Safest index investment methods similar to shares?

[Tradestation]

I have learned that investing in the stock market is not one of my best skills. First I tried trading and lost thousands. Then I tried investing in a diversified portfolio and fared better although 2 compaines went broke and I again lost thousands. When the banks around the world started going broke I chickened out and sold. I don't like tenants so I won't be going into the housing market.

This is where I need your help. I would like to reinvest in an index this time around. Are there really safe instruments around that can be sold/purchased just as quickly as shares and have no way of collapsing ? I don't really know how they are set up, but I wouldn't want them to be organised by some company that can go broke one day and the instrument dissapears off the ASX along with my money. Nor a product that forces me to sell in years from now.

Thanks for your advice.

[Krusty the Klown]

SPDR S&P/ASX 200 FUND (STW) is a listed index fund, that tracks the ASX 200, basically it mirrors the makeup of the index, so you get the same exposure and dividends, the same performance, as close as possible anyway.

There are also index managed funds on most investment platforms tracking the ASX200, but there are entry and exit fees, and the ongoing management fees are higher, it also takes longer to get in and out as opposed to direct shares.

There is also Ishares which are listed investment companies, the same as STW. I know they do cover global markets also.

[beamstas]

if you keep losing thousands maybe the stock market isn't for you? :(

[Tradestation]

Krusty thanks for the reply. I looked up SPDR and it seems to be company of some kind. So these ETFs are somehow linked to this company aren't they? What exacly will happen if this company dissapears or goes broke with massive debts?

Beamstas, I think you are correct, but I'm not sure what else I can invest in. I don't like real estate and I don't trust any businesses looking for investors. I know nothing about finding good companies even after reading countless books. You need to read between the lines which I can't do.

[peterh]

Vanguard Australia have recently released some ETF's (Australian and international).

If Vanguard, State Street Global Advisors or Barclays went under I'm not sure what would happen to their index funds. If is possible that the funds within the indexes are separated from the rest of the companies assets, but I just don't know.

There are risks with all share based investments. One way of reducing this risk somewhat would be to purchase ETF's from each of the index providers. I think putting your money under a mattress is a bigger risk.

[MichaelD]

Last time I looked Vanguard required $500,000 to invest in any of their index funds.

In all seriousness, given the OP's risk intolerance perhaps his best investment would be in a bank term deposit fund. Less return than an index fund, but for deposits of <$1 million they are government guaranteed if the bank goes broke. The only risk is that of the Australian government going broke.

[MrBurns]

SPDR S&P/ASX 200 FUND (STW) is a listed index fund, that tracks the ASX 200, basically it mirrors the makeup of the index, so you get the same exposure and dividends, the same performance, as close as possible anyway.

There are also index managed funds on most investment platforms tracking the ASX200, but there are entry and exit fees, and the ongoing management fees are higher, it also takes longer to get in and out as opposed to direct shares.

There is also Ishares which are listed investment companies, the same as STW. I know they do cover global markets also.

Who runs STW and how do they get paid ?

[peterh]

Last time I looked Vanguard required $500,000 to invest in any of their index funds.

In all seriousness, given the OP's risk intolerance perhaps his best investment would be in a bank term deposit fund. Less return than an index fund, but for deposits of <$1 million they are government guaranteed if the bank goes broke. The only risk is that of the Australian government going broke.

Vanguard retail index managed funds can be purchased for $5000. Vanguard ETF's can be purchased like any share on the ASX. Theoretically you could spend only a few hundred dollars on an ETF.

[peterh]

Who runs STW and how do they get paid ?

State Street Global Advisors:

http://www.spdrs.com.au/

They get paid via management fees of around 0.3 - 0.4%pa (depending on the ETF).

[MrBurns]

State Street Global Advisors:

http://www.spdrs.com.au/

They get paid via management fees of around 0.3 - 0.4%pa (depending on the ETF).

Thanks so is that the same as Vanguard ? risk is similar ?

[peterh]

Thanks so is that the same as Vanguard ? risk is similar ?

Vanguards Australian ETF has a similar fee, though tracks a slightly different index I think (ASX 300 as compared to ASX 200). I would expect the risk of a Vanguard ETF to be similar to a SPDR ETF. I haven't read either companies PDS's though as I can't be bothered, so be aware of that.

