jw01
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Post by jw01 on Sept 20, 2016 22:46:51 GMT
In the interests of diversification I am looking outside P2P (where I am currently heavily invested) and considering index and tracker funds; and with such a wealth of financial expertise on this forum it would be churlish not to use it.
1 Is this a good time to get into this area, or is there no such thing as a good time or a bad time, depending on investment approach?
2 Any advice on which indexes to track and which funds to go for?
3 Any investment strategies/tips/experience would be welcome.
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SteveT
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Post by SteveT on Sept 21, 2016 6:48:47 GMT
Best, I think, to invest just after the relevant index has dropped significantly and just before it starts rising strongly. The trick, of course, is knowing when this is...
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Steerpike
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Post by Steerpike on Sept 21, 2016 7:21:24 GMT
Vanguard offer a wide range of low cost trackers.
A simple approach is to select from the Vanguard Lifestrategy range based on your appetite for risk.
Lots of information on the Vanguard website.
Much editorial opinion and opinionated comment on passive investment in general on the Monevator blog.
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bigfoot12
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Post by bigfoot12 on Sept 21, 2016 8:21:33 GMT
My favourite Warren Buffett quote on diversification:
My personal view is that index funds are great, and the majority of my stock market investments are held this way. I prefer ETF (exchange traded funds) rather than traditional funds (unit trusts and OEIC) as the a) the fees are usually much lower, and b) I see the price I transact at before I invest. ETFs are traded shares on major stock exchanges which invest to replicate a given exchange. Obviously i am accepting that I will slightly under-perform the index in good and bad times, but that is okay; it is difficult to find a fund manager who is going to outperform.
All platforms seem to charge a fee for holding funds in addition to the fund's management fee, but many platforms charge no, or a much smaller, fee for holding shares so the total fee is likely to be much smaller with an ETF.
I think that there is a such thing as a good and a bad time, but knowing so in advance is hard. On many measures the S&P500 (the main US index) is very high, and on some measures the FTSE 100 is also quite high, but on other measures the FTSE isn't. I imagine that if the S&P falls sharply the FTSE will also fall. I have reduced my exposure to both somewhat over the past few months, but I still hold both.
I live in the UK and have no plans to leave so my investments are overweight the UK by some measures. But I do have a range. You need to think about why you are saving/investing and what you are likely to be spending it on (in the UK, overseas...).
I like some Vanguard ETFs and also iShares have some convenient products, but the latter has some with much higher fees (look for the TER as a guide). One thing to consider is do you want currency hedged? These try to iron out movement in FX rates. I try to avoid these as I am diversifying to gain the risk of the foreign currency. But I do like some of the iShares which are denominated in GBP so I don't have to pay FX charges to my broker when I buy and sell and on any dividends.
Again without knowing how much you are investing it is hard to make suggestions as with smaller investments the transaction fees start to become significant (£10 fee on £500 transaction is 2%, it might be better to use funds rather than ETF).
Get an ISA.
If I woke up one morning to find most of my assets in P2P and memory loss of my previous financial experience, but a one paragraph letter from myself. I would tell myself to switch some P2P into ETF funds each month as long as each transaction was bigger than £2k, use funds otherwise, for between 12 and 24 months. As I intend to stay in the UK, I would buy FTSE100, FTSE250, a global index and an emerging market index. If I had more money I might add one or two other indices, perhaps a bond fund, for example. I would have more than 50% in the first two. Buying these in an ISA.
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arbster
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Post by arbster on Sept 21, 2016 8:33:39 GMT
If I woke up one morning to find most of my assets in P2P and memory loss of my previous financial experience, but a one paragraph letter from myself. I would tell myself to switch some P2P into ETF funds each month as long as each transaction was bigger than £2k, use funds otherwise, for between 12 and 24 months. As I intend to stay in the UK, I would buy FTSE100, FTSE250, a global index and an emerging market index. If I had more money I might add one or two other indices, perhaps a bond fund, for example. I would have more than 50% in the first two. Buying these in an ISA. Looks like good advice to me. Why not go FTSE All Share instead of 100 and 250? What about further diversifying across bonds and gilts, or are you deliberately avoiding those?
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bigfoot12
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Post by bigfoot12 on Sept 21, 2016 8:55:06 GMT
Looks like good advice to me. Why not go FTSE All Share instead of 100 and 250? Might be a good idea if I wanted to go down the ETF route, but my transaction size was down towards £2k. But in my case the last time I looked (over a year ago) the FTSE 100 and FTSE 250 funds were more liquid than the all share ETF and had lower fees (in aggregate). The FTSE all share would have FTSE 100 : FTSE 250 ratio over 3:1 and I (currently since Brexit) have slightly higher ratio of FTSE 250 than that. What about further diversifying across bonds and gilts, or are you deliberately avoiding those? You are right these probably should be part of a portfolio. However, I have just sold my last fixed gilt. I still own Index Linked and Tips, but nothing fixed rate from a government. I might be too early (I certainly started selling too early), but I am prepared to accept that. I don't see the point in buying these things with a near zero yield.
