Author Topic: Starting with index investing!  (Read 9567 times)

Wurfel

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Starting with index investing!
« on: July 19, 2015, 10:49:32 AM »
Hi,

I live in Belgium for now and I learnt about Mr. Money moustache a couple of months ago... I'm reading all the posts and comments now to learn some new things... Now I'm at the point I have some cash in saving accounts... I would like to do some index investing with that money... 
I have an account in a bank and they are offering 4 indexfunds

SSgA EMU Index equity (monetary European union)
SSgA Sweden Index equity
SSgA Switzerland Index Equity
SSga UK Index Equity

At the moment I have 80.000 Euro on my savings account.  Every month this account is growing with 2000 Euro.  I don't need the money for a long-long time...

What is the best to do now?

The EMU Index seems the broadest Index and the best index to invest in?  In the long term the profits are +/- the same as if you follow the MSCI world index.

Do I have to invest in more funds than the EMU index fund for example?  For me that's the most important question.  Imo in the long term it probably doesn't matter (?).  In the short term there could be some European crisis to devaluate my money, but the only thing I have to do then is stick to the plan and keep investing?  In the long term I will still have my solid returns better than most of the market?  Is that the basic rule?  And does this count equally for the S&P500 Vanguard Index compared to the SSga EMU index for example?  I could diversificate by buying some of the other indexfunds too... They are european, but independant from Euro.  Could be a good idea or not necessary?  Do I have to make an account with another bank to buy some international indexes?

Is it important to spread my investments in time?  For example Every two months I put in 15.000 Euro + every month the monthly 2000 Euro?  Or do I just put most of my money in it now and don't pay any attention to negative news about stocks for example?

Is it important to keep the monthly 2000 Euro aside to invest for example when there is a little dip or do I keep some of the 80.000 Euro to invest after a strong devaluation?

These are the first questions I think of... At the moment I'm reading the little book of common sense investing so I'm totally in to it ;-)

I'm sorry for eventual faults in language, my vocabulary is not that "big"

I will be helped a lot with the answers so thanks a lot in advance!
« Last Edit: July 19, 2015, 10:51:40 AM by Wurfel »

nobodyspecial

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Re: Starting with index investing!
« Reply #1 on: July 19, 2015, 11:55:19 AM »
Diversify - especially if you aren't in the USA - it covers you for different markets doing better and currency rate  changes.
 
I would typically have 50-60% in a US SP500 or entire US market, 20% in developed outside USA (Eu/Japan) and 20% developing (ie BRIC).
Take a look at Vanguard - do they operate in europe?

Wurfel

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Re: Starting with index investing!
« Reply #2 on: July 19, 2015, 11:59:35 AM »
Diversify - especially if you aren't in the USA - it covers you for different markets doing better and currency rate  changes.
 
I would typically have 50-60% in a US SP500 or entire US market, 20% in developed outside USA (Eu/Japan) and 20% developing (ie BRIC).
Take a look at Vanguard - do they operate in europe?

Yes I think they do!  I will take a look at it!  Thanks for the answer already.  If there are others to give an opinion on spreading in time for example or on the diversifaction subject, thanks a lot!

samuck

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Re: Starting with index investing!
« Reply #3 on: July 19, 2015, 12:20:00 PM »
Hi Wurfel, check out this blog from another Belgian investor: http://www.nomorewaffles.com/2015/07/net-worth-update-for-july-2015

I would not recommend to follow his dividend strategy, however, he has also invested in ETFs (ironically, with much more success) which you see in his net worth update - might give you some ideas for investing in Belgium.

Agree with nobodyspecial you should diversify more outside Europe.

Financial.Velociraptor

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Re: Starting with index investing!
« Reply #4 on: July 19, 2015, 01:14:02 PM »
If you choose index investing, diversify more broadly outside of EU as already suggested.  That is a one click solution to risk management for you.

You also need an investing policy statement and a predetermined asset allocation (AA) that defines your exposure to equities and bonds.

Congrats, you are moving along quite rapidly for just getting started and already closing in on six figures EU.

Wurfel

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Re: Starting with index investing!
« Reply #5 on: July 19, 2015, 04:23:39 PM »
Thanks for the kind words and thanks a lot for the answers already! I'll keep them in mind!

It seems there is not really a consensus that index investing is the best way to invest in stocks?  Is there a growing belief the actively managed funds can beat the index of the market?

