Index funds

[mdianuk]

I've been reading a few financial books to better understand investing, so I can make my savings work for me.

The most highly recommended books (on here as we as elsewhere) suggest that Index Funds in the long term should yield positive returns, based upon historic data (around 9% per annum). They also suggest that index funds are all you need, and that other forms are investment are generally a waste of time, and that financial advisors will never beat straight forward index fund investing. Jury is out on that of course, I don't know better.

So, on that basis, by Index Funds, do they mean investing in the world markets as a whole (ftse100 etc), or individual shares? If funds as a whole, then do banks offer these as part of the ISA wrapper, because from what I can see, they generally invest in a mix of shares, bonds etc.

Does anyone else take the approach that Index Funds only are all you need for sensible long term (hopeful) gains? If so, who do you use and why?

Any feedback appreciated as I'm a numpty at all this, but learning fast!

Edited by mdianuk on Wednesday 12th April 12:32

[mdianuk]

So using Lloyds as an example (because I bank with them), their medium risk investment is made up of 51% shares, 39% bonds and guilds and 10% property. https://www.lloydsbank.com/investments/investment-... Would that 51% shares be made up of their own preferred shares, cherry picking from them, or would it be invested in an index fund, offset by I assume safer bonds and guilds?

Sorry to ask such basic questions to most of you, I really have lived a sheltered life of cash savings and isas, relying on my companies to always make decent profits and not consider what to do with it. It seems the moral of most financial books is spend sensible, never beyond your means (always been a saver, never bought recklessly), and 'invest the rest'...wish I had known this at 18, I always assumed 'save the rest'.

Some have suggested that moving into investments at the moment is foolish, with drops likely over the coming years, but all I can do is go off historic data that returns have always been positive long term; and I understand that a bit at a time is wiser than a chunk right now.

[mdianuk]

nyt said:

Morningstar gives you a lot of information: http://www.morningstar.co.uk/uk/funds/snapshot/sna...

I got that from the ISIN code on: https://www.lloydsbank.com/assets/media/pdfs/inves...
ISIN: GB00BGJZLV53

I then simply googled the ISIN code.

Really helpful thank you. Not sure if it suggests it is a good or bad investment fund, but the returns seem 'stable'!

[mdianuk]

nyt said:

It's too new a fund to really comment imo.
But ... it has significantly underperformed its benchmark. That's not a good sign. And its morningstar rating is only 3*.

Compare to 'fundsmith' that I mentioned earlier:
http://www.morningstar.co.uk/uk/funds/snapshot/sna...
http://tools.morningstar.co.uk/uk/fundcompare/defa...

http://www.morningstar.co.uk/uk/funds/snapshot/sna...

You mentioned ISAs earlier. Unless you've used all of you allowances then you should hold these as part of an ISA or even as part of a personal pension.
Use your allowances!


There are hundreds of funds out there. It pays to do some research. My worst performing investment over the years have been FTSE trackers. Bought when everyone was saying they were the way to go and then stupidly ignored for years.

The Fundsmith fund is certainly appealing, but correct me if wrong, when comparing the two, Fundsmith focus almost 100% on stocks and shares, therefore making it a high risk investment fund no? Obviously the historic figures don't lie, it has done well, but would need to be more accepting of risk with it?

In terms of ISA's, yes, I have the full allowance available to me this year, plus a 6 figure Cash ISA from past years to do something with!!! I just don't know what yet!

[mdianuk]

nyt said:

In passing, you started off by mentioning tracker funds. This looks like a managed fund.

I know, I've derailed my own thread already! I'm so damn confused! So far I've only been looking at managed funds that spread risk across shares, bonds etc (per original post), but having read a few financial books, most suggest that index funds (tracker funds?) are the most sensible approach for long term gains for those without knowledge of the investment markets.

[mdianuk]

nyt said:

Fundsmith is so stable that its often referred to as a "Bond Proxy Fund". These are currently out of favour with the press, and it does look like the economic environment where they shone is ending.

Are you suggesting that whilst being a solid fund that has consistently done well, that it is out of favour because the market is potentially in a period of downturn and therefore it might not do as well, or do you mean something else?

nyt said:

If I misled the OP then apologies

Don't worry about that, EVERYTHING is confusing me at the moment with this. I really need some hand holding, but I've always steered clear of financial advisors because they have a vested interest in certain funds that profit them the most.

nyt said:

Well I did say that the economics that had helped the performance of 'Bond Proxies' were likely changing (in a separate post).
And the OPs fund really doesn't seem to have shone considering that it's 59% equities and Bonds (21%) have also done well.
Come to think of it the 10% property component shouldn't have performed too shabbily either.

