ETF Concerns over ETFs and index funds

Hi all, this being my first post - many thanks to all the members who got together to form this particular forum on passive investing!!! funnily enough i've only just started reading up on this approach (just before the christmas break).. again, like others, having spent 10+ years on buying/selling, i am also coming to the same conclusion that it sure is hard to beat the index!

anyway, my question is to those who have actually put their hard earned $$ into the Vanguard index funds or the broad index ETFs (eg STW):

Worry #1
how do you handle the risk that these funds could be badly managed? afterall, while the funds are diversified per se, we are still really putting all our eggs into one or two baskets (eg STW and IVE). So if one of these fund management truly stuff up, then we could lose a large portion of the portfolio.

Worry #2
does Vanguard have a brick 'n mortar shop in Perth? I have only been able to get info from their website. I guess i am a bit worried about putting $$ via an online application only...

appreciate your thoughts and experiences...

 

No differently than any large sum of money in another type of investment. When you compare them I consider index ETF's to be much safer. There's no internal gearing (maybe in US ones) and you know exactly what the fund is investing in.

Can't help you sorry.

 

Why don't you order the hardcopy???

order - Vanguard Investments Australia Ltd

Cheers,

Dan

PS This is general information, speak to a FPA registered Financial Planner before making an investment decision.

 

thanks for the responses guys

ya - agree that Worry #1 is common across any managed fund. But i guess the comparison here is method (A) directly buying a list of common leading companies (say top 10) and using that to mimic the index performance.. vs method (B) putting $$ into an index fund ...

i'll have to see if there's a way to chart the last 10 years performance of a top 10 list vs index wonder if there's much of a deviation...

 

Watch these videos:
Investing Videos - IFA Films - Index Funds Advisors, Inc.

 

No, but vanguard are a good company - don't stress about online only

 

Hi Frank

thanks! ... have you been with Vanguard for more than 3+ years?

it would be great if current (or ex-) Vanguard members here could take the time the post their good/bad experiences with the fund

Regarding cost effectiveness of Vanguard (0.75% initial) vs STW (0.286% + brokerage), my calcs suggest that STW is better only if if the parcels are in portions of $10k each - for lesser deposits, Vanguard is probably cheaper in the long run. Did I miss any potential hidden costs in my calcs?

BTW, i just checked out that great thread a while back between some regulars (i think it was started by dkms on rejigging portfolio?) - GREAT thread... thanks for helping me learn!

my own plan is:

- age 35
- LOC against PPOR $100
- Dollar averaging in $10k parcels every 2-3 months
- reason is so that the 1-2 year timeframe will give me time to take stock )) of any sharp dips

asset allocation:
- STW 40%
- IVE 40%
- direct share 20% (for alpha)

For alpha above, probably go 2-3 companies. I don't know of any small caps index in oz - is there one? .. if there is, maybe that would be a better choice?

 

Might be worthwhile thinking about not D.C.A.ing and instead holding onto your cash until those 'sharp dips' which is when the best buying opportunities are.

Mark

 

Nothing really negatively correlated there to offset
The portfolio you suggest would probably go down a lot with a US recession
I suggest at least adding SLF - you can get in at a good price now,
It will also lift the dividend yield of your whole portfolio
which is always nice

Have you done the usual process of determining your risk profile
how much of a drop you a willing to take
etc

What about going to see a Fee For Service financial planner
For a small sum - it would really give you peace of mind

Re small caps index
DFA - small - has a tilt toward them
CTN - is an LIC not exactly an index for small caps

if you are using an LOC for funds
then you realise you are an aggressive investor aiming for max growth
Are you comfortable with a 30%+ drop

 

Also emerging markets - gives good return, and reduces the volatility of your portfolio

You want to optimise return, reduce volatility, and keep fees low

 

I've had Vanguard High Yield Aus Shares since Aug 2005, and had their International Shares (hedged and unhedged) for a couple of years.

I reckon Vanguard are fantastic. The focus on after tax returns is against the traditional fund grain, focussed for the investor. The online site is responsive, and the mailed doco is very clear and often a good read.

I highly recommend Vanguard as a reputable company.

The only concern is the fees, and you compared them with the SPDR listed ETF. If you ignore brokerage for STW or the buy/sell spread for Vanguard, the 0.5% difference will tend to compound. At $10k invested, the difference is only $50, but as the fund grows, 0.5% of $20k is $100 and so on.

But if you intend to invest a small amount each month, then the brokerage will bite into the ETF.

Having said that, I personally think the Vanguard fees are justifiable. I'm a fan.

 

thanks dkmc,

anyone know any good FPs in Perth?

.. ya, my plan is aggresive .. but i am trying to temper it with DCAing, and also other measure.. also why i will not use margin loans..

.. what ETFs or fund will cover emerging market?..

.. won't SLF be just as vulnerable to a US recession?

thanks Rod_WA,

will certainly read up more on Vanguard...

 

travis morien is in perth - Id highly recommend getting real advice

emerging market- DFA have a fund
Emerging Markets Trust


I think vanguard wholesale have one
Index funds - Vanguard Investments Australia Ltd
But for institutional investors - you may be able to access them via a wrap
though costs are higher

Vanguard also have international small

Ishares have IEM for emerging markets

Yes SLF wont escape a US subprime lead recession
But its getting to the point of good fundamentals-
high yields
its already dropped 25-30%
It may have a bit to go - but it is certainly better value than 6 months ago


You may want to tilt things toward asia - but thats up to you to decide

Since you are using borrowed funds - anything with <10% long term growth is out
Expect your portfolio to be volatile and accept that

Perhaps something thats more recession proof and negatively correlated is direct property - thats certainly been how my portfolio has been - my direct property has gone up a lot, despite the falling share market

Id be more comfortable setting up a portfolio with about 5-7 funds, with good reasons behind choosing them. See my posts in the rejigging thread to see the graphs of the funds I chose and why

 

Im not sure how FFS advisors have factored in ishares
Perhaps MJROSS can elaborate

Ideally we could setup a portfolio based on SPYDR ETFs and ishares
with no wrap fee
Though it would be harder to report on

 

Im unclear whether you are using a full indexing portfolio approach
or just buying some STW / vanguard

You say you are using some other measures - do you mean trading the ETF a bit, stop losses etc

I wouldnt be worried about vanguard
It probably is more successful and bigger than anything in australia
about us - Vanguard Investments Australia Ltd

You dont sound like you are in a postition to feel comfortable with investing
this money
Only invest when you are clear on all the reasons why you are investing, and have a plan for when the market drops 20% what you are going to do.
Go read a lot more, or find a planner

 

I'd advise against this. How do you know when it will bottom? Just put in a fixed amount every x days, x being larger the more risk tolerant you are.

IVE=EAFE countries (Europe, Australia, and Far East)? Any exposure to the US? Or emerging markets?

IEM is iShares Emerging Markets ETF. Tracks the MSCI Emerging Markets Index.

DFA is only for those invited. Vanguard Emerging Markets Fund requires I think $500,000 for access. Fine if you're rich, but otherwise, I'd go with IEM.

 

thanks dkmc,
yes - my plan is to set up an index tracking portfolio. Have been reading up a lot of J C Bogle-related books.
Asset allocation (esp. the modern portfolio theory-kind) is very new to me. I am still trying to learn about how to put one together. Glebe's EFT-based alternative in your rejiggin thread looks like a good starting point. But am looking for books on the subject matter before proceeding. Have also scheduled meeting with an FP to review my plan