Wurfel

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Re: Starting with index investing!
« Reply #6 on: July 19, 2015, 04:25:41 PM »
Hi Wurfel, check out this blog from another Belgian investor: http://www.nomorewaffles.com/2015/07/net-worth-update-for-july-2015

I would not recommend to follow his dividend strategy, however, he has also invested in ETFs (ironically, with much more success) which you see in his net worth update - might give you some ideas for investing in Belgium.

Agree with nobodyspecial you should diversify more outside Europe.

Thanks for the link and the advice!

rpr

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Re: Starting with index investing!
« Reply #7 on: July 19, 2015, 04:27:33 PM »
Thanks for the kind words and thanks a lot for the answers already! I'll keep them in mind!

It seems there is not really a consensus that index investing is the best way to invest in stocks?  Is there a growing belief the actively managed funds can beat the index of the market?
I would say it is the opposite. In fact, there is a decreasing belief that actively managed funds can beat the index.

Aphalite

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Re: Starting with index investing!
« Reply #8 on: July 19, 2015, 04:45:24 PM »
Thanks for the kind words and thanks a lot for the answers already! I'll keep them in mind!

It seems there is not really a consensus that index investing is the best way to invest in stocks?  Is there a growing belief the actively managed funds can beat the index of the market?

There's a very low chance of an actively managed fund beating the index, as you have expense and tax hurdles to get over before you realize any outperformance. Think of it like this, an index fund costs 5/100 of a percent per year, so on $100,000, that's $50. An actively managed fund can be anywhere between 1-2% fee, which is $1000-$2000, so the actively managed fund must first outperform the index by $1950 before you realize any effects over index funds.

Another huge disadvantage for active funds is that in troubled times, investors tend to withdraw money from funds, which forces the actively managed funds to sell low - and the manager could choose to sell the wrong securities. Index funds don't have this problem as it tracks by a predetermined ratio. Actively managed funds are more prone to human emotion/psychological mistakes as well, since the managers are human, while index funds are constructed using mathematical equations

There's a lot of research out there that says after fees/taxes etc, only 10% of actively managed funds beat the index they track, and there's very few that beat the index consistently. That means if you buy into an actively managed fund that has managed to beat the index in previous years, there's no guarantee that they will be able to repeat it in the future

nobodyspecial

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Re: Starting with index investing!
« Reply #9 on: July 19, 2015, 05:03:43 PM »
To make it even worse - the customers of active funds expect them to do well, Berkshire Hathaway kind of well. So money managers are looking for speculations that will make 20%, if they only do 2% better than the index they are fired anyway so they might as well gamble and risk losing 20% - after all it's not their money.

Wurfel

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Re: Starting with index investing!
« Reply #10 on: July 20, 2015, 02:41:12 AM »
Thanks.  I registered with a cheap online broker to buy some indexfunds or trackers. 

Are there other opinions about how to spread the money over different regions?  As I can read most of the people keep it very simple with a maximum of three indexfunds.  For example

1 part developped countries outside US
1 part VS
1 part emerging countries

As I understand it's a bit personal how you divide your money over the different parts (the percentage for each part)

Are there any tips to spread the money in time?  Can I just deposit it now in my selected indexfunds or do I spread them over a couple of months - year ...?

Thanks!

grantmeaname

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Re: Starting with index investing!
« Reply #11 on: July 20, 2015, 06:27:14 AM »
Your allocation among funds should come from an investment policy statement, as Financial Velociraptor suggested. Bogleheads has a good introduction to the idea, though it is somewhat US-centric.

As for when to invest it - the idea you're referring to is called dollar cost averaging. In comparison to lump sum investing, DCA minimizes the risk of you buying all your shares right before a decline; however, since the market goes up on average, DCA will lose to lump sum investing in general. Don't be too concerned about it - you're buying shares to help you over the next century, not the next year or two, so temporary declines don't really matter.

