Indexed Fund - Advice & Recommendations?

Lancerx on 27/02/2016 - 17:17
Last edited 28/02/2016 - 09:46 by 1 other user

Hi all,

Thinking of investing some cash into an indexed fund. Heard a lot of people invested in indexed funds, being a safer way of investing shares compared to managed funds. I have no experience whatsoever investing in shares, bonds or funds.

Any advice on how to start? Read some articles and Vanguard seem to be mentioned a lot. Can you sign up yourself without going through a FP or broker? What's the min start up fee etc? I'm happy to put in 30k as a starter. Cheers!

• 

  MITM on 27/02/2016 - 20:58

  Read through Motley Fool website, may give you some inspiration as a newbie.

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  scotty on 27/02/2016 - 22:36

  +3

  There's index fund. For example Vanguard Index Australian Share Fund (VAN0010AU), which you can buy from many places including filling out a form directly from Vanguard. There are also places that give you commission rebate. It's easy to google that.

  There's also ETF. For example Vanguard Australian Share Index (VAS) which you can trade directly on the ASX. You'll need to go through brokers (Comsec, ETrade, etc) and you can usually find deals that give you free trades if you don't already have an account. ETF usually have lower fee. For example VAN0010AU is 0.35% pa over $100k with 0.1% buy/sell spread, but VAS is 0.15% pa. However you pay brokerage when you buy/sell ETF like how you buy/sell shares.

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  altomic on 27/02/2016 - 22:58

  +1

  *advice

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  mrtin on 27/02/2016 - 23:04

  Did you read the article in news.com.au about a couple retiring in 30s using index funds?http://www.news.com.au/finance/money/wealth/how-an-ordinary-couple-got-rich-by-spending-a-decade-investing-every-spare-cent/news-story/3e38e4154874b6019fafd9be75326803
  Some asset classes are good for index funds but for others active managers can do better.
  If you held an aussie asx200 index fund in the past few years, you would have effectively held bhp from 50 bucks to 15 bucks. You would have made no capital growth if you had invested pre gfc in 2007 whereas there are definitely active managers who have made money since then.

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  GameChanger on 28/02/2016 - 00:52

  Nothing is ever 'safe' the best investment is where you are monitoring it and have knowledge.

  If you can't do the above you're better off leaving the money your savings account.

  • 

    [Deactivated] on 28/02/2016 - 04:47

    the best investment is where you are monitoring it and have knowledge.

    And control.

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  [Deactivated] on 28/02/2016 - 01:57

  Perhaps check out results of EFTs on Bloomberg and others. You will (likely) see the annual payout is higher and more consistent than the underlying instrument.

  It appears hedging broadly between cfd companies, paying interest by different models can currently payout just under 10% (max) without price risk. I have done this method at 15% consistently for 15 months years ago, but opportunities change.

  I've read one of the most traded ETFs is QQQ , Div=1.06%. Not impressive.

  HangSengIndex = 4.62%(in Jan2016, usually ~4%), http://www.hsi.com.hk/HSI-Net/HSI-Net
  Hang Seng China Enterprises Index(“HSCEI") = 5.04% (in Jan2016, usually ~4%)
  Just some quick points.

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  Gershom on 28/02/2016 - 09:09

  -2

  Use the money to live on, and salary sacrifice every penny you can of your salary into Super. No other investment comes close to the returns you get. Check it out, do the math, you'll see.

  • 

    mrtin on 28/02/2016 - 09:16

    +1

    Disadvantage is op will need to need to be an aged care facility by the time they touch super lol assuming op is quite young

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  Charlatan on 28/02/2016 - 09:19

  +6

  Hi Droid,

  The advice you're getting in this thread isn't "wrong" but it's hardly good. If you don't want to pay a financial advisor, I recommend going to ausfinance.reddit.com or fiaustralia.reddit.com and posting a question or reading threads there - both of those communities are full of people who think quite a lot about how to invest their money into index funds, so you can get half-decent advice.

