FTSE100 tracker
Discussion
Mezger said:
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hstewie said:
hstewie said: Personal view, global.
Beyond that you're into allocations and active v passive etc. but all I'd say is why did you pick the UK market?
A lot of people don't have many reasons beyond "Because I live there"
If you look at the FTSE 100 and where the majority of it's constituents derive their earnings from it's actually outside of the UK - hence why it shot up when the pound dropped post Brexit. Beyond that you're into allocations and active v passive etc. but all I'd say is why did you pick the UK market?
A lot of people don't have many reasons beyond "Because I live there"
Ari said:
I chose the FTSE100 because it is made up of the biggest and arguably most solid UK companies. The only way to lose all of my money invested would be for the biggest ones to fail, in which case we've probably got bigger issues to worry about.
Why, what should I have done?
By investing only in the UK market, you are effectively declaring that you think the UK market is going to do better than any other markets. What is your reasoning? What is your special information that nobody else has?Why, what should I have done?
I would bet that you don’t actually have any rational reason for believing that the UK market will outperform all others (it certainly hasn’t over the last ten years or more). Your reason is probably similar to mine when I started investing about 15 years ago: you feel vaguely more confident investing on your own doorstep, and have a slight mistrust of strange foreign markets that seem a bit alien.
When I started, I put about 50% into the FTSE All Share, and split the rest between US, Europe and Asia. This gave me a certain amount of global diversification, but it’s only recently that I’ve realised that I’m heavily biased towards the UK, and that position would only make rational sense if I had special knowledge that the UK market would outperform the rest of the world - and of course I have no such knowledge.
So I have massively rebalanced my investments recently. I could, and perhaps should, have simply moved everything into a global index fund, but instead I’ve changed the proportions so that my investments more or less reflect the relative sizes of each stock market (this is sort of what a global index fund would do automatically). I used this web site to help determine what proportions to use. You’ll see that Europe is only about 20% of the world, and the UK is only about 25% of Europe. Therefore the UK is only about 5% of the world! And the US is over 40%.
Switching from 50% UK to only 5%, and from ~15% US to 40%, and from ~15% Asia to about 30% has felt a bit radical - but I really feel that my new balance makes much more rational sense. I will be much more heavily invested in the US, and if you look at the last 10-20 years of performance the US has been much better and smoother than the UK.
Oh, and I also noticed that one or two of the funds I was holding had much higher charges than I’d realised, so this was also an opportunity to ditch those and go into cheaper funds tracking the same indices.
The OP seems to be worrying about the possibility of companies failing, but that anxiety makes no sense. When you’re investing in indices, you’re not investing in individual stocks so you don’t need to concern yourself with the fortunes of individual companies. If Acme Widgets PLC starts going down the pan, its share price will fall, and hence its proportion of the index will fall. The index trackers will sell that share in response to that - they will sell as soon as the share starts falling, and will continue to sell as it falls further. Indeed, there will come a point when Acme is no longer one of the top 100/250/350 in the market, and so the index trackers will dump it completely. By the time Acme Widgets PLC goes into administration, you’ll have little or no exposure. That’s one of the beauties of index trackers. It’s a bit of a bummer for Acme, because as they reach each threshold of 100/250/350 the share price tanks even more steeply as all the trackers sell their remaining holdings.
Consider this as well: a little over 10 years ago, we all thought that banks and building societies were unsinkable. Who’d have thought that Northern Rock and RBS could get into trouble? The lesson is that there’s no such thing as an indestructible company: even the biggest and most apparently solid can fail. So investing in the FTSE 100 because it is biased towards a small number of big companies certainly doesn’t give you greater security IMHO. If anything it opens you up to risk.
I would urge the OP to step back and take a global view of investing. I know it seems to feel more comfortable investing only in the UK (I did it myself when I started out), but that view doesn’t really make rational sense.
Edited by Dr Mike Oxgreen on Sunday 4th March 08:03
Sorry for the double post, but I’ve just spotted a wrinkle in my argument about a failing company’s share price falling.
