Safest index investment methods similar to shares?

Tradestation · 2 June 2009

I have learned that investing in the stock market is not one of my best skills. First I tried trading and lost thousands. Then I tried investing in a diversified portfolio and fared better although 2 compaines went broke and I again lost thousands. When the banks around the world started going broke I chickened out and sold. I don't like tenants so I won't be going into the housing market.

This is where I need your help. I would like to reinvest in an index this time around. Are there really safe instruments around that can be sold/purchased just as quickly as shares and have no way of collapsing ? I don't really know how they are set up, but I wouldn't want them to be organised by some company that can go broke one day and the instrument dissapears off the ASX along with my money. Nor a product that forces me to sell in years from now.

Thanks for your advice.

Krusty the Klown · 2 June 2009

SPDR S&P/ASX 200 FUND (STW) is a listed index fund, that tracks the ASX 200, basically it mirrors the makeup of the index, so you get the same exposure and dividends, the same performance, as close as possible anyway.

There are also index managed funds on most investment platforms tracking the ASX200, but there are entry and exit fees, and the ongoing management fees are higher, it also takes longer to get in and out as opposed to direct shares.

There is also Ishares which are listed investment companies, the same as STW. I know they do cover global markets also.

beamstas · 2 June 2009

if you keep losing thousands maybe the stock market isn't for you?

Tradestation · 2 June 2009

Krusty thanks for the reply. I looked up SPDR and it seems to be company of some kind. So these ETFs are somehow linked to this company aren't they? What exacly will happen if this company dissapears or goes broke with massive debts?

Beamstas, I think you are correct, but I'm not sure what else I can invest in. I don't like real estate and I don't trust any businesses looking for investors. I know nothing about finding good companies even after reading countless books. You need to read between the lines which I can't do.

peterh · 2 June 2009

Vanguard Australia have recently released some ETF's (Australian and international).

If Vanguard, State Street Global Advisors or Barclays went under I'm not sure what would happen to their index funds. If is possible that the funds within the indexes are separated from the rest of the companies assets, but I just don't know.

There are risks with all share based investments. One way of reducing this risk somewhat would be to purchase ETF's from each of the index providers. I think putting your money under a mattress is a bigger risk.

MichaelD · 2 June 2009

Last time I looked Vanguard required $500,000 to invest in any of their index funds.

In all seriousness, given the OP's risk intolerance perhaps his best investment would be in a bank term deposit fund. Less return than an index fund, but for deposits of <$1 million they are government guaranteed if the bank goes broke. The only risk is that of the Australian government going broke.

MrBurns · 2 June 2009

Krusty the Klown said:
SPDR S&P/ASX 200 FUND (STW) is a listed index fund, that tracks the ASX 200, basically it mirrors the makeup of the index, so you get the same exposure and dividends, the same performance, as close as possible anyway.

There are also index managed funds on most investment platforms tracking the ASX200, but there are entry and exit fees, and the ongoing management fees are higher, it also takes longer to get in and out as opposed to direct shares.

There is also Ishares which are listed investment companies, the same as STW. I know they do cover global markets also.

Who runs STW and how do they get paid ?

peterh · 2 June 2009

MichaelD said:
Last time I looked Vanguard required $500,000 to invest in any of their index funds.

In all seriousness, given the OP's risk intolerance perhaps his best investment would be in a bank term deposit fund. Less return than an index fund, but for deposits of <$1 million they are government guaranteed if the bank goes broke. The only risk is that of the Australian government going broke.

Vanguard retail index managed funds can be purchased for $5000. Vanguard ETF's can be purchased like any share on the ASX. Theoretically you could spend only a few hundred dollars on an ETF.

peterh · 2 June 2009

MrBurns said:
Who runs STW and how do they get paid ?

State Street Global Advisors:

http://www.spdrs.com.au/

They get paid via management fees of around 0.3 - 0.4%pa (depending on the ETF).

MrBurns · 2 June 2009

peterh said:
State Street Global Advisors:

http://www.spdrs.com.au/

They get paid via management fees of around 0.3 - 0.4%pa (depending on the ETF).

Thanks so is that the same as Vanguard ? risk is similar ?

peterh · 2 June 2009

MrBurns said:
Thanks so is that the same as Vanguard ? risk is similar ?

Vanguards Australian ETF has a similar fee, though tracks a slightly different index I think (ASX 300 as compared to ASX 200). I would expect the risk of a Vanguard ETF to be similar to a SPDR ETF. I haven't read either companies PDS's though as I can't be bothered, so be aware of that.

MrBurns · 2 June 2009

peterh said:
Vanguards Australian ETF has a similar fee, though tracks a slightly different index I think (ASX 300 as compared to ASX 200). I would expect the risk of a Vanguard ETF to be similar to a SPDR ETF. I haven't read either companies PDS's though as I can't be bothered, so be aware of that.

