Are Index Tracker Funds a good optiopn?

noelfitz

I want to invest some money, as interest rates on deposits are low and DIRT will be high.
Are Index Tracker Funds a good option?
What maximum management fees are acceptable?

Is tracking the FTSE 100 a good choice?

Is Vanguard reliable?

Am I considering EFTs?
Please help.

arrowloopboy

Management fees ??? ,for a FTSE Tracker ???

Buy a FTSE annual(or a DAX) spread bet ,theres no need for managers and such like:eek:

Hopefully the FTSE should return around 12% in 2014,you need to work out how much profit that will generate for you with the amount you were willing to invest in a managed fund.

Take the profit prediction( in euros) , devide in into a 12% stop loss ,and buy a ftse annual ,with the calculated x amount of euros per point.

That way you only have to invest the amount of money that you are wanting to make (if the FTSE plays ball and doesn't have a drawdown of 12 % from your entry point ).

That leaves the remainder of your intended Fund investment to accumulate somewhere else.

Forgot to mention, your profits(if you make any) are tax free.

noelfitz

Brilliant reply. Thanks.
But I am concerned "Spread Bet" seems speculative, as the word "Bet" frightens me. Also I do not understand all the terms you use and what would really happen. How would I do what you suggest, who would I contact?

arrowloopboy

Before I explain in detail ,roughly how much were you going to put into the managed fund ?
This isn't been nosy ( its irrelevant as I don't know you),i need a figure to calculate what I'm on about,and weather there would be any leverage involved.

Spread betting(bless yourself) ,if utilised correctly ,can be a great way to invest / trade ,it has a bad reputation because people use it that don't know what their doing ,and don't properly understand leverage.

noelfitz

Thanks for your reply. I am scared of the idea of "spread betting" and leverage. I am not sure how much to invest, perhaps 20,000 Euro initially.

I just want a simple investment that tracks the FTSE 100 index. I am informed computer programs can do this, so fees should be negligible.

arrowloopboy

IF your scared ,walk away now.

IF not here's the mechanics.

Lets say the FTSE returns 12 % in 2014

IF you invest your 20K in a fund that tracks that , it would return 2400 euro ,less management fees and less cgt.

THe way I would do this is as follows,

Lets say the FTSE100 is @ 6700.00

and we expect to make 12% (2400 euro)

at a 1/1 risk/reward we would need a 2400 euro Stop loss devided into a 12% stop loss.

Or in simple terms, at a level of 6700,1% would be 67 points 12% is 804 points or devided into your 2400 euro stop loss ,2.85 euro per point.

HERES the trade,buy a FTSE annual spread bet ,at 2.85 euro a point( or using the above ,the appropriate amount) at the start of January .

For every point the FTSE goes up you make 2.85,for every point it goes down you lose 2.85.

HERE IS THE RISK

If the FTSE drops 12% from your entry point your out with a loss of 2400 euro.

Here's the plus side.

You only tie up 2400 euro of your 20k

Your only costs are the spread (about 30 points I think,not published till 1st of jan) that's 30 X 2.85 or 85 odd quid.

No management fees,and no tax.

The FTSE generally preforms well in Q1 and again in Q4 ,so that would give you a little cushioning if it stays true to form.

Look at the FTSE chart ,see how often it takes a peak to trough dip of 12%,educate yourself in regard to spread betting if this might intrest you.

It doesn't matter to me if you go this way or not ,its just another way to play this,rather than a managed fund.

(The 12% is both Arrowloopboys and Goldman Sachs prediction for the FTSE100 for 2014:D)
Arrow.

simongurnick

arrowloopboy wrote: »

IF your scared ,walk away now.

IF not here's the mechanics.

Lets say the FTSE returns 12 % in 2014

IF you invest your 20K in a fund that tracks that , it would return 2400 euro ,less management fees and less cgt.

THe way I would do this is as follows,

Lets say the FTSE100 is @ 6700.00

and we expect to make 12% (2400 euro)

at a 1/1 risk/reward we would need a 2400 euro Stop loss devided into a 12% stop loss.

Or in simple terms, at a level of 6700,1% would be 67 points 12% is 804 points or devided into your 2400 euro stop loss ,2.85 euro per point.

HERES the trade,buy a FTSE annual spread bet ,at 2.85 euro a point( or using the above ,the appropriate amount) at the start of January .