I also wonder if I’ve spotted a reason for not investing in the FTSE 250, but instead to invest in the 350 or All Share.
Remember that the 250 is the 250 companies beneath the 100. Therefore, as the price of the failing Acme Widgets PLC falls, the FTSE 100 trackers will be selling, and will eventually dump it. But then it falls into the 250, and the FTSE 250 trackers all suddenly buy this failing company!
By contrast, a 350 or All Share tracker would simply keep selling Acme Widgets.
Is this a flaw in the FTSE 250?
I also wonder if I’ve spotted a reason for not investing in the FTSE 250, but instead to invest in the 350 or All Share.
Remember that the 250 is the 250 companies beneath the 100. Therefore, as the price of the failing Acme Widgets PLC falls, the FTSE 100 trackers will be selling, and will eventually dump it. But then it falls into the 250, and the FTSE 250 trackers all suddenly buy this failing company!
By contrast, a 350 or All Share tracker would simply keep selling Acme Widgets.
Is this a flaw in the FTSE 250?
Dr Mike Oxgreen said:
Is this a flaw in the FTSE 250?
It's not a flaw in the index - an index is what it is. It might be considered a flaw in choosing a FTSE 250 tracker.However, AIUI, well run trackers will tend to buy companies in anticipation of them entering an index, so it's probably not as dramatic an effect as you might expect.
Dr Mike Oxgreen said:
Sorry for the double post, but I’ve just spotted a wrinkle in my argument about a failing company’s share price falling.
I also wonder if I’ve spotted a reason for not investing in the FTSE 250, but instead to invest in the 350 or All Share.
Remember that the 250 is the 250 companies beneath the 100. Therefore, as the price of the failing Acme Widgets PLC falls, the FTSE 100 trackers will be selling, and will eventually dump it. But then it falls into the 250, and the FTSE 250 trackers all suddenly buy this failing company!
By contrast, a 350 or All Share tracker would simply keep selling Acme Widgets.
Is this a flaw in the FTSE 250?
Yeah, I don’t think that’s the end of the wrinkles....I also wonder if I’ve spotted a reason for not investing in the FTSE 250, but instead to invest in the 350 or All Share.
Remember that the 250 is the 250 companies beneath the 100. Therefore, as the price of the failing Acme Widgets PLC falls, the FTSE 100 trackers will be selling, and will eventually dump it. But then it falls into the 250, and the FTSE 250 trackers all suddenly buy this failing company!
By contrast, a 350 or All Share tracker would simply keep selling Acme Widgets.
Is this a flaw in the FTSE 250?
In your example, you assume that failing companies will suffer a slow decline, gradually falling down the FTSE rankings as opposed to a sudden failure, suspension of trading or catastrophic event.
That isn’t quite right.
I think you need to familiarise yourself with the way the FTSE indices are subject to periodic quarterly review to determine its constituents. Rather than being immediately sold when the share price starts to fall as you suggest, it’s these reviews that would generally determine whether a share is bought or sold.
In your example, a share that began to slide shortly after the most recent review might actually be held for a quarter prior to leaving the FTSE 100.
In my opinion, you seem to be conflating some of the perceived benefits of active management with what your FTSE 100 Tracker actually does.
This might help http://www.ftse.com/products/downloads/FTSE_UK_Ind...
HTH
Dr Mike Oxgreen said:
Remember that the 250 is the 250 companies beneath the 100.
Embarrassing perhaps but I didn't know that! 
I'd assumed that the FTSE100 was the top 100 and the FTSE250 was the top 250.
I'm in active funds but I've looked at passives and it shows how one little misunderstanding and not doing your homework (me) can totally skew how you look at something.
xeny said:
It's not a flaw in the index - an index is what it is. It might be considered a flaw in choosing a FTSE 250 tracker
That is what I meant to say - I expressed myself poorly!TFP said:
(stuff)
I admit I was oversimplifying the way things work, but I think the principle of my post stands. You're not going to lose all your money if one or two companies fail - but actually your exposure to failure is arguably worse in the FTSE 100.bhstewie said:
hstewie said: I'd assumed that the FTSE100 was the top 100 and the FTSE250 was the top 250.
