Which Index fund?

Business Money
#1

The first baby step into investing or the core of many peoples portfolio seems to be be purchasing of an index link fund (either fund or EFTs)…

But is it that easy for travellers… I mean I’m a brit, get paid in USD and bank in HK. Looking at the chart below for UK, US & HK index’s over the past 3 years there is some big variation even with all charted in the same currency.

I thought the US index would be the safest bet, but looking over the past 3 years it seems to have performed worst… although past performance is not indacative of future performance…

My feeling is the GBP is over valued so I don’t want to change too much USD to GBP at the moment, however S&P seems a little bearish at the moment too… Is the HK index a safe bet (if there is such a thing). I also have some money in HK Midcap and that is out performing my S&P fund.

To be safe should one try investing a little in each of the UK, US & HK index’s, this would presumably offer a safer route, but in the long run reduce overall gains… :frowning:

Looking long term maybe even a portion in the China index, as over 3 years that has performed best and looking forward 10 years I would expect there economy to grow faster than anyones… although the currency is/will devalue…

My goal for this money is “to protect capital whilst looking for good long term growth”, this is intended as a core to a wider investment strategy.

So where should I stick money? :s Which index or fund do you invest in and why ?

#2

I have so far mostly choosen “safe” investments but the returns nowadays are pretty poor due to low interest rates that I have been looking for alternatives. Funds can potentially offer a better performance but also often have high costs associated with them (joining fee and yearly management fees), as well I don’t think they qualify as “protecting capital” - in the worst case you can loose all.
If you want to protect your capital you are probably restricted to fixed deposits, CDs and the like.

More recently I have been investing parts of my savings in bonds (USD) and an index-certificate (EUR) on the German DAX. In particular the latter is speculative, but historically the index has risen by an average of around 7% per year. It’s a long term investments with basically no cost, but the risk is of course a falling index and that the emitter may go broke.
I am also planning to get an index certificate on the S&P500, but probably in EUR instead of USD (there is at least one German bank which offers such).

Just remember never to put more money in risky investments than what you can afford to loose and try to diversify your portfolio based on your strategy.

#3

I have the VTSMX

vanguard total stock market index. It is the market.

Rascal is right though. If you don’t want to lose anything, buy cds. You may miss lots of profits though…

As for the US market not performing well against the other you listed, it also did not spike and dip like the others. :slight_smile:
It depends on YOUR freakout ratio. If you loved the ride up to 200, and then it dropped to 150, would you have bailed out? And if so, then you’d have missed the climb back to 200.

Really though, comparing the US index to the Hang Seng…hmm, apples and oranges??

#4

[quote=“Rascal”]I don’t think they qualify as “protecting capital” - in the worst case you can loose all.
If you want to protect your capital you are probably restricted to fixed deposits, CDs and the like.
[…]
index-certificate (EUR) on the German DAX. In particular the latter is speculative, but historically the index has risen by an average of around 7% per year. It’s a long term investments with basically no cost, but the risk is of course a falling index and that the emitter may go broke.
I am also planning to get an index certificate on the S&P500, but probably in EUR instead of USD (there is at least one German bank which offers such).
[/quote]

I understand no investment in stocks can protect capital, but a long term investment in an index will usually average a positive return. The investments into an index would be left for 20yrs as the cash is not needed.

I should have also mentioned I am basing my own stratergy loosly on the 1/3 : 1/3 : 1/3 method, however as I am more conservative I am keeping 50% savings in cash, 25% in fixed deposits/bonds, etc. and have 25% to play with on more speculative investing. Of this 25% I am wanting to plant a large portion into index linked funds to achieve a higher than average return. I believe this is going to return a higher return that I would myself by hand picking stocks…

Ultimatly I will leave myself with some money to play individual stocks.

Interesting you are looking to invest in both the US & German index. Presumably you are originally from German and have desires to return there one day, so this is the reason for this investment. The investment into S&P is interesting, is this because you consider it a more stable index, less open to fluctuation ? or do you consider this speculative and are hoping for good returns ?

