Join our investing community

Newbie with an index fund question

Discussion in 'General Investing Discussion' started by Chris500, 12th Sep, 2018.

  1. Chris500

    Chris500 New Member

    Joined:
    12th Sep, 2018
    Posts:
    4
    Location:
    Melbourne
    Hello
    I have $5k I'd like to invest every month in an Australian index fund. I don't want to watch it or see what happens to it I just want to set and forget - except for transferring the $5K. I'd just like to look at it in 10 years time and see how much money is in there and then decide my next step.
    I don't want to use a broker. I'd be happy just logging into Comsec and purchasing each month. Is it cheaper to do it this way or to buy into a managed fund and ask them to do the purchasing each month and pay them fees.
    Feel free to ask me more questions if that helps get a better answer.
    And I'm really grateful for any advice. Thanks!
     
    twisted strategies likes this.
  2. Hodor

    Hodor Well-Known Member

    Joined:
    17th Sep, 2016
    Posts:
    258
    Location:
    hodor
    ETFs and commsec (or other online broker) will be the cheapest way, if you had a decent starting balance ($100k+) then an unlisted fund might be similar and allow BPay to be more set and forget.
    Which Australian Index fund are you looking at?
     
    twisted strategies likes this.
  3. Chris500

    Chris500 New Member

    Joined:
    12th Sep, 2018
    Posts:
    4
    Location:
    Melbourne
    Hi
    thanks for your reply.
    I have no idea about which Australian index fund. I thought I would start researching and see the difference. I really don't know the types I like the idea of EFTs and Commsec as it makes me feel like I'm actually doing something - there's a psychological part to it.
    I don't know if my logic is right but I was thinking that if I invested monthly I would be better off than dumping it all in at once. I suppose it depends on the opportunity cost. What would I do with the money that isn't invested in the index?
     
    twisted strategies likes this.
  4. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    3rd Nov, 2013
    Posts:
    900
    Location:
    QLD
    Chris500,

    welcome to InvestChat ,

    i bought VAS in 2011 ... i was a novice then and bought them as an 'insurance policy ' against ( my ) poor stock selection )

    please read the tiny details in EVERY ETF you research , those tiny details can make a BIG difference to you .

    since you are using Commsec ( or an on-line broker in general )

    consider buying different ETFs ( at different times ) if an opportunity presents

    for example i bought MVB ( 7 major Oz banks ) in 2017 when the banks were being hammered but divs were being propped up

    Dividend Reinvestment Plan

    Dividend Reinvestment Plan - DRIP

    this concept might help you ( i do this SOMETIMES )

    PLEASE NOTE some stocks ( and ETFs ) let you partially DRP say 50% cash divs 50% shares as well that might also be useful for you

    Compounding

    Compounding

    the markets are near 10 year ( plus ) highs there is a possibility the markets ( and ETF prices ) will trend lower in the next 2 years , but there is NEVER a guarantee on that

    for holding cash ... i have an 'at call ' account interest calculated daily , BUT instantly available ... less interest than a term deposit but no 'break fees' either .. a compromise to be sure , but i wanted flexibility , what you should choose must depend on YOUR priorities .

    managed funds ( i don't hold any ) are not all bed BUT they do have to produce the returns in their 'golden moments ' not survive on decades of excuses .

    another factor in investing decisions is your sleep patterns ( sleepless nights worrying over past decisions will usually lead to extra poor decisions )

    making comfortable decisions will help you stay alert and more confident

    cheers
     
  5. Chris500

    Chris500 New Member

    Joined:
    12th Sep, 2018
    Posts:
    4
    Location:
    Melbourne
    Hi
    thanks for your reply.
    I like the idea of buying different EFT's depending on what's happening at the time. I'm curious about the details in the EFT - I'll have to look into that. Thankyou for the advice.
    And I definitely keep money "at call" - that's the bit that let's me sleep at night. I have a few months living expenses at call. If I didn't have that I would be a nervous wreck!

    Now to do some research on EFT's. Any good one that you would suggest starting with?
     
    twisted strategies likes this.
  6. RS Gumby

    RS Gumby Active Member

    Joined:
    24th Jan, 2018
    Posts:
    37
    Location:
    Australia
    Welcome Chris500
    I've just started investing in ETFs, have a look at VAS & VGS

    Cheers
     
  7. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    3rd Nov, 2013
    Posts:
    900
    Location:
    QLD
    if you are talking about RESEARCH ( rather than buying this week )

    look deeply into MVW ( i do NOT hold this but am watching it ) look at the re-balancing and the white papers about the theory and diversification , this will not suit everyone but MIGHT suit you .

    the only international ETF on my watchlist list is IKO ( a bet on a unified Korea in the next 10 years ( again this will not suit everyone )

    since you are new to the market and the 'blue chips are under pressure this year ( out of cycle to the rest of the top 200 stocks ) maybe VLC and ILC ( i hold neither of these but will be considering them if there is a sizable market downturn )

    and if ILC or VLC appeal MVB ( i hold this one ) might be worth a look ( the 7 major Oz banks .. LOTS if downside risk in these .. but also not some long term opportunity after the pain ).