Finally, you should definitely not hold some of your asset allocation in cash just for the purpose of hoping you can jump in when you guess the market is down. Jumping in is good but in the meantime your hard-earned cash is sitting around losing its value to inflation rather than making you more money.
« Last Edit: July 20, 2015, 06:30:58 AM by grantmeaname »

samuck

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Re: Starting with index investing!
« Reply #12 on: July 20, 2015, 12:39:24 PM »
Are there other opinions about how to spread the money over different regions?  As I can read most of the people keep it very simple with a maximum of three indexfunds.  For example

1 part developped countries outside US
1 part VS
1 part emerging countries


Keep it simple -- I do 80% global, 10% emerging markets and 10% home market to overweight home market for a home bias and less currency risk and emerging markets for growth (hopefully). All low-fee ETF index trackers. But grantmeaname is right: this split should be derived from your investment policy statement and match your risk profile.

nobodyspecial

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Re: Starting with index investing!
« Reply #13 on: July 20, 2015, 03:04:19 PM »
General advice is to ignore "Home market" - if you are in a small country. The logic is that lots of people unthinkingly buy home market, more buyers means higher prices.
This probably doesn't apply if your "home market" is the USA! And in your case I wouldn't consider the whole Eu as "home market".



Wurfel

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Re: Starting with index investing!
« Reply #14 on: July 21, 2015, 11:16:09 AM »
Are there other opinions about how to spread the money over different regions?  As I can read most of the people keep it very simple with a maximum of three indexfunds.  For example

1 part developped countries outside US
1 part VS
1 part emerging countries


Keep it simple -- I do 80% global, 10% emerging markets and 10% home market to overweight home market for a home bias and less currency risk and emerging markets for growth (hopefully). All low-fee ETF index trackers. But grantmeaname is right: this split should be derived from your investment policy statement and match your risk profile.


Thanks a lot for the answers all of you!  It was really helpful!
I think I'm going to keep it really, really simple...  I'm going to put a large part of the money now in this :

Vanguard Total World Stock ETF  VT

After that I'm just doing a monthly or once in three months addition to that ETF of my savings in that period, just keeping some money for emergencies (6 months), in good an bad times... Staying cool and not worrying in the bad times, just buying :-) I think it's what MMM stands for and what he advices... It's imo the good thing to do and leaves room for a life without too much worrying about finances...

Wurfel

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Re: Starting with index investing!
« Reply #15 on: July 21, 2015, 11:35:21 AM »
I think that simplicity is also important to focus on the other important things in life...  Imagine I would have to read about financial markets regularly an change asset allocations for example like I did last weeks... I would be divorced within a couple of weeks :-) ...

Wurfel

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Re: Starting with index investing!
« Reply #16 on: July 21, 2015, 11:36:16 AM »
Your allocation among funds should come from an investment policy statement, as Financial Velociraptor suggested. Bogleheads has a good introduction to the idea, though it is somewhat US-centric.

As for when to invest it - the idea you're referring to is called dollar cost averaging. In comparison to lump sum investing, DCA minimizes the risk of you buying all your shares right before a decline; however, since the market goes up on average, DCA will lose to lump sum investing in general. Don't be too concerned about it - you're buying shares to help you over the next century, not the next year or two, so temporary declines don't really matter.

Finally, you should definitely not hold some of your asset allocation in cash just for the purpose of hoping you can jump in when you guess the market is down. Jumping in is good but in the meantime your hard-earned cash is sitting around losing its value to inflation rather than making you more money.

Your post helped me a lot about spreading in time... Thanks!

grantmeaname

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Re: Starting with index investing!
« Reply #17 on: July 21, 2015, 11:38:38 AM »
Glad to be of help!
« Last Edit: July 21, 2015, 11:52:38 AM by grantmeaname »

Wurfel

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Re: Starting with index investing!
« Reply #18 on: July 22, 2015, 10:50:20 AM »
Can I better include a total bond ETF too together with the Vanguard VT, for example 20 % bond 80 % stock?  Or is it not necessary at the moment? 

Someone has a good example of a total bond at the moment with vanguard?

grantmeaname

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Re: Starting with index investing!
« Reply #19 on: July 22, 2015, 03:07:37 PM »
BND is the total bond market ETF. Your allocation between stocks/bonds is generally something that follows from your IPS - so if your IPS tells you you should be 60/40, or 75/25, or whatever, BND is a good choice for the bonds' 40% or 25% portion.