For every point the FTSE goes up you make 2.85,for every point it goes down you lose 2.85.

HERE IS THE RISK

If the FTSE drops 12% from your entry point your out with a loss of 2400 euro.

Here's the plus side.

You only tie up 2400 euro of your 20k

Your only costs are the spread (about 30 points I think,not published till 1st of jan) that's 30 X 2.85 or 85 odd quid.

No management fees,and no tax.

The FTSE generally preforms well in Q1 and again in Q4 ,so that would give you a little cushioning if it stays true to form.

Look at the FTSE chart ,see how often it takes a peak to trough dip of 12%,educate yourself in regard to spread betting if this might intrest you.

It doesn't matter to me if you go this way or not ,its just another way to play this,rather than a managed fund.

(The 12% is both Arrowloopboys and Goldman Sachs prediction for the FTSE100 for 2014:D)
Arrow.

Some pretty sound advice here. Essentially using spread betting to create a risk defined trade with the stop loss.
My concern with this trade though is the risk/return. As described above your max loss if 2400. But using the 12% prediction your max gain is also 2400. I wouldn't be too comfortable with risking 2400 to make 2400. BUT, you could make your stop loss a little conservative.

As for a couple of the OP's original questions:

Are Vanguard reliable? Yes, they are a big player stateside with A LOT of assets under management.

You mentioned ETF's? I would use an ETF to track an index over a mutual fund any day. Less fee's etc.

You mentioned above that you had some "fears" and were uncertain about how things work. I think your first step here should be defining your risk tolerance. Can you afford to lose this $20k? Are you ok with losing 2400 as mentioned above? Figure that out first and then let that guide your investment. Bear in mind that although you are investing in a broad based index, you would still not be truly diversified. (unless you have other investments/savings). Look up "asset allocation" online. You might be best spreading your 20k across a few different etf's so you are not so open to buying hurt if the footsie plummets.

Good luck!

ei9go

Thats very interesting.

Can I ask what may seem like a stupid question?

The 12% stop loss.

Does this mean that if the FTSE at any time in the year loses 12% from your 6700 starting point, your loss is immediate and the spread bet ends at that point?

arrowloopboy

I appreciate your concerns about my R/R,but you also have to factor in which is more lightly to happen,the FTSE to rise or fall 12%,because its a spread bet ,it can be also closed at the drop of a hat if something really bad happens,i'm not sure if this is the same for the other instruments mentioned.

The fact the OP would be tying up just 12% of his 20k is also a huge plus.

I'd have no problem putting 3% of my account into this trade come January( at the right level).

But your right to point out the above,if the o/p doesn't like the idea of spread betting he should look at something else.

arrowloopboy

ei9go wrote: »

Thats very interesting.

Can I ask what may seem like a stupid question?

The 12% stop loss.

Does this mean that if the FTSE at any time in the year loses 12% from your 6700 starting point, your loss is immediate and the spread bet ends at that point?

That's not a stupid question at all
The bet wont close unless the FTSE hits 6700 - 12% which is at 5896.00 (nicely behind the big fat round number of 6000.00)

simongurnick

arrowloopboy wrote: »

I appreciate your concerns about my R/R,but you also have to factor in which is more lightly to happen,the FTSE to rise or fall 12%,because its a spread bet ,it can be also closed at the drop of a hat if something really bad happens,i'm not sure if this is the same for the other instruments mentioned.

The fact the OP would be tying up just 12% of his 20k is also a huge plus.

I'd have no problem putting 3% of my account into this trade come January( at the right level).

But your right to point out the above,if the o/p doesn't like the idea of spread betting he should look at something else.

It essentially gives you the same advantage of trading options. Less capital outlay and defined risk than buying the instrument outright. Not bad advice at all and ultimately the risk return outlay comes down to personal preference/circumstance.
If you did want to get a bit more technical you could trade certain option positions (a short condor) that would allow you to profit if the position stayed within that range, but that sort of trading isn't for the novice investor.

bappelbe

I take it that this is the system that the radio adds are on about tax free investment in he markets. (they are charging for the seminar). Indeed the advert is on this page as I type!!

