Join our investing community

Index funds

Discussion in 'Investing Strategies' started by merlinnn, 9th Jan, 2010.

  1. merlinnn

    merlinnn Active Member

    Joined:
    1st Nov, 2009
    Posts:
    35
    Location:
    Brisbane
    Hi everyone,

    I am contemplating investing in an index fund for my daughter after reading a few of Grahams books! However, I am a little confused as whether to invest in an Aust or international index fund given the fact that our the all ordinaries seems to correlate fairly heavily with the Dow and Ftse, or should the decision be purely based on management fee's? This is going top be used as a long term investment to help fund my daughters education.

    Thanks in advance
     
  2. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    Hi Merlinnn

    You can choose an index fund just as a replacement to a managed fund or... create a total index portfolio. With all the bells and whistles (asset allocation, rebalancing, stock/bond ratio). Or you could use a Core & Satellite Strategy.


    Johny.
     
    Last edited by a moderator: 11th Jan, 2010
  3. merlinnn

    merlinnn Active Member

    Joined:
    1st Nov, 2009
    Posts:
    35
    Location:
    Brisbane
    Can you elaborate further on the "Core & Satellite Strategy"

    Are there any true index funds eg investing in the value of the all ordinaries or specific such as the asx 200?

    Thanks
     
  4. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    There is a lot of correlation between the Aord and the Dja currently. But not always. With a full index portfolio, something is up while something is down. And yes, MER(management expense ratio) is low.


    Johny.
     
  5. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    Core and Satellite is, using index funds as a large% core with smaller "risker" funds(eg micro cap/india/china) as satellite funds.


    Johny.
     
  6. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    Vanguard do the Asx200 as well as Colonial first state and Bankwest. And all the ETF's.



    Johny.
     
  7. merlinnn

    merlinnn Active Member

    Joined:
    1st Nov, 2009
    Posts:
    35
    Location:
    Brisbane
    Just looking at Vanguard now, I assume I would use etf's to get exposure to the satelite index's like China and or india?

    Thanks for your advice, it is much appreciated
     
  8. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    Its up to you as how many index's to choose. I love em.



    Johny.
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    If you want exposure to the ASX200 and are NOT looking to make regular additional investments of small amounts, then look at the SPDR ASX200 ETF ... ASX stock code: STW

    ... for ASX300 exposure, look at Vanguard's ETF: VAS

    If you will be making regular investments, instead look at the Vanguard managed funds: Vanguard Index Australian Shares Fund (ASX300) or Vanguard High Yield Australian Shares Fund (ASX200 ex-A-REIT, with a tilt towards higher income companies).

    Note that these funds are more expensive than ETFs ... especially if investing less than $100K.
     
  10. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
  11. merlinnn

    merlinnn Active Member

    Joined:
    1st Nov, 2009
    Posts:
    35
    Location:
    Brisbane
    Thanks for input Johny and Sim. I will be making regular contributions with initial plan to help pay for her secondary education and or uni. So my time horizon is 12 to 18 years which should do nicely.

    I think I might even look at index portfolio for myself and the wife given our limited capital for investment at the moment. I love the idea of direct shares, but realise with minimal capital and experience in the market index funds might be the go.

    Cheers
     
  12. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    We all like to fiddle( with money that is). There is nothing to stop you from; holding a Core of index fund(s) and buying small Satellites of stocks. You still get the fun of playing the markets And have the index fund(s) to fall back on.

    You would get double the experience too. All the knowlege gained would make you a better investor. Its worth a thought.



    Johny.
     
  13. Dolfinwise

    Dolfinwise Well-Known Member

    Joined:
    30th Sep, 2009
    Posts:
    47
    Location:
    Brisbane
    Exchange rate considerations

    Merlinn,

    Another consideration when deciding between Australian and International indexes is the exchange rate. When the Australian dollar falls relative to the overseas currency you are invested in, between the time of investment and redemption, you (as an Australian investor) will get a boost to the return. Conversely if the Aussie dollar rises it will have a negative impact. As you want the funds at a specific time (for your daughter's eduction) if you invest overseas you may wish to consider a currency "hedged" fund that will remove the impact of these currency fluctuations and remove the risk that the exchange rate will work against you at the time you need to redeem. For your information Vanguard has both hedged and non -hedged versions of many of its international funds. If you look at exchange traded funds hedging options are very limited however.

    Good luck
    Dolfinwise.

    Brisbane Financial Planners | Financial Advice | Financial Advisor
     
  14. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
  15. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    Vanguard Index Funds

    Vanguard is one of the biggest managed(mutual) funds in America. They only do index funds. Unfortunately we only get 10% of these in Australia. I think if I was starting out again I would use their (new) ETFs[exchange traded funds].

    Does anyone on this forum use Vanguard? What are they like and are you happy with them?



    Thanks, Johny.
     
  16. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    I use their managed funds, and am very happy with them. Very little ******** surrounding their statements, etc. All very understandable and not much evidence of effort being diverted into 'spin'. Results are as advertised.

    I'm inclined to get into some VAS to go alongside some STW. The only thing that puts me off is the very small size of VAS - only about $60m, I think.
     
  17. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Why bother with VAS if you already have STW?

    VAS just adds a further 100 shares to what STW holds - do you think that's going to make a significant difference to your returns?

    I guess there is an element of manager diversification which should decrease risk somewhat, but I don't consider either of these ETFs to have especially high management risk - they are index funds after all and management strategy shouldn't really come into it.

    I also wouldn't worry about the size of the fund ... these are index funds and size shouldn't matter much once they are above about $10m - small size only matters if the investment strategy requires a certain amount of capital to be efficient, but an index fund doesn't have a strategy other than to replicate the index.
     
  18. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    No, not expecting a significantly different return. But they do have slightly different characteristics -- ASX200 vs ASX 300, plus STW pays twice a year, while VAS pays every quarter.

    Also, when I'm putting in a large amount of money and large proportion of my worth, I can't help my have a thought to the exceedingly unlikely event that one or either of these ETFs is a fraudulent front perpetrated by Bernie Madoff's brother in law.

    I'd like to see a larger bulk of money in VAS just because I think there's more likelihood for the spot price to drift a bit from the "true" price the more illiquid the ETF, market-makers notwithstanding.