Managed Funds Minimum investment and dollar cost averaging

Hi,

I am thinking of investing somewhere between $5,000-10,000 in a managed fund. I am about to turn 19 and intend to invest the money for at least 10+ years. I really like Vanguard's High Growth or Growth fund, but their minimum investment is $5,000 and I do not have several bundles of $5,000 to be able to dollar cost average into the fund. (As far as I know, the market is a bit shaky at the moment and I thought dollar cost averaging would be the best bet.)

Hence, I was also looking at netwealth (Global Specialist High Growth), which has a minimum of $1,000, but has higher fees. (Vanguard has 0.90% management costs while netwealth has 1.14+%.) The advantage of this option is that I have enough money to average into the fund (maybe with, say, several bundles of $1,000-2,000 every 6 months). Member's Equity also had a minimum of $1,000, but had fees at 1.66%.

I am yet to find a fund with a minimum between $2,000-4,000 that has a high growth option and also reasonable fees.

I can see three options:
1. Invest with netwealth immediately and dollar cost average into the fund.
2. Invest with Vanguard immediately without dollar cost averaging.
3. Save up more money until I am able to dollar cost average into Vanguard.

What option do you guys think is best? Do you think there is anything crucial that I have missed?

Thanks.

 

Perpetual have a lower initial purchase of Vanguard funds. Either $2000 with no follow ups, or $1000 buy in with a $1000 regular savings plan.

Australian
http://www.perpetual.com.au/investors-fund-overview.aspx?PortfolioID=650

Global
http://www.perpetual.com.au/investors-fund-overview.aspx?PortfolioID=40




Johny.

 

The networth funds are not index funds. Fees will be higher.




Johny.

 

Wow, I didn't know Perpetual did that kind of thing! This is an excellent initiative.

There are two versions of "Vanguard International Shares Index (Hedged)". Do you know why the returns are slightly different?

http://www.perpetual.com.au/investors-fund-overview.aspx?PortfolioID=40

http://www.perpetual.com.au/investors-fund-overview.aspx?PortfolioID=626

Also, do you think it is worth taking the higher management fee (nearly double the fee) solely for the ability to dollar cost average?

 

The holdings of Vanguard international index fund;

The Perpetual Wealthfocus started on Oct 2003.
The Perpetual Wealthfocus Advantage started on Nov 2008.

The different start date has changed the average annual return.



Johny.

 

In the regards of fees. Try to minimize all costs as much as possible. Fees compounded over a lifetime add up to a huge ammount. If an index returns say 12%: an index fund gets say 11.7% minus .5% fees equalling 11.2%.
An active fund charging 2.5% fees has to make 13.7% just to equal the index fund. Maybe it can beat the index this year, or next year. But to continuing to get more than 1.7% above the index. Not a Chance.... Unless there is a whole lot of Risk you don't know about (2006 REITs leveraging).

You can also save money by not using a financial advisor. While I would not tell you to do this, you (may) learn something from one. I have had 8 in my life and they all tried to flog product. I've learnt more from the internet and books.

Advisors can add up to 4% for fees. That's a big hit, if you are starting out. And they won't be promoting index funds.

Is the market going up or down. Don't know. Dollar costing regulary over your lifetime will reward you.


Johny.

 

Thanks.

In that case, do you think it is worth taking the higher management fee that Perpetual charges solely for the ability to dollar cost average? (i.e. I am trying to compare Perpetual's Vanguard fund, with the lower minimum investment, and investing in Vanguard directly)

 

I'd be inclined to put my savings into a high rate online savings(Ubank) account until $5000 was reached. Then invest directly into Vanguard.

I would then save each $1000 to put in regularly.


Johny.

 

Just some salt into dollar cost averaging

What's this dollar cost averaging for us? Could it work for us in 20 years? Maybe or maybe not! What's the catch rather than the benefit? If we can avoid the catches we just could get the benefit.

First we should know it is a special type of “formula investment”. In a predominantly rising-market experience, the results from such a procedure were certain to be highly satisfactory, especially since they prevented the practitioner from concentrating his buying at the wrong times.

If you just did your analysis based on the history data from 1929 to 2000, the average indicated profit in this period is fantastic. Needless to say, in some instances there was a substantial temporary depreciation at market value. So it was declared that “No one has yet discovered any other formula for investing which can be used with so much confidence of ultimate success, regardless of what may happen to security prices, as Dollar Cost Averaging.”

However while sound in principle, is rather unrealistic in practice, because few people are so situated that they can have available for common-stock investment the same amount of money each year for, say, 20 years. We know there are the fluctuation and most of us just could not hold their positions tightly.

As all of market practice, at last you have to pass some psychological tests to hold what is logically sound. The monthly amount may be small, but the results after 20 or more years can be impressive and important to the saver. The boom is great for it and then bear would average it down. When do you start your dollar average and could you hold toughly at the worst time such as the time since the April or when your personal finance turns into south?