It is probably a terrible fund, I just don't know at this stage. It is/was an option just because of where some of my ISA is, but if it turns out to be less than impressive, it is only within an ISA wrapper, so I would imagine can be moved as past years allocation anyway.

The frustration is I cannot just ask "what should I do", but equally, there is no way I'd throw 6 figure sums into something I know nothing about, which is why I'm trying my best (whilst doing my day job and looking after my family) to learn. I would imagine that starting from scratch, throwing in small amounts at a time would require a little less consideration or concern, because of the reduced risk, so I'm wise to treat my ISA funds like that, and drip feed, but as said, I just don't know where yet, and whether NOW is a good time with the markets. I'm looking for a simpler way of letting my money work for me, I tried and failed (badly) at the stock market directly many moons ago so I don't want to return to those dark days!

Edited by mdianuk on Wednesday 12th April 14:32

[mdianuk]

Do Hargreaves Lansdown make for a safe and reliable provider of funds and portfolio options? Seems they are a well respect vehicle for more successful funds rather than using a conventional bank. I'm looking at their Portfolio+ options (6 in total), but cannot find any information on how they perform!

[mdianuk]

So, getting this thread back on track, as it got massively derailed (which is fine if I understood it!), where should I look if I wanted to invest in Index Funds (I assume also called Index Trackers). Many mention Vanguard, Fidelity etc, but who provides these, do the likes of Hargreaves Lansdown do within an ISA? Am I correct in assuming that instead of investing in a 'Fund', it is almost created as an all encompassing share? Bit of guidance on index trackers appreciated.

(just a note to say that I appreciate that index based investments are more reliant on a strong financial market and at the moment may appear a little 'toppy' - at the same time, it seems that managed funds can outperform index trackers, but generally only in the short term, and that picking a strong performer is risky).

[mdianuk]

Does anyone have any recommendations on the best Index Tracker Funds to look at?

I've been told the HSBC FTSE 250 Index is decent for the Uk market, Vanguard LifeStrategy 100% Equity for global (if that is the correct one) and UBS S&P 500 Index too.

[mdianuk]

Thank you, very handy. I'm just wondering if investing right now is wise, with the FTSE, DOW etc pretty much at all time highs! That is the stock market gamble I guess!

[mdianuk]

FredClogs said:

There is still a lot of cash out there waiting on the sidelines to buy out any major dips or anything in the major markets, the post Brexit malais showed that - I wouldn' be too concerned if you're just looking at whole market tracking. Some of the minor or emerging markets or specialist sectors are more of a risk. That said, who knows what tomorrow brings? But one is for sure procrastination doesn't pay, I wish I'd started taking more of an interest in my savings and pension many years ago and I suspect most people feel the same way.

(There is a difference between this and gambling - I don't know what it is but there is a difference)

Yep, I wish I had too. I've always put the maximum in my ISA (cash) every year, none of the wiser that with a sensible S&S ISA, I'd probably have about £50k more right now. Unfortunately my ability to understand the investment market has and still is putting me off. I set out with a plan to put aside half the cash ISA for a S&S ISA, via my bank using their own pre-defined packages; then the more I looked into it, it seemed that they don't perform all that well, leading me in to more risky index tracking funds etc. My head is now spinning so much that maybe I should revert to the original plan and see how it goes for a while. There are just so many damn options available!

[mdianuk]

lewisf182 said:

Like the OP I now want to start 'investing' in managed/passive funds. I don't have any ISA's so I'd be setting one up, my main question is - if i set one up say via Harg Landsd can i invest say £100 a month into it quite easily? or do you have to chuck in big chunks at a time?

From what I understand, you can start an S&S ISA with HL with either a lump sum, or a minimum of £25/month.

Also reading the same book, though at one part he does say putting a lump sum in now works out better in the long run, but at this moment in time, with the ftse etc at an all time high, I'm not convinced now is the time to make a move unless into a managed or balanced fund.

I'm still learning, so maybe we can help each other along the way!

[mdianuk]

Croutons said:

^ For HL I think you choose your wrapper then your method of investing, a chunk a month is one of the reasons why both Hargreaves and Lansdown are billionaires.

To that end, there are a number of threads about or discussing platforms at the moment that are worth you (& the OP) looking at, as HL are not the cheapest, although their service does appear good in comparison to others. Charles Stanley Direct (CSD) and YouInvest (AJ Bell) are others people here have, as well as the fiveraday thread, which has very good info from Ginge R about the sort of person investing like that is for.

