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Indexing for the $50 billion+ Future Fund

Discussion in 'Exchange Traded Funds (ETF)' started by JIT, 22nd Dec, 2007.

  1. JIT

    JIT Well-Known Member

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  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I thought the comment near the end of the article was quite important:

    ... you don't have to be an active-only or a passive-only investor ... there is room for both in a carefully constructed portfolio - recognising that managing costs and potential downside are a very important part of portfolio management (this year's hot fund may well underperform next year - so regular reviewing is important).
     
  3. JIT

    JIT Well-Known Member

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    But it makes more sense to have most of your money in index funds, and a smaller amount in active funds, rather than the other way round...
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Sure - but that's all just part of your portfolio construction methodology and strategy.

    I does kind of defeat the purpose of index funds (ie low cost average performance) if you end up with the majority of your money in higher cost / higher risk investments (risk meaning index underperformance in this case).

    I'm quite interested in everyone's approach to their portfolio construction (eg sector/region weightings and risk exposure etc)
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    I like the very very last paragraph "David Murray provided a little bit of investment advice in the article as well. He said: "If I were just leaving school, I'd invest in an index product provided the fees were right." Surely this is not the same David Murray who spent a career at Commonwealth Bank selling active managed funds that charged fees of 2% a year to investors?"
     
  6. tasmo

    tasmo Well-Known Member

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    Hi, nicely spotted, however maybe still consistent with his career. This advice is given to school leavers with no financial experience, and is sound but conservative advice for investors. As the manager of Commonwealth Funds he was responsible to its share holders for profitability.
     
  7. Insight

    Insight Brisbane Buyers Agent

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    Yeh that is interesting :)

    I see no problem with the two though, can't blame someone for swimming in the 2 + 20 pool if they have the opportunity I think.

    It's the only advice (index and accumulate over time) I would give a school leaver as well, assuming a non imminent decline of western civilization it's really the only responsible advice you can give as a one size fits all approach to equities investment.

    We still really don't have much of a clue regarding indexing in Australia, in the US it has a much larger grab of the complete investing market.

    I read the wonderful (not really) piece of advice in a money magazine recently.. A small retail investor was asking about shares vs property for her small investment.. The advisor offered direct share picking as a choice as you should not really be afraid of shares as they can be just as robust and long lasting as property.. take BHP for example which has been around since the early 1800's.....
     
  8. Nigel Ward

    Nigel Ward Team InvestEd

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    What I'm exploring at the moment is to what extent one can mirror an index with direct shares. To be manageable you necessarily will have far fewer stocks than say the 200 in the ASX 200 but you may be able to match 85% of its makeup with say 50 stocks for example...

    If you are then taking a MOSTLY passive approach it should be manageable. (I don't think an actively managed portfolio of more than 20 stocks is manageable for the part-time share investor)...

    Just some idle musings...

    Cheers
    N
     
  9. bundy1964

    bundy1964 Well-Known Member

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    40 can be a pain to activly manage too if you do it full time.
     
  10. The Stig

    The Stig Well-Known Member

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    Asset allocation is very important.

    I don't see a problem if you use indexing for 50% of your portfolio and 40% for managed funds and 10% for speculation.

    Problem is though, if you see a Financial Planner, how many of them are going to recommend any indexing if you chose not to use a fee for service? The Financial Planner isn't going to make any money!!

    Indexing has very low fees compared to actively managed funds. So the trailing commissions wouldn't pay enough.

    Personally, I like indexing, but I haven't done anything about getting into one LOL.

    I was looking up the Vanguard site the other night. Who else does indexing with ultra low fees?
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Have a look at the StreetTracks ASX tracking ETFs as an alternative to index funds.
     
  12. AsxBroker

    AsxBroker Well-Known Member

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    Hi Stig,

    My colleague and myself are starting to using alot more indexed funds for core and some satellite funds to spice things up and we work for a bank as salaried planners (for those who are sceptics!).

    We get paid the same amount whether we recommend an index fund or an actively managed fund.

    Cheers,

    Dan
     
  13. The Stig

    The Stig Well-Known Member

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    Oh, that's good to know then. I can change my perspective on Financial Planners and index funds now :)

    I am doing my PS146 to get into the financial planning game as first choice. Second choice is the financial services industry.

    I'll be giving you a PM when I have it finished and I am looking for a leg into the industry :D

    Cheers
    The Stig.