[MrBurns]

Vanguards Australian ETF has a similar fee, though tracks a slightly different index I think (ASX 300 as compared to ASX 200). I would expect the risk of a Vanguard ETF to be similar to a SPDR ETF. I haven't read either companies PDS's though as I can't be bothered, so be aware of that.

Thanks for that, I think it may be a better way to go if you're risk tolerance is low.

[peterh]

Thanks for that, I think it may be a better way to go if you're risk tolerance is low.

I would think that index ETF's are a lower risk option than individual direct shares. If your risk tolerance is low though then any share based investment may not be appropriate. Over the last 2 years the ASX 200 has halved in value so any investor with a low risk tolerance wouldn't have enjoyed that ride (most investors didn't enjoy that ride).

Low risk investors might need to stick to term deposits as MichaelD suggested. Over the long term returns possibly won't be as good as index funds though, so as you can see nothing is straight forward.

[MrBurns]

I would think that index ETF's are a lower risk option than individual direct shares. If your risk tolerance is low though then any share based investment may not be appropriate. Over the last 2 years the ASX 200 has halved in value so any investor with a low risk tolerance wouldn't have enjoyed that ride (most investors didn't enjoy that ride).

Low risk investors might need to stick to term deposits as MichaelD suggested. Over the long term returns possibly won't be as good as index funds though, so as you can see nothing is straight forward.

I'll probably just leave it in the bank then buy property when the times right.

[Pager]

I have invested in STW for a while and its my biggest holding and about the only stock i have as a long term hold, i also buy more every few months and reinvest all dividends.

IMO and from my own research, its the best way to get exposure to the whole ASX200, it easy to get into and its easy to get out of, always a good depth of buyers and sellers and it mirrors the index very well and mirrors the equivalent dividend yield.

Your not going to get the big returns you can potentially get by buying single stocks but your also not going to get burnt if a single stock gets smashed or goes belly up even if it is in the ASX200 so STW holds it

As to safety, Comsec were pushing it to clients a few months ago on a capitol guarantee basis (conditions attached), now IMO, if Conservative CBA are pushing it on that basis it speaks volumes for the manager State Street.

[So_Cynical]

Index funds will track the index, there fore require the fund/share holder to
be the manager...too many people consider an index fund to be a hands off
managed investment, and its the complete opposite.

[canaussieuck]

Index investing is a totally acceptable and potentially very profitably way to put your funds to work, consider the following chart of the S&P 500 and the moving average on it.

Now ask yourself, do you have the discipline to trade a system based on this?

CanOz

[Tradestation]

Index investing is a totally acceptable and potentially very profitably way to put your funds to work, consider the following chart of the S&P 500 and the moving average on it.

Now ask yourself, do you have the discipline to trade a system based on this?

CanOz


No. My analysis of nearly all trading systems is that they do not work over extended periods. I have used 30 years of data and expensive software (Tradestation). After nearly 2 years of constant data analysis I now believe that good traders of more than one decade experience posses a natural gift.

[canaussieuck]

No. My analysis of nearly all trading systems is that they do not work over extended periods. I have used 30 years of data and expensive software (Tradestation). After nearly 2 years of constant data analysis I now believe that good traders of more than one decade experience posses a natural gift.

So its got nothing to do with the systems you are testing?:confused:

CanOz

[Trevor_S]

Thanks for that, I think it may be a better way to go if you're risk tolerance is low.

If you aren't prepared for the market to go down 50% then shares aren't for you.


I'll probably just leave it in the bank then buy property when the times right.

When's the "right time" ? After your convinced we're out of hard times, that things are "on the up", full employment etc ? I think at that stage your will have missed the boat.

The only way I have ever made money from the stockmarket is to invest when others are fearful and be fearful when others are greedy, when others are being greedy, I accumulate cash for the next "fearful" opportunity. The only time I have made money from the property market is from bare ass'd luck, I don't understand it at all and why I mostly stay away from it, only having a small resi holding. That said with the restrictions in Super coming up, I can see resi real estate taking off (not for any fundamental reason though) http://www.dixon.com.au/dixon/News.aspx?a=33&s=33&c=1110 but then from memory your an ex com. RE so you should have more insight then most ?