I remember when I looked at HL's Wealth 150 a few years ago, and I couldn't work out why some funds were in it, and others that had performed much better than the ones they recommend in the same sector are still available (even through them), but are not in the 150...

I say again, both Hargreaves and Lansdown are billionaires.

No doubt, there products and recommendations are designed to steer you in a specific direction that offers them the biggest gain, but I don't see any of the other brokers/platforms being any different, just the fees. I've put a small chunk of money in HL now, though I'm hesitant to allocate to any ftse/dow based funds at the moment as the charts suggest the prices might be slightly toppy (in my extremely limited experience!). That does unfortunately mean I'm tied to HL now for my S&S this year which I hadn't quite factored before clicking 'go'. Fortunately I have plenty of cash ISA money I can put anywhere without it impacting this from what I understand.

[mdianuk]

I'm going to either settle on a HL portfolio+ product and stomach the fees, or go all out investigating index and bond funds and do it myself.

Anyone care to make some recommendations based upon this split for me to research:

30% UK index
30% US/Global index
40% Bonds (UK/US)

The basis of the higher bonds percentage is two-fold; to mirror my age (almost), and because I feel the markets are a little toppy at the moment. The (sort of) plan of action is to introduce money slowly over the next 12 months (just in case I've hit the top) and unless adjusting the percentage levels, to review every 6 months by selling some of the more successful and buying more of the less successful to keep the balance right (or just add new funds in to those struggling).

(that is in theory my latest thought process anyway...changes by the second!)

[mdianuk]

WindyCommon said:

If you consider equity markets to be toppy, how would you characterise bond markets?

Similar, but slightly less risk

[mdianuk]

lewisf182 said:

Well I've finished the book so i've taken the plunge on Ginges fiveraday.

Haha, I've read the book and gone a completely different direction.

[mdianuk]

lewisf182 said:

Oh really? In what way would that be?
I'll monitor it for a year and see if I still feel OK with it. My first choice is property renovation so may have to move funds around as appropriate

The book advises to go in the direction of index funds with a bonds element. I had assumed that fiveraday focus a proportion of the money you invest into individual stocks etc. I might however be wrong with that assumption as I cannot find examples on their website, so please disregard once confirmed.

I'm heading down the route of a multi-asset fund like Vanguards. Yes it would be lovely for me to manage it all myself, and adjust each year accordingly, but in reality, I don't have the knowledge to take that risk at the moment; similarly as to why fiveraday and others are a good idea, to take that requirement away.

[mdianuk]

Jon39 said:

I don't know which book you are referring to, but I was amused by your reference to 'bonds element, and your own comment about 'I don't have the knowledge ...'

Why does that amuse you? I clearly stated that is the suggestion of the book I have read, but I don't have the knowledge in practise to know whether that is correct today or not. My lacking knowledge is the reason why I'm likely to go the route of a proven multi-asset fund, rather than attempting to 'guess' what works and what doesn't from the extensive global funds available. I'm not looking for a 'get rich quick' approach. Anything better than inflation is a start.

My challenge is who to use; I bank with Lloyds but don't like the separation of their share dealing services from their banking services (for transparent easy access from a phone etc). I like Hargreaves, but their admin rates are high!

[mdianuk]

Jon39 said:

Best of luck Ian. If you do go for a publicly available fund, try a couple of your own direct shareholdings as well, because if you want to, it should help you to learn more about shareholding, business, markets and investment. I think one feels a greater personal involvement, and therefore perhaps then takes greater interest in following what is happening.

Thanks Jon, I've kicked things off with a part contribution of the LISA first, with Hargreaves Lansdown, just to get a feel of everything, using the VLS100 fund (because I'm happy to take higher risk on small contributions like this that have to stay in the account for the best part of 20+ years).

Ironically I said to my missus that as usual, I bet I can time my purchase to perfection and see a drop in indexes...and then the general election announcement happened moments later...I have skills (fortunately I know it is important to not try and 'time the market', plus fund purchases through HL are actioned overnight, so I should get slightly better value after today's drops).

[mdianuk]

WindyCommon said:

If this is capital you can commit for 20 years, are you sure you need an ISA and not a SIPP? Do your present pension arrangements leave you with any SIPP'able capacity?

I have no existing pension and have no clue about SIPP's. I will be back in about a week after I've researched with countless questions. I have the money for all options I guess!