Index vs. Managed Funds

[ASXNoob]

Another noob question here. I am considering placing some money in an index fund, maybe an ETF or something especially with the market at 50% of its peak over a year ago. I have read that the index usually outperforms managed funds. Now my first question is, if large companies struggle to beat the index, what chance do we have trading ourselves? Because the only reason you would trade is to try beat the index right?

Another query i have is the bear market situation, i've tried to have a quick look at whats happened in the past, and usually after a big fall, the index jumps back up fairly quickly...are there any key differences in the market this time that may change things?

Please excuse my ignorance :

 

[Sunder]

Re: Index vs Managed Funds

I'm gonna second the question without adding too much. Well, no, I'll add some random ponders.

The only thing I came up with, is that managed funds have their hands tied by the percentage they need to have in stock at any time. Where as we could have gone all out or even shorted, a managed fund that says 95% in stocks at any time, needs to stick by that.

On top of that, if someone withdraws $1m after a rout, they fund manager has to sell shares at the worst possible time.

I also think a good TRADER can beat the index, but a good investor couldn't by a significant amount. I think the difference is, a trader can avoid the falls, where as an investor looks more at the long term value, and doesn't see a couple weeks of falls as significant.

Myself, I had enough of trading, got burned badly and now I'm out of a job, I'm eating my trading money. So when I'm ready, and when I think the market is ready, I'm just going to dump my money into an index fund, and just keep adding savings there. The indicator for me is not share price, but economic action.

 

[MrBurns]

Re: Index vs Managed Funds

I'm just going to dump my money into an index fund, and just keep adding savings there. The indicator for me is not share price, but economic action.

Money in the bank = 7% no risk - Money in Index Fund = ???

 

[drsmith]

Re: Index vs Managed Funds

Another noob question here. I am considering placing some money in an index fund, maybe an ETF or something especially with the market at 50% of its peak over a year ago. I have read that the index usually outperforms managed funds. Now my first question is, if large companies struggle to beat the index, what chance do we have trading ourselves? Because the only reason you would trade is to try beat the index right?

Another query i have is the bear market situation, i've tried to have a quick look at whats happened in the past, and usually after a big fall, the index jumps back up fairly quickly...are there any key differences in the market this time that may change things?

Please excuse my ignorance :

A managed fund is typically disadvantaged when compared to an index fund because of higher fees. From the investors perspective this difference has to be made up by the managed fund's investment strategy before it can perform better than the index fund.

A safer strategy than trying to pick the bottom would be to invest small amounts of your capital at regular intervals, say monthly. This would average your entry costs but would not be practical for small amounts due to the brokerage costs. I note however that at least one of the major banks offers an online share market based investment account which has a cost structure better suited for small regular deposits than a stockbroker.

 

[ASXNoob]

Re: Index vs Managed Funds

Money in the bank = 7% no risk - Money in Index Fund = ???

Thats why the moneys in the bank atm but im guessing the interest is going to fall and the market must be nearing the bottom if not already? But im hearing a lot about volatility, is this characteristic of past bear markets?
I guess its all a question of when to buy in.

 

[drsmith]

Re: Index vs Managed Funds

Money in the bank = 7% no risk - Money in Index Fund = ???

If, economically speaking the world does end as we know it, the only option will be gold under the bed and big eonugh artillary to defend it.

 

[MrBurns]

Re: Index vs Managed Funds

Thats why the moneys in the bank atm but im guessing the interest is going to fall and the market must be nearing the bottom if not already? But im hearing a lot about volatility, is this characteristic of past bear markets?
I guess its all a question of when to buy in.

But the advantages would be growth ??? and higher returns ???

If so then you probably wouldn't buy in now ???

 

[Sir Burr]

Re: Index vs Managed Funds

The index funds, is it possible to easily enter and exit them daily or weekly?

Cheers SB