    i would wait until the XJO ( ASX top 200 ) dips below 6000 for your first DABBLE ( i suggest small first until you have more experience or the XJO slips under 5700 whichever comes first )

    you MUST try to resist panic ( and implied selling pressure )

    while there is a possibility of a correction ( XJO dips below 5715 ) this calendar year , there is also the possibility of a further rally to 6400 maybe even 6700 this calendar year .

    credit is slowly tightening there might be increased pressure to lower dividends paid

    TAKE CARE
     
    RS Gumby likes this.
  8. Hodor

    Hodor Well-Known Member

    Joined:
    17th Sep, 2016
    Posts:
    258
    Location:
    hodor
    That is the part people struggle with the most.

    There is plenty of research into lump sum investing VS dollar cost averaging (DCA). In short lump sum investing offered superior results over DCA. There are different methodologies for DCA however so this discussion could be a book. There is the psychological factor also, what if you lump summed in and tomorrow is GFC 2.0? DCA is often seen as the safest in terms of risk vs returns vs psychology.

    IMO the beautiful thing about indexing is the simplicity and not needing to take a view on what is happening. This assumes you are indexing the whole market, or close to it, at cap weighting (ie for the Australian index you talked about investing in asx200 or asx300). As soon as you drift to a sub set, such as an industry based one, or a non cap weighted index (i.e. MVW) you lose the simplicity factor, effectively become an active investor and have decreased tax efficiency with higher turnover than cap weighted indexes. Long term active investors tend to have terrible results vs the index - there are lots of reasons for this which are unavoidable. Mathematically active as a group must under-perform index investors as a group (again a book in itself).

    Just understand what you are up against when making active decisions. Lots of very smart people come up with explanations that sound perfectly reasonable yet often (and conveniently) ignore some key things. Active funds make the money with the associated advertising a spin budgets associated with them.

    The simple broad cap weighted indexes have the lowest costs and least pitfalls.
    A brief list off the top of my head - VAS, STW, IOZ, a200

    I could go on and on and on. There are too many questions in this thread already so I am going to hide for a bit. Plus I'm sounding too boglehead like.
     
    Chris500 and twisted strategies like this.
  9. twisted strategies

    twisted strategies Well-Known Member

    Joined:
    3rd Nov, 2013
    Posts:
    900
    Location:
    QLD
    Hodor ,

    not that many ( open ) Bogleheads here , so the mindset has not been over-used here .

    index ETFs have their place ( undoubtedly ) but i am trying to tweak the extra edge ... my investing time is short ( and am well short of the BRW rich-list )

    i bought VAS ( in 2011 ) SLF ( in 2011 but have since exited ) QFN ( in 2012 and have since taken some profit ) and IEM ( in 2011 , and since exited ) ( in index/sector ETFs )

    however index funds look much better at the low end of a cycle ( unless your favourite colour is red )

    being mentally prepared for a low point in the market cycle will not be wasted in the long term , but terrified to move can be very confidence sapping .

    so the problem for the novice is experience v. the ability to improve timing ( in a volatile market the index might easily swing more than 1% in a day ... and that can be a help over 10 years )
     
  10. Chris500

    Chris500 New Member

    Joined:
    12th Sep, 2018
    Posts:
    4
    Location:
    Melbourne
    Thankyou everyone for all these comments.
    All very good information that I appreciate from each of you..
    Your responses made me think it's worth taking a moment to reflect on what I'm trying to do and look at what suits my personality.

    I know I like my sleep too much so I'll keep it simple. I also am happy to wear the highs and lows over a long period of time and take my money at some future time.

    For that reason it makes sense for to me to use commsec (or similar) and buy an index that covers the market (rather than a subset). I'll buy in small(ish) chunks every two months and keep the balance that I want to draw from in a high interest at call account.

    So I can check in every two months and see how it's all going knowing that one day I could log in and see a graph that's pointing down. That's when I have to stick to my plan and purchase my next chunk and then turn my computer off and don't look again for another 2 months. Sounds good in theory.

    Here we go - wish me luck!

    And good luck to all of you (bogleheads included)!
     
  11. DInvestor

    DInvestor New Member

    Joined:
    7th Oct, 2018
    Posts:
    1
    Location:
    Sydney
    Hi Guys, Great forum, first post. I am a newbie but been using Stockspot. What do you think about them? I know I am paying fees with the expectation that they cherry pick the best ETFs, but that is because I am very new into investing... I would like also any 'signal service' (tell you when to get in and out) if there is any you can recommned to start getting involved with shares, why they recommend entries and exists. I think that is a good way to learn when you are on limited time.
     
    twisted strategies likes this.