Question on Index Funds
- Thread starter arthur
- Start date
arthur said:
ok index funds generally have lower fees than active funds. In an index fund, there is no active stockpicking which means that there is no risk of the fund manager picking underperforming stocks. So this type of fund would not be affected if, for example, a fund manager left, as the case with CFS...
Its best to go into these types of funds if u think that economic conditions are favourable for a bouyant stockmarket... this is often hard to predict, but in the long-term, index funds generally go up since the long term market average is about 12%pa...
There are other, non-index funds (active), such as Colonial first state geared shares. This fund, units in which i hold, buys into top100 companies but with greater % weighting as to which ones they think will outperform the market... this has more fees and increased risk though,,,
But yeh, index funds are worth looking at...
go to www.tradingroom.com.au and www.morningstar.com.au to compare funds and get more info...
good luck...
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Arthur,
They are definitely worth it and Vanguard is very good. They have been around for a very long time and were started by John Bogle. Go to your local bookstore and there should be one or two of his books there. With Vanguard retail you will be looking at a minimum investment of $500,000 for wholesale management fees. If you don't quite have that amount then you can invest via a 'wrap' account with much smaller minimums around the $5,000 mark. There is a personal super plan which has an initial contribution of around $20,000 from memory. There are different strategies (growth, conservative etc) which are made up of their different funds in different %'s.
I have written some articles on my own website www.cfoc.com.au that talk about index funds, exchange traded funds (ETFs) and risk/return in general. The key thing to remember is that investing based on the indexing methodology is risk mitigation and not true wealth creation in the purest sense. That is, by extreme diversification (the basic ethos of indexing) you will reduce firm specific risk and lower the volatility of your portfolio in general. However, someone that truly knows what they are doing can greatly outperform an indexing approach by virtue of specialisation (eg spread trading commodity futures, options trading, short term daytrading etc). The investor needs to decide just how much of a time and education commitment they are willing to invest in and then choose their methodology accordingly.
Having said that, indexing has returned very well over the last couple of decades. That is not to say that the returns will be as great looking forward - and many believe that the world sharemarkets (and by implication the indexing methodology that seeks to replicate the returns of the world sharemarkets) will return less 'on the whole' than we have previously seen. So just make sure that you include some exposure to emerging markets in your investment equation.
Anyway, check out my articles and also the links that I have on my site. Some of the links point to very informative and educational websites.
Cheers,
Adam
They are definitely worth it and Vanguard is very good. They have been around for a very long time and were started by John Bogle. Go to your local bookstore and there should be one or two of his books there. With Vanguard retail you will be looking at a minimum investment of $500,000 for wholesale management fees. If you don't quite have that amount then you can invest via a 'wrap' account with much smaller minimums around the $5,000 mark. There is a personal super plan which has an initial contribution of around $20,000 from memory. There are different strategies (growth, conservative etc) which are made up of their different funds in different %'s.
I have written some articles on my own website www.cfoc.com.au that talk about index funds, exchange traded funds (ETFs) and risk/return in general. The key thing to remember is that investing based on the indexing methodology is risk mitigation and not true wealth creation in the purest sense. That is, by extreme diversification (the basic ethos of indexing) you will reduce firm specific risk and lower the volatility of your portfolio in general. However, someone that truly knows what they are doing can greatly outperform an indexing approach by virtue of specialisation (eg spread trading commodity futures, options trading, short term daytrading etc). The investor needs to decide just how much of a time and education commitment they are willing to invest in and then choose their methodology accordingly.
Having said that, indexing has returned very well over the last couple of decades. That is not to say that the returns will be as great looking forward - and many believe that the world sharemarkets (and by implication the indexing methodology that seeks to replicate the returns of the world sharemarkets) will return less 'on the whole' than we have previously seen. So just make sure that you include some exposure to emerging markets in your investment equation.
Anyway, check out my articles and also the links that I have on my site. Some of the links point to very informative and educational websites.
Cheers,
Adam