Wurfel

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Re: Starting with index investing!
« Reply #20 on: July 27, 2015, 04:41:39 AM »
Is waiting to buy in this negative days in stock market also considered as timing the market?  Offcourse it is, but isn't it the wisest thing to do at the moment?  I'm looking at the graphs since a couple of days to invest a lump sum in VT, but the tendency is negative at the moment, so I would wait a couple of more days until losses are less severe or until there is a positive day.  In the longterm it probably wouldn't matter but isn't this "easy" profit?

grantmeaname

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Re: Starting with index investing!
« Reply #21 on: July 27, 2015, 05:29:31 AM »
There is no such thing as a tendency or momentum in the stock market. If you know that market timing doesn't work in general, you also know that it doesn't work today, in specific.

forummm

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Re: Starting with index investing!
« Reply #22 on: July 27, 2015, 07:02:39 AM »
The best time to buy is yesterday. The next best time to buy is today. The market will always go up in the long run. It will take a zig-zag approach to get there, but it will go up. Just keep buying your low-cost index funds every payday and as the years roll by your savings will get huge.

Wurfel

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Re: Starting with index investing!
« Reply #23 on: July 27, 2015, 01:57:01 PM »
Thanks both for the reminder.  I read that a couple of times already here and on the MMM website, but it still feels a bit strange when it's about your own situation.  You must have said these sentences a lot in the last years.  Anyway I put away some kind of safety money and with the rest I bought the ETF's today :-).

Thanks for your help.  Investing here in Belgium - Europe is in a very negative daylight.  Therefore my direct environment was not very supportive.  It was almost like I was putting in danger the future of my children.  But I'm glad I started and I will contribute my savings every month, that's for sure!

Greets!


Wurfel

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Re: Starting with index investing!
« Reply #24 on: July 28, 2015, 01:26:57 AM »
Can I have your opinion too about the valuta risk for my investment portfolio?

I'm investing everything in a world ETF now in USD but live in the Eurozone.  If I contribute every month the same amount in USD for the next 25 years will this effect flatten out or is this something important.
If I'm correct my whole portfolio can be down (I see my account in Euro, but payed in USD) due to some valuta fluctuations while ETF on itself is giving a positive result.  Will it be important in the long run or can I neglect that?



Thanks!

Wurfel

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Re: Starting with index investing!
« Reply #25 on: July 28, 2015, 03:26:34 AM »
Instead of VT for example I could also buy this one in the future :

Vanguard FTSE All-World UCITS ETF (Eur) traded on Euronext Amsterdam.

or maybe better : this accumulating ETF instead of the previous ETF's with Dividend :

iShares Core MSCI World UCITS ETF (Eur)

 
« Last Edit: July 28, 2015, 04:32:26 AM by Wurfel »

frugledoc

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Re: Starting with index investing!
« Reply #26 on: July 28, 2015, 06:16:28 AM »
Hi Wurfel,

I am also doing as you are and buying just VWRL.

I don't have bonds but have access to some 3% cash accounts in the UK.

My main reasoning for this is that I think it gives all the diversification I need in one ETF and also that I will find i psychologically easier to pump more money in when it drops rather than trying to decide which ETF to chose for a top up.

forummm

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Re: Starting with index investing!
« Reply #27 on: July 28, 2015, 06:52:27 AM »
Can I have your opinion too about the valuta risk for my investment portfolio?

I'm investing everything in a world ETF now in USD but live in the Eurozone.  If I contribute every month the same amount in USD for the next 25 years will this effect flatten out or is this something important.
If I'm correct my whole portfolio can be down (I see my account in Euro, but payed in USD) due to some valuta fluctuations while ETF on itself is giving a positive result.  Will it be important in the long run or can I neglect that?

In the long run it shouldn't matter much. But it is slightly more risky than investing in the currency you will be spending locally during retirement. However, the USD and EUR are generally very stable currencies, and the economies are very linked, so currency fluctuations are generally accompanied by offsetting fluctuations in stock prices. I have about half my money invested abroad. I'm not worried about it.

Wurfel

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Re: Starting with index investing!
« Reply #28 on: July 28, 2015, 07:37:43 AM »
Hi Wurfel,

I am also doing as you are and buying just VWRL.

I don't have bonds but have access to some 3% cash accounts in the UK.

My main reasoning for this is that I think it gives all the diversification I need in one ETF and also that I will find i psychologically easier to pump more money in when it drops rather than trying to decide which ETF to chose for a top up.