Myself I have invested some into the UK index, and some into the S&P these I consider less speculative. I already have some invested in HK Midcap which seems to performs better than the HK index, but is more speculative.

I am now just toying with the idea of planting some in the China index, I understand this is speculative but I do feel it will outperform most if not all index’s over the next 10 years… Am I loco ? :loco:

#5

[quote=“jdsmith”]I have the VTSMX

vanguard total stock market index. It is the market.
[/quote]

I see it is even more broad than the S&P500 and tracks the market closer. From this you are suggesting that you only consider investing in the US index ? and do not/would not consider any others.

[quote=“jdsmith”]As for the US market not performing well against the other you listed, it also did not spike and dip like the others. :slight_smile:
It depends on YOUR freakout ratio. If you loved the ride up to 200, and then it dropped to 150, would you have bailed out? And if so, then you’d have missed the climb back to 200.
[/quote]

Not so worried about the ‘freakout ratio’ my goal is to take some money and drop it into a index linked fund, and pretty much forget about it for 20years, so I likely would not have bailed, although I potentially may have sold waited until the upturn and bought in again. Even transferred to another fund temporarily, which would not have attracted transaction fees (i believe)

[quote=“jdsmith”]
Really though, comparing the US index to the Hang Seng…hmm, apples and oranges??[/quote]

I would not say apples and oranges, more like red delicious and granny smith :wink: I have always liked the taste for red delicious but I am getting a taste for granny smiths :smiley:

#6

[quote=“jdsmith”]I have the VTSMX

vanguard total stock market index. It is the market.
[/quote]

Checking out your VTSMX, if you are looking for something more speculative with possible short term pain, but hopefully long term gain maybe look at VMGRX Vanguard Midcap growth…

I would not bet the farm on something like this, but a percentage why not. Myself, I am willing to take some more risk with a portion of my capital for better growth and like the idea of investing in Mid sized companies… once a company gets too big its growth is always going to slow (OK so there are always some exceptions)

#7

[quote][quote=“Connel”][quote=“jdsmith”]I have the VTSMX

vanguard total stock market index. It is the market.
[/quote]

I see it is even more broad than the S&P500 and tracks the market closer. From this you are suggesting that you only consider investing in the US index ? and do not/would not consider any others.[/quote]

I invest in foreign companies, but as yet, not foriegn indexes…waiting for Iraq to come on line. :slight_smile: I believe the US market will lead the world for the forseeable future and yes, most of our dough is there.

[quote=“jdsmith”]
Really though, comparing the US index to the Hang Seng…hmm, apples and oranges??[/quote]

I would not say apples and oranges, more like red delicious and granny smith :wink: I have always liked the taste for red delicious but I am getting a taste for granny smiths :smiley:[/quote]

Hmm, I’d have to read a lot more than I do now to debate that point…but seems to me that the HS is hooked so close to China, that if/when China implodes, industry by industry, the HS will be worth…well, a lot less than it is now. Just my HO…but like I said, I’m not much up on China right now stock wise…

#8

JD, are you from the US ? If so I think this re-enforces that most, even myself included will invest in their own ‘homeland’, for me FTSE, Rascal DAX and yourself US.

I was curious if this was affected by where people currently reside, or even where one plans to retire, but it seems not. For instance I have no plans to go back home, yet I still invest/save there… Do we invest ‘at home’ just because it feels safer ?

You mean in stability or growth ? Whilst I would agree that is it a very stable market, looking at the chart above it obviously is not leading in growth :smiling_imp:

#9

[quote=“Connel”]

You mean in stability or growth ? Whilst I would agree that is it a very stable market, looking at the chart above it obviously is not leading in growth :smiling_imp:[/quote]
Over a two year period? I’d be interested in seeing the same chart, but stretched back a few more years.