Thanks for that, I think it may be a better way to go if you're risk tolerance is low.

peterh · 2 June 2009

MrBurns said:
Thanks for that, I think it may be a better way to go if you're risk tolerance is low.

I would think that index ETF's are a lower risk option than individual direct shares. If your risk tolerance is low though then any share based investment may not be appropriate. Over the last 2 years the ASX 200 has halved in value so any investor with a low risk tolerance wouldn't have enjoyed that ride (most investors didn't enjoy that ride).

Low risk investors might need to stick to term deposits as MichaelD suggested. Over the long term returns possibly won't be as good as index funds though, so as you can see nothing is straight forward.

MrBurns · 2 June 2009

peterh said:
I would think that index ETF's are a lower risk option than individual direct shares. If your risk tolerance is low though then any share based investment may not be appropriate. Over the last 2 years the ASX 200 has halved in value so any investor with a low risk tolerance wouldn't have enjoyed that ride (most investors didn't enjoy that ride).

Low risk investors might need to stick to term deposits as MichaelD suggested. Over the long term returns possibly won't be as good as index funds though, so as you can see nothing is straight forward.

I'll probably just leave it in the bank then buy property when the times right.

Pager · 2 June 2009

I have invested in STW for a while and its my biggest holding and about the only stock i have as a long term hold, i also buy more every few months and reinvest all dividends.

IMO and from my own research, its the best way to get exposure to the whole ASX200, it easy to get into and its easy to get out of, always a good depth of buyers and sellers and it mirrors the index very well and mirrors the equivalent dividend yield.

Your not going to get the big returns you can potentially get by buying single stocks but your also not going to get burnt if a single stock gets smashed or goes belly up even if it is in the ASX200 so STW holds it

As to safety, Comsec were pushing it to clients a few months ago on a capitol guarantee basis (conditions attached), now IMO, if Conservative CBA are pushing it on that basis it speaks volumes for the manager State Street.

So_Cynical · 2 June 2009

Index funds will track the index, there fore require the fund/share holder to
be the manager...too many people consider an index fund to be a hands off
managed investment, and its the complete opposite.

CanOz · 2 June 2009

Index investing is a totally acceptable and potentially very profitably way to put your funds to work, consider the following chart of the S&P 500 and the moving average on it.

Now ask yourself, do you have the discipline to trade a system based on this?

CanOz

Tradestation · 2 June 2009

CanOz said:
Index investing is a totally acceptable and potentially very profitably way to put your funds to work, consider the following chart of the S&P 500 and the moving average on it.

Now ask yourself, do you have the discipline to trade a system based on this?

CanOz

No. My analysis of nearly all trading systems is that they do not work over extended periods. I have used 30 years of data and expensive software (Tradestation). After nearly 2 years of constant data analysis I now believe that good traders of more than one decade experience posses a natural gift.

CanOz · 3 June 2009

Tradestation said:
No. My analysis of nearly all trading systems is that they do not work over extended periods. I have used 30 years of data and expensive software (Tradestation). After nearly 2 years of constant data analysis I now believe that good traders of more than one decade experience posses a natural gift.

So its got nothing to do with the systems you are testing?

CanOz

Trevor_S · 3 June 2009

MrBurns said:
Thanks for that, I think it may be a better way to go if you're risk tolerance is low.

If you aren't prepared for the market to go down 50% then shares aren't for you.

MrBurns said:
I'll probably just leave it in the bank then buy property when the times right.

When's the "right time" ? After your convinced we're out of hard times, that things are "on the up", full employment etc ? I think at that stage your will have missed the boat.

The only way I have ever made money from the stockmarket is to invest when others are fearful and be fearful when others are greedy, when others are being greedy, I accumulate cash for the next "fearful" opportunity. The only time I have made money from the property market is from bare ass'd luck, I don't understand it at all and why I mostly stay away from it, only having a small resi holding. That said with the restrictions in Super coming up, I can see resi real estate taking off (not for any fundamental reason though) http://www.dixon.com.au/dixon/News.aspx?a=33&s=33&c=1110 but then from memory your an ex com. RE so you should have more insight then most ?

To the OP, perhaps something like ARG (or better yet STW as mentioned), using something like a value averaging strategy.

Anyway, it's early morning and I am off for a 50km ride on the "pushie"

Safest index investment methods similar to shares?

Tradestation

Krusty the Klown

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beamstas

Tradestation

peterh

MichaelD

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MrBurns

peterh

peterh

MrBurns

peterh

MrBurns

peterh

MrBurns

Pager

So_Cynical

The Contrarian Averager

CanOz

Home runs feel good, but base hits pay bills!

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Safest index investment methods similar to shares?

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