Confusingly, the 100 is the top 100, then the 250 is the next 250, but the 350 is indeed the top 350.Edited by Dr Mike Oxgreen on Sunday 4th March 10:54
Dr Mike Oxgreen said:
TFP said:
(stuff)
I admit I was oversimplifying the way things work, but I think the principle of my post stands. You're not going to lose all your money if one or two companies fail - but actually your exposure to failure is arguably worse in the FTSE 100.Dr Mike Oxgreen said:
Is this a flaw in the FTSE 250?
Yes, it's the same flaw as all other indexes - and precisely the reason I don't buy market index funds.If the company at, say, number 80 in the FTSE 100 is falling fast all the trackers continue holding while active managers are bailing out. Trackers continue sustaining damage all the way down. And the same applies going up. Active managers can buy a company at number 110 that's rising fast but the trackers have to wait.
Some very interesting food for thought here.
My company is just about to move our pension provider to H&L.
Based on the thoughts of Lars Krojier, I’m looking at going for a cheap global equity tracker to invest my £500 per month. There’s a Legal & General Global index (Excludes the UK) for 0.08 % fees which looks very, very sensible.
However, nagging in the back of my head is the Lindsell Train Global @ 0.54% is probably going to get me a higher return – despite the higher fees.
It’s outperformed L&G over the last few years by some measure.
Obviously, past performance is not an indicator of future performance & the ideology behind Krojier’s view is that you can’t beat the market forever!
Will add, we’ve had a discount through H&L to bring the platform cost down to 0.40% per year.
Would be looking at running the SIPP for another 20 years, before which I will reposition the fund with some Gilts to reduce the risk.
Any thoughts or Fag packet maths to offer me on either option..??
My company is just about to move our pension provider to H&L.
Based on the thoughts of Lars Krojier, I’m looking at going for a cheap global equity tracker to invest my £500 per month. There’s a Legal & General Global index (Excludes the UK) for 0.08 % fees which looks very, very sensible.
However, nagging in the back of my head is the Lindsell Train Global @ 0.54% is probably going to get me a higher return – despite the higher fees.
It’s outperformed L&G over the last few years by some measure.
Obviously, past performance is not an indicator of future performance & the ideology behind Krojier’s view is that you can’t beat the market forever!
Will add, we’ve had a discount through H&L to bring the platform cost down to 0.40% per year.
Would be looking at running the SIPP for another 20 years, before which I will reposition the fund with some Gilts to reduce the risk.
Any thoughts or Fag packet maths to offer me on either option..??
Is there a graph that follows a global tracker in the same way that you can Google FTSE100 and get a graph over any time period up to present day you like?
Totally accepting that past performance, no indication, etc. But it's interesting to see what it's done, and what it's doing once you're in it.
Totally accepting that past performance, no indication, etc. But it's interesting to see what it's done, and what it's doing once you're in it.
Best thing is just go on MorningStar or Trustnet and pick one and you'll be able to see how it's done and compare against its benchmark.
Fidelity Index World is probably as good as any
http://www.morningstar.co.uk/uk/funds/snapshot/sna...
Fidelity Index World is probably as good as any
http://www.morningstar.co.uk/uk/funds/snapshot/sna...
GregK2 said:
Seems to be tumbling at quite a rate lately. Stick or twist OP?
I'd hope stick but diversify.It's way too short term to "twist" but I'd also want "something" other than just the FTSE100.
A timely read http://www.schroders.com/en/uk/private-investor/in...
bhstewie said:
hstewie said: I'd hope stick but diversify.
It's way too short term to "twist" but I'd also want "something" other than just the FTSE100.
A timely read http://www.schroders.com/en/uk/private-investor/in...
The old and trusty adage, "Time in the Market" NOT "Timing the Market"It's way too short term to "twist" but I'd also want "something" other than just the FTSE100.
A timely read http://www.schroders.com/en/uk/private-investor/in...
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