#10

One thing I’m curious about is the benefits of ETFs relative to buying into an index fund. I’ve noticed on the Vanguard site that one can buy their index funds or buy ETFs through a brokerage account opened with them. When and how would buying ETFs be superior to buying into a straight index fund?

#11

altruistfa.com/etfs.htm

has a listing of the pros and cons.

I my opinion the pro’s are you can buy and sell directly on the stock market. The market determines the price of ETF.

As oppose to the mutual funds which are traded in a limited market.

It has been from my experience that some index funds don’t even perform as well as the index they are suppose to follow. So if you have time to do the research just buy the companies you are interested in the index.

#12

That’s a similar if not the same strategy I am looking at.

Seems reasonable. Hand-picking [individual] stocks isn’t an option for me either, I don’t have the knowledge (and nerves) to do that. As well my strategy is long term, not “quick cash”.
Investing into a fund will offer a certain degree of diversification and the active management does the work for you, but it comes at a price.

Yep, that’s correct.

Historically both indexes have performed very well over the past decades, so adding the S&P500 to my portfolio is more a matter of diversifying but also securing against any fluctuations of the DAX. Of course I also hope it will yield good returns. :slight_smile:

No, you are not loco. Emerging markets, namely BRIC (Brazil, Russia, India and China) are also on my short-list. Since I consider them highly speculative I will however not invest too much into them.

[quote=“ac_dropout”]It has been from my experience that some index funds don’t even perform as well as the index they are suppose to follow.
So if you have time to do the research just buy the companies you are interested in the index.[/quote]
That’s what I read, too, i.e. only very few match or even outperform the index and add to this the high cost of funds and they become less attractive.
However rather than investing in the stocks that make up the index why not buy an index certificate? They will represent the index exactly at virtually no cost.

#13

[quote=“ac_dropout”]http://www.altruistfa.com/etfs.htm

has a listing of the pros and cons.

I my opinion the pro’s are you can buy and sell directly on the stock market. The market determines the price of ETF.[/quote]

Myself I will buy EFT’s if I have a large cash lump sum to invest. Whereas for my monthly savings plan I still invest in more traditional funds. If you were to invest the small monthly amount into an EFT the cost of the trade alone would outweigh a few years of the funds management fees. Most monthly investment plans allow you to purchase with 0% subscription fee & if redeemed after 3yrs there is also no redemption fee.

#14

I’ve been looking at buying into one of Vanguard’s index funds, but I’ve run into a practical problem that many here may have experienced. I’m a US citizen living in Hong Kong and have been looking at Vanguard’s US site. The US site says that everything on it is for US resident investors. They require a “verifiable” US residential address, and it seems that payment must also come from within the US.

I could of course use my parents’ address and write cheques on an account I still have in the US. I could top up the account from funds in HK before writing cheques to Vanguard. But is that legal? When they say “verifiable address,” does that mean they actually do some checking? Do they call when the account is first set up? Could I send those US bank account cheques from HK directly to Vanguard, or would they consider me a non-US resident if I did so? Should I go to the international site instead? I would much prefer the US site since quite a lot of the funds available on it aren’t on the international site. Has anybody else dealt with this before?

#15

[quote=“Jive Turkey”]I’ve been looking at buying into one of Vanguard’s index funds, but I’ve run into a practical problem that many here may have experienced. I’m a US citizen living in Hong Kong and have been looking at Vanguard’s US site. The US site says that everything on it is for US resident investors. They require a “verifiable” US residential address, and it seems that payment must also come from within the US.

I could of course use my parents’ address and write cheques on an account I still have in the US. I could top up the account from funds in HK before writing cheques to Vanguard. But is that legal? When they say “verifiable address,” does that mean they actually do some checking? Do they call when the account is first set up? Could I send those US bank account cheques from HK directly to Vanguard, or would they consider me a non-US resident if I did so? Should I go to the international site instead? I would much prefer the US site since quite a lot of the funds available on it aren’t on the international site. Has anybody else dealt with this before?[/quote]

You can buy them through an online account as well.