  To give you some brief advice, however:

  • Index funds are a kind of managed fund. Index funds are "safer" because the fund managers don't take risks in order to try and make profit for you; their job is to invest your money in a way that the gains and losses of the fund are the same as the gains and losses of the index. For example, a properly run ASX200 Index fund would not be performing very well at the moment, because the ASX200 is not performing well this year. Note: Do not invest in an index based on how much return they have provided over the past 3mo, 6mo, 1y, 3y etc - you need only concern yourself with the fact that over the long term, the index will go up (~7%p.a. average)
  • To invest in an index fund you have two choices. You can invest in the fund directly or you can buy an ETF (not an EFT… it stands for exchange-traded fund). As the name implies, you can think of an ETF as a "share" in a fund. The price of this share goes up and down depending on the value of the fund. Generally it is better to go with an ETF if you are planning to invest for the long term, because if you buy ETFs infrequently and in large amounts (5k or more) it works out cheaper. It's cheaper because the management costs on an ETF are less than the management costs for just putting money into the fund. One thing to remember is that you have to pay brokerage fees in order to buy ETFs, which is why you should not buy them in small parcels. If you want to regularly put small amounts of money in, e.g. $100/week or $400/month, you should probably just put money into the fund directly.
  • You should invest in a couple of different indexes for diversification benefits. Generally Australians will invest in an ASX200 (Australia), S&P500 (America) and a "rest of world" index. Vanguard examples would be VAS, VTS and VEU. It's up to you to decided how to divide your money between them - equally, more emphasis on Australia, more emphasis on America, whatever you want, really - just don't keep on changing it! Index investing is called "set and forget" for a reason.
  • Lastly, and most importantly - if you are just an average individual, you should invest in indexes with a very long term view. That means you buy your ETFs or put your money into the funds, and you leave it there, and don't touch it, don't do anything with it, for a long time. If you want you can "rebalance" once a year or so, but that should be it. If you invest your $30k at the wrong time, and 3 weeks later it's only worth $25k, smile and sleep well, and for god's sake don't sell it! It will come back. Markets go up and down, but over the long term they go up. If anything, when the market drops, you should consider buying a little bit more :P

  To reinforce my last point, I invested about $15k at the end of last year. You may know that the world's stock markets have performed poorly since then. A couple of weeks ago I was down 10%, and I'm still down about 5%, but I'm not bothered, because I won't need this money for another 30 years, by which time it will have grown.

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  ambidextrous on 28/02/2016 - 18:13

  First question that needs to be asked is what is your aim?

  how long do you plan on keeping the investment/investments/portfolio?

  • 

    Lancerx on 28/02/2016 - 23:21

    +1

    It's definitely long term strategy. Not looking to cash up on short term gain. How often you're allowed to cash out anyway?

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  lost69 on 29/02/2016 - 10:46

  Markets may not go up at all if they collapse and we enter Depression v2. Not for a very long time. Global economies are toxic and loaded with debt. When they all collapse I wouldn't want any money anywhere near any investment. And with NIRP I wouldn't leave it in the bank either.

  • 

    Lancerx on 01/03/2016 - 02:44

    So where would you leave it? Underneath your bed?

    • 

      lost69 on 01/03/2016 - 11:41

      -1

      What Escobar did. Bury it.

  • 

    [Deactivated] on 03/03/2016 - 14:46

    -1

    I agree. You can't assume a positive outcome for Global economy given the last nine years.

    The following article suggests a negative outlook.

    http://www.economywatch.com/economy-business-and-finance-new…
    Those who believe that the world has learned from the mistakes that led to the crash are mistaken: on the contrary, Prof. David Miles of the Bank of England now predicts not just one further financial crisis but three in the next two decades; and Andrew Haldane, also of the Bank of England, is already charting the volatile and unsustainable wave of speculative capital flows that are still not fully monitored and operate with no early-warning system, no global financial standards, and no consensus on capital and liquidity requirements for banks.

    I'm just suggesting not to be too confident about a quick recovery.