Thanks!  In belgium you are paying a double tax on dividend so in my case it's probably better to choose for an accumulating ETF worldwide like the ishares i mentioned above... There isn't much choice apparently in that kind of etf, but at the moment that's my first choice .... Isn't that a problem for you when investing in vwrl?

Wurfel

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Re: Starting with index investing!
« Reply #29 on: July 28, 2015, 07:41:40 AM »


Thanks forumm!  It seems in my case the double tax on dividend is more important than the valutarisk probably.  This means vanguard isn't the best choice at the moment for me.... If i don't get any information i will go for the ishares core msci probably.  There is even more emphasis on the us, but i don't really see a problem in that.
If anyone still has advice in that, let me know.... Thanks!

« Last Edit: July 28, 2015, 07:47:45 AM by Wurfel »

Wurfel

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Re: Starting with index investing!
« Reply #30 on: July 28, 2015, 08:38:30 AM »
This is the ETF I would choose then :  iShares Core MSCI World UCITS ETF

Mostly because it is in Euro (makes it easier for me probably also because I will stay in Eurozone forever probably ;-) )
Second thing is that like I can read it's accumulating and not paying dividend.  Important for me because we have a double tax on dividend here in Belgium of 2 x 25 %.
Ter is also 0,20 so okay.

Is this ETF broad enough to take as only ETF?  It's heavily weight in the US like you can read here :
(if other suggestions please let me know, would be very helpfull!) 

Geschiktheid

The iShares Core MSCI World UCITS ETF provides exposure to many of the largest publicly-traded companies in the developed world. It is best used as a core building block for investors who want to gain developed equity exposure through one fund rather than build a geographically- and/or sector-diversified equity portfolio. Although the underlying MSCI World Index has a broad geographic scope, it is heavily concentrated in the US.

The MSCI World Index is made up of global companies. Still, investors seeking exposure to the global- rather than just developed- equity market should consider pairing this ETF with some form of emerging markets equity exposure which would provide portfolio diversification.

This ETF does not pay dividends and therefore may not suit income-seeking investors.

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Overzicht

Valuations around the world have improved significantly since the 2008 financial crisis. The US- by far the ETF’s largest country exposure- has experienced a steady economic recovery over the last few years. With the S&P 500 and Dow Jones Industrial Average reaching their all-time highs in Q1 2015, the financial market nosedive in 2008 seems like a distant memory.

The US is in the midst of its longest— and slowest— economic expansionary period since World War II. And the expansion doesn’t show signs of stopping in the short-term, with unemployment staying comfortably under the FOMC’s 6.5% target, and inflation remaining below the Fed’s 2% target.

By contrast, the Eurozone recovery, though improving, remains fragile, with inconsistent economic performance across the continent. Domestic demand is still constrained by lack of available credit and high unemployment. Nevertheless, the weak euro and the fall of commodity prices – particularly energy - has alleviated some fears about Europe’s economic prospects, providing support both to consumers and exporters.

In order to reflate the economy and address the rising risks of a deflationary spiral, the European Central Bank (ECB) embarked on full-fledged Quantitative Easing (QE) in January 2015. The ECB’s combined actions, namely QE, comprehensive liquidity provision and the commitment to keep interest rates at zero for a prolonged period, are primarily aimed at kick-starting bank lending to SMEs and boosting domestic demand.

Across the channel, the UK has experienced a firm recovery. Strong domestic demand has helped support the UK’s economic expansion while the Bank of England has retained an ultra-loose monetary policy stance. Interest rates have remained at a record low of 0.5% since March 2009, although financial markets are already positioned for an increase in rates in late 2015 or early 2016. The consensus is that the UK economy should continue to grow at a healthy pace.

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Constructie van de index

The MSCI World Net Total Return Index is a free-float market capitalisation-weighted index covering 23 developed countries around the world. The index consists of about 1,600 large- and mid-cap stocks, and covers approximately 85% of the total free float of the component markets. The index is reviewed quarterly, with size cut-offs recalculated semi-annually. The universe is initially screened for liquidity, as measured by the value and frequency of trading. The median constituent has a market capitalisation of $8.7 billion. The index is heavily tilted towards the US, whose weighting of 52-56% is more than five times larger than the next highest representatives, Japan and the UK, with weights of 7-10% each. The eurozone countries make up 15-19% of the total weighting. On a sector basis, the index is broadly diversified. The top weight is financials, which makes up 18-22% of the total, followed by information technology, consumer discretionary and health care at 11-13% each. There is very little portfolio concentration, with generally no more than 10% of the index within its top 10 names. The top individual position is Apple, with a 1-3% weight, followed by Microsoft and General Electric (each less than 1%).