 

Wdongli,
You can have two types of money to invest; a windfall( lotto, inheritance) and wages. A lump sum windfall is best invested at the bottom of the market. Wages however, are paid over the investors lifetime. Perhaps 'Dollar Cost Averaging' shoul be replaced with 'Lifetime Enforced Saving'. Most people only get wages. Most people spend all their wages. Electronicaly removing a fixed percentage of ones wage and investing it, requires no dispiline. It is accumulation that creates wealth.



Johny.

 

If you are referring to the Vanguard LifeStrategy Growth / High Growth funds, the minimum investment is $5,000 however the minimum additional contribution once it is set up is $100 via BPay. You could open the account with $5,000 and deposit $100 per week via BPay for the next 50 weeks.

 

"Lifetime Enforced Saving?" Sound OK to most of us but definitely it is not a good way. What's the people's free will? What's the feeling after a decade flat price or worse 40% gone in GFC? How many people at their retirement age lost too much?

People have to grip on the lucks belong to their generations with sound protection. "Lifetime enforced saving" is too hard and few can really do so. The market fluctuates and if you buy at the wrong time, all of saving means burning on fire. Saving, gearing, deleveraging, wages, price, and more need to be concerned and balanced. Absolute right assertions, as "Lifetime Enforced Saving" as too good to be true, would lead into disasters.

Communism is very good in theory but in practice it destroyed any nation which holds it for future. We are humans and always make mistakes. Wise people make mistakes but never fall down in the mistakes. Clever people try to do thing perfect right without good enough protection for their errors, which usually cost them more.

All of my mistakes are not that I don't save but I was greed when the market was hot. I would not join any "lifetime enforced saving" since at different life stage the things and focus should be different. Wage is lovely since it is kind of bond investment. Could we get other type of bond investment? Actually my rental covers about 30% of my income. It was the result of gearing when the market hate the house in 1994/1995.

Too many say we could not buy at bottom but all of big winning are the results from the sense of and buy at the bottom. I want to lock the money in the way to the peak and put the money into market when no one wants.

Look around and look at the history, could you find anyone who could make fortune just saving for life and live based on the money he could touch physically? We need to take the risk with enough protection since fortune is in the risks.

Seriously saying what I have got from the market much more than the saving and wages can leave to me even after I have made a lot of mistakes. We make mistakes but we should not jump from one extreme to another one, which never work. We need to go against the crowd, the cheerful or tearful warriors at the peak or in the ruins.

Life has not a formula which we could follow and get what we want(life logic is not formula but the rules). It is exploration, which means something would surprise us. When the surprise is negative, we should be not in the hell and when it is positive we could accumulate more than anyone else.

Why do you listen what funds tell you? Have you read "the intelligent investors?" Some believe cost average is one way as value investors but it is not if the underlying conditions are broken. What is the underlying conditions? Buy more at bottom and sell more at the peak with the protection of the margin of safety!

Generally saying everyone has his special situations and his own personality. What strategies you should follow in your life should be in stages. It doesn't depend on our financial resources and what we believe right but on our workable financial equipment in terms of true knowledge, experience for wisdom, and temperament to be patient, conservative, disciplined, analytical, and self-reliant. Could lifetime enforced saving make us to be so? The possible outset is we all lose the guts for life and tie us on the money only. Is it all for life?

 

Value averaging - Wikipedia, the free encyclopedia





Johny.

 

I've thought about this, but the once off $5,000 seems a bit overweighted compared to the smaller $100 weekly additions. Do you think this factor can be ignored and that the market (by which I mean the 'growth' and 'high growth' market) is good value at the moment?

 

Have you considered Vanguard High Dividend ETF (ASX -VHY)?

No minimum purchase (other than your brokers minimum) with each unit worth about $48.

Still managed by Vanguard and a much lower fee (i think just 0.4% per annum).

 

I did a calculation, and the percentage of fees for investing in the ETF would be higher than the managed index fund when brokerage costs are taken into account (even though both products are run by the same company). I believe this is because the amounts I am investing are too small.

 

Another option is to take whatever amount you have free from each paycheck, and deposit it into a high interest savings account (eg ING) until you have a larger amount to invest.

Consider allocating some cash to self education. A few books on investing can be very worthwhile.

Also perhaps consider direct investing in shares. The management costs in managed funds can be substantial.

 

Thanks for the advice.

 

Whats your brokerage costs $19.00 ?

Whats the minimum you are looking at investing and over what period i.e. Monthly, Quarterly?

With the index fund and the BPAY of $100.00 as a minimum it would seem low

 

Yes $19.95 I think.

Minimum lets say around $15,000 in total, by dollar cost averaging monthly or semi-annually.