Risks of putting all your money in an index fund

groundhh · 12 May 2008

hello all.
this is my first post here i have been reading some threads on here and it seems like a great forum.

i just have a question regarding my parents superannuation. they were advised by a financial planner to invest the full amount of their superannuation in a vanguard S&P 300 index fund. my question is does this not lack diversification in terms of the actual fund? i realise they will have a small amount invested in each of the top 300 aussie shares but i am wondering if vanguard was to go bust would my parents have any claim over the individual shares say bhp or whatever that make up the s&p 300 or would they have no claim?

so i guess to sum it up i am wondering if this seems like a good idea to invest the entire superannuation into the one index fund? because although the investment would be diversified in terms of the 300 individual shares, for one they are only australian shares and two it is all through vanguard so if vanguard collapsed i am not sure where they would stand?

thanks in advance for any help any of you can offer

explod · 12 May 2008

groundhh said:
hello all.
this is my first post here i have been reading some threads on here and it seems like a great forum.

i just have a question regarding my parents superannuation. they were advised by a financial planner to invest the full amount of their superannuation in a vanguard S&P 300 index fund. my question is does this not lack diversification in terms of the actual fund? i realise they will have a small amount invested in each of the top 300 aussie shares but i am wondering if vanguard was to go bust would my parents have any claim over the individual shares say bhp or whatever that make up the s&p 300 or would they have no claim?

so i guess to sum it up i am wondering if this seems like a good idea to invest the entire superannuation into the one index fund? because although the investment would be diversified in terms of the 300 individual shares, for one they are only australian shares and two it is all through vanguard so if vanguard collapsed i am not sure where they would stand?

thanks in advance for any help any of you can offer

I think if you have a good look at what you have written you have to some degree answered your own question.

Your parents would be well advised (and I cant' give advice by the way) to visit at least two other financial advisers before making a decision. The other thing people forget is that often with some enquiries there are members of the family, cousins, uncles, a wise old aunt, or even some long term friends who can give them alternate ideas. Us Aussies tend not to admit our lack of knowledge to family and friends and this is a very big mistake. Money or the presevation of it is one of the most imprtant aspects of our lives, yet time and again we talk of it in wispers so speak.

Happy · 12 May 2008

I cannot answer your question, but did you try to read their Product Disclosure Statement?

There should be some information on what happens when things go wrong.

intheblack · 23 May 2008

If you wish to diversify across index funds, which I think is a wise idea (not to improve their returns, but to avoid the risk that the company running the fund could collapse), I suggest an excellent alternative might be the SPDR S&P/ASX200 fund, which is an ASX-listed index fund with the code STW.

The advantage of STW over the Vanguard fund is that STW's fees are considerably lower, which translates to better returns over the long run.

Hopefully as people begin to realise that the index fund is undoubtedly the smartest way to invest, more companies will create index funds. This would create a competitive marketplace, reduce fees, and allow us to diversify risk across additional companies.

But for now, it's Vanguard and STW...

Risks of putting all your money in an index fund

groundhh

explod

explod

Happy

intheblack

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