To the OP, perhaps something like ARG (or better yet STW as mentioned), using something like a value averaging strategy. (http://groups.google.com/group/aus.invest/browse_thread/thread/84df0ba5a3ae8385/b5eec973f100bb11?)

Anyway, it's early morning and I am off for a 50km ride on the "pushie" :D

[Krusty the Klown]

Krusty thanks for the reply. I looked up SPDR and it seems to be company of some kind. So these ETFs are somehow linked to this company aren't they? What exacly will happen if this company dissapears or goes broke with massive debts?



One thing to look for in a pooled investment is what is the structure? If the pooled funds are in the form of a company then if the management puts the total assets at risk you lose all your capital.

If the pooled funds are in a trust structure, which most managed funds are, then the management company's assets are totally separated from the actual investment funds. The assets in the fund, while the trustee has control of them, cannot be used in the management company's business. In effect they are quarantined in the fund. The manager must invest the funds as per the trust deed's mandate, in this case an index.

So if the management company goes broke, the investment funds are still intact, and can be distributed back to the beneficiaries, or investors. Or a different manager appointed to manage the funds.

If you use an LIC as an investment fund, then your capital invested is at risk the same as if you bought direct equities. Structurally, LIC's are different to ETF's, though they can offer the same benefits.

So if your concern is bankruptcy risk, it seems the trusts would be safer. You would have to read the PDS or prospectus of each entity to be sure though i.e. read the fine print.

[peterh]

I came across an article on the Vanguard website today discussing indexing, ETF's and risk which might be relevant:

http://www.vanguard.com.au/personal_investors/news--commentary/market-update/market-update_home.cfm?item=constructing-portfolios-with-etfs&WT.mc_id=si

[ems]

I'm also new to shares and have been wondering if it would be best to buy individual shares or use an Index. I have looked at both Vanguard Aussie Shares and STW. If one wanted to contribute say 1k a month into a fund which would be the best in terms of fees etc?

I'm kinda leaning towards Vanguard but STW looks pretty good too. Hmmmm decisions decisions

[So_Cynical]

I'm also new to shares and have been wondering if it would be best to buy individual shares or use an Index. I have looked at both Vanguard Aussie Shares and STW. If one wanted to contribute say 1k a month into a fund which would be the best in terms of fees etc?

I'm kinda leaning towards Vanguard but STW looks pretty good too. Hmmmm decisions decisions

1K a month into STW using Comsec as your online broker would cost u 19.95 or through
Bell about 15 dollars....so u could cut your costs in half straight up by putting 2k in every
2 months....the STW thread can be found here http://www.aussiestockforums.com/forums/showthread.php?t=14461

[peterh]

I'm also new to shares and have been wondering if it would be best to buy individual shares or use an Index. I have looked at both Vanguard Aussie Shares and STW. If one wanted to contribute say 1k a month into a fund which would be the best in terms of fees etc?

I'm kinda leaning towards Vanguard but STW looks pretty good too. Hmmmm decisions decisions

Managed Funds are probably better for regular investment plans. ETF's are probably better for larger investments less frequently. Perhaps look at Vanguards Index Managed Funds.

[cutz]

This is where I need your help. I would like to reinvest in an index this time around. Are there really safe instruments around that can be sold/purchased just as quickly as shares and have no way of collapsing ? I don't really know how they are set up, but I wouldn't want them to be organised by some company that can go broke one day and the instrument dissapears off the ASX along with my money. Nor a product that forces me to sell in years from now.

Thanks for your advice.


If you want to invest in an index but not via a fund all I can suggest is to download a copy of the ASX20 constituent list, then in an excel spreadsheet record the market cap of each, total market cap, percentage of each constituent of total market cap then from there you can work out how many shares of each company you need per 100K or whatever you’ve got. Anyhow once you have the basic sheet set up you can play around with it to suit your needs.

BTW, there are probably flaws in the above so please DYOR, and if anybody else has a better method or suggestion let us know, indexing has always interested me but not via a fund.