure how to invest your money, the following links from the ASIC consumer website are a good starting point:

Getting good advice
Choosing your adviser

Thanks for the links.

If I rephrased my query as:

"if you had 10000$ and wanted to invest in the Vanguard US Total Market Shares ETF, what are ways that YOU would do it?"

- could that be answered without it being financial advice?

 

[Joe Blow]

Thanks for the links.

If I rephrased my query as:

"if you had 10000$ and wanted to invest in the Vanguard US Total Market Shares ETF, what are ways that YOU would do it?"

- could that be answered without it being financial advice?

The problem is you're clearly seeking advice that is very specific to your particular situation. You've just made it a hypothetical situation rather than making it specific to you, but we all know the $10,000 is yours and you are seeking advice on how to invest your money.

If you were to ask a more general question, such as the pros and cons of investing in index funds then that would be okay.

 

[skc]

Thanks for the links.

If I rephrased my query as:

"if you had 10000$ and wanted to invest in the Vanguard US Total Market Shares ETF, what are ways that YOU would do it?"

- could that be answered without it being financial advice?

Are you just asking about the actual methodology??

If you do it through a financial advisor he/she will probabl charge you 2-4% just to buy into the fund. If you do it yourself then it should be much cheaper in terms of upfront costs.

You can just go to Vanguard's website and download some forms... pretty simple.

Or apply for a Comsec account which is free. Then trade with that on various exchange traded funds (ETFs) that cover various markets. Look at iShare website for some information, or look out the thread on STW which tracks the ASX200. You will have to pay commission on the trade (~$30 for $10K). These funds have internal management fees that are reflected in the trading price.

Not endorsing or disputing the wisdom of putting your hard earn into an index fund or otherwise...

 

[Bill M]

Hi all,

From reading these forums it seems I'd need to set up an account with Comsec for a one-off or yearly fee. I'd also incur the fund's management costs themselves. What other fees would I be looking at? Entry / exit fees? I'm very new to this, so sorry if these questions are obvious but looking at different product files it's not always easy to se the bigger picture regarding costs.

As someone mentioned, to join Commsec and open an online account it is free. For a parcel <10K you pay a brokerage fee of $20 to buy. And to answer your question about buying 10K worth of an index fund, yes you can, I have done this too. There are 3 companies that I know of that have index funds that are listed and they are Vanguard, State Street Global Advisors and ishares. If it was me I would be researching those and then pick one I like. The biggest difference of a UBANK account at 6.51% interest and a stockmarket investment is that with UBANK your money is fairly safe and Guaranteed by the OZ government until October this year. With stocks how would you feel if they halved overnight? It's happened before and it can happen again. Good luck.

 

[MaxInBXL]

Are you just asking about the actual methodology??

Yes!

And thank you for your answer. I could indeed have just mailed / called Vanguard to get more info (on their ETFs).

@BillM: Thanks for the estimates on fees! I'm aware of market volatility and the guaranteed nature of Ubank's rates. However I think My own personal situation leads me to taking on a bit more risk in the form of investments such as index funds.

@Joe Blow: agreed.