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Constructie van het product

The ETF uses an optimised sampling technique to try to capture the performance of its benchmark, owning a physical basket of securities designed to match the characteristics of the underlying index but not necessarily the exact stocks in the exact weights. Compared to the index’s approximately 1,600 constituents, the fund typically holds about 1,400-1,500 names. The fund uses futures for cash equitisation purposes, which helps to limit tracking error. iShares engages in securities lending and can lend up to 100% of the securities within this fund to improve its performance. The gross revenue generated from this activity are split 62.5/37.5 between the fund and the lending agent BlackRock, whereby BlackRock covers the costs involved. The fund lent out 0.88% on average over the past 12 months ending March 2015. To protect the fund from a borrower’s default, BlackRock takes collateral greater than the loan value. Collateral levels vary between 102.5% and 112% of the value of securities on loan, depending on the assets provided by the borrower as collateral. Additional counterparty risk mitigation measures include borrower default indemnification. Specifically, BlackRock commits to replace the securities that a borrower would fail to return. The indemnification agreement is subject to changes, and in some cases without notice.

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Kosten

The ETF has a total expense ratio (TER) of 0.20%, which is low compared to other funds offering similar exposure. The range for the tracking difference (-0.49 to -0.03) since 2011 suggests that annual holding costs may vary significantly from year to year. Additional costs to investors associated with trading the ETF include bid-ask spreads and brokerage fees.

Naar boven

Alternatieven

There are a number of ETF choices that provide broad exposure to global equities. Providers offering ETFs that track the MSCI World Index include UBS, Source, Lyxor, db x-trackers, HSBC, ComStage and Amundi. This accumulating ETF charges the lowest fees, with a TER of 0.20%. IShares also offers a costlier non-Core distributing version of this fund, with a TER of 0.50%.

Wurfel

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Re: Starting with index investing!
« Reply #31 on: July 28, 2015, 12:42:54 PM »
Do you see it as a problem for example that

-  It's very US based? 56 %.
-  It's very based on Large caps?  Is it important to diversify with some World small and midcap ETF?

Anyone has some experience with that?  Easiest would be offcourse to held this only ETF.

Thanks and greets
« Last Edit: July 28, 2015, 12:44:33 PM by Wurfel »

frugledoc

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Re: Starting with index investing!
« Reply #32 on: July 28, 2015, 12:51:56 PM »
I don't see a problem with it unless you are intent on outperforming the market and taking on more risk.

Small caps might not outperform in the future, or they might.   You could buy 90% vwrl and then put some into a small cap fund if you prefer.

Wurfel

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Re: Starting with index investing!
« Reply #33 on: July 28, 2015, 01:11:59 PM »
Thanks!  That's clear indeed!

You talk about vwrl...  Is it comparable with the ishares core msci world? Because vwrl is distributing dividend and that's not a plus for me...

Thanks and greets!

forummm

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Re: Starting with index investing!
« Reply #34 on: July 29, 2015, 06:28:21 AM »
Do you see it as a problem for example that

-  It's very US based? 56 %.
-  It's very based on Large caps?  Is it important to diversify with some World small and midcap ETF?

Anyone has some experience with that?  Easiest would be offcourse to held this only ETF.

Thanks and greets

By voting with their dollars, investors around the world have said that these valuations are the best ones. And they've said that 56% (or whatever it is) of the world investible equity valuation is in the US market, and that 80% (or whatever it is) is in large cap companies globally. It's reasonable to go with the wisdom of the crowds unless you think you can beat their judgments by enough to make up for the extra costs you'll incur to invest in a different way.

Wurfel

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Re: Starting with index investing!
« Reply #35 on: July 30, 2015, 01:06:16 PM »
Thanks again! 

Anyone has a proposition for a non-dividend paying (so accumulating) total world bond ETF in Euro that could be used together with my Ishares total world ETF?
It seems that it's difficult to find.  Thanks!

brainfart

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Re: Starting with index investing!
« Reply #36 on: July 30, 2015, 02:30:17 PM »
For the beginning forget about bonds and just keep it in cash. We currently have close to 0% inflation here in Europe, interest rates are at an all time low and it simplifies your investment.