Is there a book/website that has more information on this?

arrowloopboy

FTS100 annual spread just published on IG , 6581.00/6599.00 ,that's just 18 points,cheap exposure for a 1 year bet.

bwcallaghan

What does the 6581.00/6599.00 spread represent , current value of FTSE 100 - 12% or is it what IG predict the value to be 12 months from now?

Just curious on spread betting myself

arrowloopboy

bwcallaghan wrote: »

What does the 6581.00/6599.00 spread represent , current value of FTSE 100 - 12% or is it what IG predict the value to be 12 months from now?

Just curious on spread betting myself

Those two levels are the levels you would buy or sell the FTSE100 annual bet at.
The spread is 18 points,the difference in the two ,if you were to buy that bet at 1 quid a point it would cost you 1 euro X the spread (18 points) right away ,that would be your only cost for keeping that bet open till Jan2015.

Those levels are slightly different to the live(spot) FTSE100 price ,but the annual price tracks the spot price.

bwcallaghan

Gotcha cheers for clearing that up

ixus

noelfitz wrote: »

Brilliant reply. Thanks.
But I am concerned "Spread Bet" seems speculative, as the word "Bet" frightens me. Also I do not understand all the terms you use and what would really happen. How would I do what you suggest, who would I contact?

Take your time with this. There's no rush to invest and you could lose money quickly if you don't know what you're doing.

Spread betting is betting. You make or lose money. If you bought the Cash market as opposed to a spread bet, futures contract or option, you would hold the asset. Its value would fluctuate but at least you have it.

I'd recommend starting out by reading The Random Walk Guide to Investing by Burton Malkiel as a start. This will explain a lot and may suit your investing profile.

It is difficult and can be stressful trying to time a market and manage money.

ixus

bwcallaghan wrote: »

What does the 6581.00/6599.00 spread represent , current value of FTSE 100 - 12% or is it what IG predict the value to be 12 months from now?

Just curious on spread betting myself

It means the market is at 6590 and they're taking you for 9 points either side.

arrowloopboy

ixus wrote: »

It means the market is at 6590 and they're taking you for 9 points either side.

Their ''taking'' you ? , Do you know of somewhere else we could trade for free ?

ixus

They're making a market.
They're taking their spread.

It's up to the broker/market maker to make his profit. It's up to the trader what they see as value.

It's merely an explanation as to why the quote is as such.

You can probably negotiate a better spread if you did a large amount of volume (trades) with a particular company.

arrowloopboy

ixus wrote: »

They're making a market.
They're taking their spread.

It's up to the broker/market maker to make his profit. It's up to the trader what they see as value.

It's merely an explanation as to why the quote is as such.

You can probably negotiate a better spread if you did a large amount of volume (trades) with a particular company.

Bad choice of words on your behalf so ixus,to be taken indicates been rode in my neck of the woods.

18 points ,and your expecting 700/800 points from the trade ,its about 2.5%,and no management/tax costs,i think its reasonable .

ixus

arrowloopboy wrote: »

Bad choice of words on your behalf so ixus,to be taken indicates been rode in my neck of the woods.
.

That's subjective really. It's clear we operate on different frequencies but we're going way of topic here which is unfair to the OP. Let's get it back on topic for the OP.

bke

Hi,

If you're investing and not trading then I'd say spread betting / CFDs are the wrong product as they come with an interest rate carry cost which means they're better suited for short term use. For investors (long term holding) then Index Trackers are a good option as they offer a way to gain exposure to the equity markets without having to pick individual stocks. The key point though is that trackers offer this exposure at very low fees. For long term investments fees really kill your returns.

This is a somewhat simplified explanation but for cash the returns are based on how long you invest i.e. the longer you invest the more you get back as you will get a higher level of interest. This is why you'll see lower interest rates on short term accounts than fixed term accounts, because the longer the cash is invested for the higher the interest rate you receive. So if it's ultra low risk you are interested in then there are other options to equities.

To take your questions one at a time.

What maximum management fees are acceptable? 0.50% or less for an index tracker

Is tracking the FTSE 100 a good choice? If you wish to gain exposure to the UK market then yes but be aware you will have currency risk in any non-Euro investment

Is Vanguard reliable? They invented the index tracker back in the 70's (I think) and are pretty big so yes.

Am I considering EFTs? You can invest via ETFs rather than a Funds but make sure the one you invest in is liquid otherwise you might have problems exiting and make sure your commission charge is low (0.1% is good) .

bke