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alanp
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Post by alanp on Sept 21, 2016 15:17:16 GMT
For more detailed and specific discussions on investments look at the MoneySavingExpert forums for "pensions" and "savings and investments" as well as monevator.com for basic information if you are new to the scene and some of the terms are unfamiliar.
Don't just consider a S&S ISA as a pension wrapper may be more suitable for you depending on your age, circumstances and objectives / timeframe etc.
Whilst ETFs can work out cheaper beware of the buy / sell charges, typically for pots up to £20/25k in size being built up in relatively small amounts funds work out cheaper as you pay a holding fee of ~0.2 - 0.3% as opposed to £10 - 15 per transaction (some platforms offer a Frequent Buyer deal which can be as low as £1.50 per trade). Various online calculators are available to work out which route is most cost-effective for your investing style. Mine is a monthly contribution so a fund base is best for me at the moment.
I agree with comments re diversification and invest in UK, US, Emerging Markets, Small Caps, Property and Bond funds to achieve a global spread across asset classes (Monevator has lots on Asset Allocation).
Don't try and Time The Market - very, very few people get it right occasionally, I doubt if anyone does anywhere near all the time.
Vanguard LifeStrategy, L&G Multi-Index and Blackrock Consensus are all examples of "inherently diversified" funds that typically have 6-10 specific funds within them each with their own "slant". L&G includes Property for example whist Vanguard doesn't.
When considering your Asset Allocation my advice is to take everything into account and make sure you know your exposure. For example I worked at a company where they offered a Share Save Scheme that got into difficulties and was eventually sold off after years of redundancies and falling share price. a number of long term employees had their Salary and Savings "tied up" in one organisation and ended up feeling a lot of pain when they lost their job and shares were worthless.
Do you have a current pension - where is that invested (not relevant if it is a Defined Benefit scheme)? Could be very heavily invested in UK so you might want to go light on UK in your plans to balance that out.
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Neil_P2PBlog
P2P Blogger
Use @p2pblog to tag me :-)
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Post by Neil_P2PBlog on Sept 21, 2016 16:13:18 GMT
One interesting product I've come across recently is Money Farm. They invest for you in a portfolio of etfs, but as you do it through them you don't have to pay transaction fees or stamp duty. They charge a 0.6% fee over £10,000 (which is a bit high) but the first £10,000 is free of any fees. Compare this to most DIY methods where you pay a platform fee of at least 0.25% and transaction fees. What's more, TopCashBack and Quidco are offering cashback of £120 for new customers (based roughly on a total £2k investment held for 3 months, but read the terms). They do an ISA too. I joined them a couple of weeks ago, they are a bit slow to make the first investment but I'm very happy with it apart from that.
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james
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Post by james on Sept 21, 2016 20:44:37 GMT
1 Is this a good time to get into this area, or is there no such thing as a good time or a bad time, depending on investment approach? There are good and bad times depending on the specifics of the situation. At the moment for many markets the Shiller cyclically adjusted price/earnings ratio (PE10) is well above long term averages and since that is inversely correlated with future returns for many years, it's not a great time to be buying in those markets, better to be selling. For example, the US S&P500 market expectation is currently low single digit loss per year over the next eight years of horizon (use a private browser window to follow that link, you get only a limited number of views). UK is not as bad as that but still well above average. Some other European countries and some emerging markets are either not as far above average or well below it. In pension drawdown studies cutting equity exposure at times of high PE10 has been found to significantly improve the safe withdrawal rate. What PE10 doesn't do is say when there will be a change. There's ample range for markets that are high now to double in price still. So cutting equity exposure in those markets that are high is a good move but you might have to wait a long time before you get the benefit of having done it. So now's not a good time to be buying into the US markets but no way to know just when it'll become a better time. What I started doing more than a year ago was switch out of equities into P2P and also some cash. Usually I'm well over 90% in equities. It's delivered what I was after. Conversely, back in mid 2008 after initial market drops I set up a high monthly buying rate and in early 2009 added more limp sum and borrowed money. The difference between bad and good buying times. Trackers are a fairly good tool for extremely well studied markets like the biggest US, UK or other developed ones. Low cost exposure. Where they aren't so god is in less well-studied places where humans can make more of a difference. Part of the response to that from tracker firms has been to introduce smart trackers that follow investing rules instead of just investing in proportion to the market capitalisation of companies (though not all indexes work that way). Just one tracker isn't necessarily a good move. Adding a component of US small caps to a US large cap and US bonds mixture was found to increase safe withdrawal rates from 4% to 4.5% due to the higher returns - but also higher volatility - from the small cap component improving the longer term safety level.
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