While market timing is discouraged keep in mind that money invested in an expensive market will produce lower than average returns. The US market is valued very high and we had a longer than 6 year bull market. Last time that happened was around 1896-1902 or so. Lots of Europe isn't exactly cheap, either. Without a doubt someone will now tell us that "this time it's different", which according to Sir Templeton is probably the most dangerous phrase in investing. Just keep in mind that the most money will be made AFTER a crash and don't go all in with your money.

Savings rate is more important than super optimized asset allocation with 10 different funds. Keep it simple, find yourself some cheap, tax-efficient ETFs and start with 70-80% MSCI World or similar and 20-30% emerging markets. You can fine tune your investments later.

nobodyspecial

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Re: Starting with index investing!
« Reply #37 on: July 30, 2015, 02:42:11 PM »
The US market is valued very high and we had a longer than 6 year bull market. .... Just keep in mind that the most money will be made AFTER a crash and don't go all in with your money.
1 years ago it was valued very high and had a 5yr bull market, so you should have sold 1 year ago - since when it has gone up by 10%
2 years ago it was valued very high and had a 4yr bull market, so you should have sold 2 years ago - since when it has gone up by 20%
etc etc


brainfart

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Re: Starting with index investing!
« Reply #38 on: July 30, 2015, 03:08:24 PM »
Yup. And the last time that happened was just 6 years over a hundred years ago. But this time it's different.  A Shiller P/E of 27 for the USA is an awesome time to throw all your money into stocks, because historically that money could be expected to generate like 3% annualized return for the next 10 years, but this time it's different, right? P/E of 27 is cheap, even though that's way higher than the rest of the planet, but that's ok because this time it's different and the US is an exception. Besides, this time it's different.

Last time everything was different house prices were going up, up up, and before that dotcoms without a product were worth more than "real" businesses producing material goods.

I'm not saying don't invest, what I'm trying to tell a newbee is THINK, know what you are doing and what might happen in a worst case scenario, choose an AA that you can sleep well with even if the shit hits the fan and then go ahead. I am still investing new money all the time but adjusted my AA slightly. I'm not into timing the market, but I don't dislike buying stuff for less if I can.

Even if this time it's different.

« Last Edit: July 30, 2015, 03:15:03 PM by brainfart »

Aphalite

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Re: Starting with index investing!
« Reply #39 on: July 30, 2015, 03:19:23 PM »
Yup. And the last time that happened was just 6 years over a hundred years ago. But this time it's different.  A Shiller P/E of 27 for the USA is an awesome time to throw all your money into stocks, because historically that money could be expected to generate like 3% annualized return for the next 10 years, but this time it's different, right? P/E of 27 is cheap, even though that's way higher than the rest of the planet, but that's ok because this time it's different and the US is an exception. Besides, this time it's different.

Last time everything was different house prices were going up, up up, and before that dotcoms without a product were worth more than "real" businesses producing material goods.

I'm not saying don't invest, what I'm trying to tell a newbee is THINK, know what you are doing and what might happen in a worst case scenario, choose an AA that you can sleep well with even if the shit hits the fan and then go ahead. I am still investing new money all the time but adjusted my AA slightly. I'm not into timing the market, but I don't dislike buying stuff for less if I can.

Even if this time it's different.

Shiller PE doesn't really account for interest rate/opportunity cost though. Whenever it's been above 25 in previous cases, the risk free bond rate was at 5% or higher. So that means you're getting 4% stock "yield" when you buy equities whereas you can park money in bonds and get 5%.

Now risk free bond rate is 2%. A P/E of 27 means stock "yield" of just under 4%. Is that a high enough risk premium to invest in stocks? That's honestly a question an individual can only answer for themselves. I'm with the majority of the public in thinking that since I can't predict WHEN interest rates will increase (and thus driving the required stock yields up and thus P/E and asset prices down), I'll continue to invest when I have the cash

k9

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Re: Starting with index investing!
« Reply #40 on: August 04, 2015, 06:22:54 PM »
European (well, French to be more precise) investor here.

Regarding stock indexing, I invest 1/2 in MSCI World index ETF, 1/2 in stoxx 600. I think it is a good mix for a EU investor. You overweight a little the continent where you live but invest worldwide anyway.