I use scottrade

#16

Just had a quick look at Scottrade. US residents or US citizens abroad can use them. Do you have all your mail from them sent to Taiwan? Are there any problems with that?

What are the pros and cons of buying into a Vanguard index fund through a company like Scottrade instead of directly from Vanguard? How much do you pay in transaction fees with Scottrade when buying index fund shares?

#17

[quote=“Jive Turkey”]Just had a quick look at Scottrade. US residents or US citizens abroad can use them. Do you have all your mail from them sent to Taiwan? Are there any problems with that?

What are the pros and cons of buying into a Vanguard index fund through a company like Scottrade instead of directly from Vanguard? How much do you pay in transaction fees with Scottrade when buying index fund shares?[/quote]

I have my mail sent to my brother’s house.

The initial fee was 7 dollars…and I now have an automatic investment thingy in place…and TBO I don’t know if there is a fee! :blush: If there is, using scottrade, it’s 7 dollars every time…

#18

I’m using Vanguard and all is well (though I haven’t done much tax stuff since I started 3 years ago :blush: , that might end up being a problem, I don’t think so though).

To answer your last question, yes. I’ve delt with it before. I called them and stuff first and they were real nice and told me what to expect. I was suprised at how easy it was. Basically you have an account and an address you can use back home (I’m using my mom’s). Then you can do everything else online. I make my investments via wire transfer from my bank back home (so I just fill that up first). When you start an IRA (like I did) you first investment needs to be at least 1000US I think, it can be smaller after that.

I think I was lucky about the timing I had when I started, but I’m at 12.7% for the 1 year return rate on the SP500 index fund.

They’re customer service is really cool too. It looks like they have a way for me to call toll free from here (I’m about to now).

Oh, and it’s legal. You just need to be a U.S. citizen.

#19

If your money is in an IRA then there should be no tax ramifications yearly.

If it is a traditional IRA, then you’ll have to pay taxes when you take the money out (at whatever the age limit is–59? or if you want to make a down payment on a house the first time). If you are putting money in a Roth IRA, then you paid the taxes the year that you made the investment and the money is supposed to grow tax-free after that.

However, if you have money invested in, say, an index fund or a managed fund outside of an IRA then you will have taxes to attend to every year.

Others on the board can correct me if I am wrong, but I believe that you have to pay capital gains taxes on any money you make (dividends the funds pay out) every year when you file your taxes.

Vanguard, Fidelity, and all the other mutual fund companies send out tax forms each year for you to use when you are filing your taxes. Of course, you can also access this information online.

Perhaps the taxes on the money made from capital gains might fall under the overseas exemption. Still, you should be reporting it and filing as part of your yearly taxes.

I don’t have all the answers, but you might want to look into this a bit more at some point. :wink:

Best of luck!

#20

To help get this back on track…

[quote=“Jive Turkey”][quote=“Connel”]

You mean in stability or growth ? Whilst I would agree that is it a very stable market, looking at the chart above it obviously is not leading in growth :smiling_imp:[/quote]
Over a two year period? I’d be interested in seeing the same chart, but stretched back a few more years.[/quote]

The chart shown was past 3yr performance… however as analysts suggest past performance is not indicative of future performance.

To take this a little further I had stuck some cash into the HK midcap on the 11th July prior to starting the thread. To date S&P has returned 0.81% and HK Midcap has returned 4.44%

As this seemed to be performing well I just recently (28th July) dropped some more into HS FXI25 (2838) which is an EFT for the China index, a collection of the top 25 companies in China… this is pretty irratic but today sitting on a 3.6% return in less than 2 weeks…

I expect a pull back soon as the HK index is now trading above the 15,000 mark… so would expect profit taking. I’m interested to keep tracking this more long term… if the better performance continues I will invest more here.

I guess the real question is, do you think China’s ecomony will continue to grow, will it continue to out perform 1st world nations in growth anyway… if so presumably this will translate into larger growth in the local index too.