Index funds

Jimbosun · 16 December 2017

Hey Guys

This question may have been asked before, but what is the process of investing in an index like the all ords, ASX 200 or an overseas index?

I have recently read the bearfoot investor and Unshakable where they both talk about investing in funds like these.

What's the starting point for a beginner? Get an online trading account and then what?

We are looking at long term investment of 25 years and want the whole compounding interest to do it's thing.

Happy to hear the steps recommend, thanks in advance.

Value Collector · 16 December 2017

Jimbosun said:
Hey Guys

This question may have been asked before, but what is the process of investing in an index like the all ords, ASX 200 or an overseas index?

I have recently read the bearfoot investor and Unshakable where they both talk about investing in funds like these.

What's the starting point for a beginner? Get an online trading account and then what?

We are looking at long term investment of 25 years and want the whole compounding interest to do it's thing.

Happy to hear the steps recommend, thanks in advance.

There are a couple of ways to go about it, but the easiest way is probably to buy shares in an exchange listed fund, look up asx code IOZ, that is a fund listed on the ASX by a company called ishares (blackrock).

that way you can buy of sell your holding just as you can any other other share, but don't let that trick you into trying to "trade" the market, just steadily buy shares over time and reinvest your dividends.

Jimbosun · 16 December 2017

Value Collector said:
There are a couple of ways to go about it, but the easiest way is probably to buy shares in an exchange listed fund, look up asx code IOZ, that is a fund listed on the ASX by a company called ishares (blackrock).

that way you can buy of sell your holding just as you can any other other share, but don't let that trick you into trying to "trade" the market, just steadily buy shares over time and reinvest your dividends.

Cheers mate, just had a look at them, they are currently trading at $24.75.

To get my head around this concept a little more, can you clarify that this company and others like it, buy and hold stock in all of the companies in say the ASX 200 or 500? If so do they payout dividends based on the dividends paid by the companys they hold?

Trying to get my head around their share price as if it takes in an index does that mean there share price would fluctuate up and down at the exact same pace as the market as a whole?

Appreciate the help.

Value Collector · 16 December 2017

Jimbosun said:
To get my head around this concept a little more, can you clarify that this company and others like it, buy and hold stock in all of the companies in say the ASX 200 or 500?
.

Basically yes, their goal is match the returns of the index, and this is largely done by holding a portfolio of companies that roughly matches the index.

If so do they payout dividends based on the dividends paid by the companys they hold?

Yes, they pay out dividends every 3 months, based on the dividends they have received over that 3 months.

Trying to get my head around their share price as if it takes in an index does that mean there share price would fluctuate up and down at the exact same pace as the market as a whole?

Yes there share price should follow the index pretty closely because the can control the supply and demand of their shares, but either forming or breaking up shares.

This video explains how they can create more shares or reduce the number of shares to influence the market price of their shares, If the share price is above the index they will create more shares ad sell them, and if to many people are selling and forcing the share price below the index, they will buy the shares and break them up back into their original state, that process is called creation and redemption.

So_Cynical · 16 December 2017

Jimbosun said:
Cheers mate, just had a look at them, they are currently trading at $24.75.

To get my head around this concept a little more, can you clarify that this company and others like it, buy and hold stock in all of the companies in say the ASX 200 or 500? If so do they payout dividends based on the dividends paid by the companys they hold?

Trying to get my head around their share price as if it takes in an index does that mean there share price would fluctuate up and down at the exact same pace as the market as a whole?

Appreciate the help.

Index Tracking funds track the index, they have a market maker that has buy and sell orders within a few cents of where the index is at any given time...they track up and down.

Some funds use synthetic means to get exact exposure to whatever they are trying to achieve, index funds on the whole (i believe) do not use derivatives to mirror an index, most will simply hold the constituent stocks of the index in the appropriate quantity's.

Index funds and funds in general take their management fees from the dividend stream of the stocks they hold and then pass on the rest to the shareholders.
¬

cutz · 17 December 2017

Have a look at State Street's ASX200 listed fund, ticker code STW.

Jimbosun · 24 December 2017

So_Cynical said:
Index Tracking funds track the index, they have a market maker that has buy and sell orders within a few cents of where the index is at any given time...they track up and down.

Some funds use synthetic means to get exact exposure to whatever they are trying to achieve, index funds on the whole (i believe) do not use derivatives to mirror an index, most will simply hold the constituent stocks of the index in the appropriate quantity's.

Index funds and funds in general take their management fees from the dividend stream of the stocks they hold and then pass on the rest to the shareholders.
¬

Thanks mate, appreciate the advice.

Joules MM1 · 24 December 2017

"..if the price of the individual flowers go up so does the price of the bouquet.."

does this chart suggest undervalued, at a discount-to ?

Jimbosun · 24 December 2017

Joules MM1 said:
"..if the price of the individual flowers go up so does the price of the bouquet.."

does this chart suggest undervalued, at a discount-to ?

View attachment 85333

You've lost me?

Joules MM1 · 24 December 2017

is the etf at a discount to the index?

Jimbosun · 24 December 2017

Joules MM1 said:
is the etf at a discount to the index?

Got it, thanks mate

Index funds

Jimbosun

Value Collector

Have courage, and be kind.

Jimbosun

Value Collector

Have courage, and be kind.

So_Cynical

The Contrarian Averager

cutz

Jimbosun

Joules MM1

Jimbosun

Joules MM1

Jimbosun

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Index funds

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