How do you choose Mutual / Index Funds?

[SarlechS]

Hi Guys,

I'm looking to invest a little more this year into Index/Mutual Funds. I've been dabbling in this for the last few year but not utilising my whole 20k allowance into the funds. I've got a few friends that have been doing this a while so a lot of the funds I've gone into are off the back of friends recommendations.

After reading more on this a lot of people suggest its better to Index track against a strong market like S&P 500 etc. but other suggest the Mutual funds often outperform index trackers if you pick wisely. Do you guys agree with this or much prefer the safer bet of tracking against an index fund?

How do you guys spread your risk across multiple funds? Say you have one heavily on American tech like a BGifford would it make sense to have another fund on the S&P 500 or would this be defeating the purpose?

If you could recommend some good funds that have been performing well for yourselves it would be much appreciated, i've looked at the top 10's across the global markets but really looking for some advise off you guys here too

Thanks in advance

Edited by SarlechS on Monday 16th August 17:43

[Condi]

Consistent performance - not necessarily the best performance, but consistent performance.
Low fees/charges.
Tight bid/offer spread.
Good number of companies invested in - a fund overweight in a handful of stocks is not doing what you want from it.

[purplepolarbear]

SarlechS said:

Hi Guys,

I'm looking to invest a little more this year into Index/Mutual Funds. I've been dabbling in this for the last few year but not utilising my whole 20k allowance into the funds. I've got a few friends that have been doing this a while so a lot of the funds I've gone into are off the back of friends recommendations.

After reading more on this a lot of people suggest its better to Index track against a strong market like S&P 500 etc. but other suggest the Mutual funds often outperform index trackers if you pick wisely. Do you guys agree with this or much prefer the safer bet of tracking against an index fund?

How do you guys spread your risk across multiple funds? Say you have one heavily on American tech like a BGifford would it make sense to have another fund on the S&P 500 or would this be defeating the purpose?

If you could recommend some good funds that have been performing well for yourselves it would be much appreciated, i've looked at the top 10's across the global markets but really looking for some advise off you guys here too

Thanks in advance

Edited by SarlechS on Monday 16th August 17:43

I don't see any point in investing in managed funds for most people.

A share price is where it is because the consensus of people in the city think it would be worth a little more than that in a years time and there is a certain degree of risk. These people have lots of time to do things like speak to senior managers and read reports that a private investor does not have.

A tracker fund is a cheap way to diversify the investment across many shares, keeping the overall average return but reducing the risks. Costs are low because you don't need to pay someone to analyse every share.

A managed fund would also diversify the investment over many shares, and the average return should be the same for the same degree of risk. However, you are paying costs of expensive people in the city to re-analyse shares that have already been analysed by the city as a whole, which get absorbed into the fees charged by the fund and reduce your overall return.

If you are going to choose a managed fund, then I'd choose one that will support your life goals, e.g. if you plan to buy a bigger house in the next few years then consider one focussed on companies in the construction sector - if house prices increase then this fund will increase in value, so you will be able to afford the house you want (and if they decrease and the fund falls, you will still be able to buy the house as the house is cheaper). Similarly, if you plan to live abroad in future, I'd invest in a fund based in the country you want to live in.

[LeoSayer]

I make my life simple by only investing in index funds that cover the whole global market.

The one I use is Vanguard FTSE Global All-Cap, although my pension is interested in a different one due to limited range of funds.

I find financial/tax/retirement planning hard enough without bringing manager/market/sector selection into the mix. I can't predict the future and I don't intend to bet my financial well-being on my own limited knowledge.

[98elise]

I mainly choose Global funds with a good history. I basically look at their 5 year growth on H&L, then look at the companies they invest in. Currently in..

Lindsel Train Global Equity
Fundsmith
Rathbone Global

I also have Vanguard LS 100 but less than my global funds

All of those are fairly popular well known funds.

Edited by 98elise on Tuesday 17th August 12:14