Help me decide which index funds in which to invest

December 4, 2014 2:56 AM

I have some money to invest (greater than $10,000). I’d like to gain exposure to the stock market. It seems index funds are a good way to go. Please recommend some specific funds or products which I should look into. FWIW I am in Australia.

So, I have a large chunk of money that I’d like to put into equities. I’ve read in several places that investing in index funds can provide simple, low fee, diversified exposure to the market. However, I’m not entirely sure which specific funds I should consider. I like the idea of an exchange traded fund in that it provides very good liquidity and transparency, but I’m not opposed to non-ETF’s (I wouldn’t need anything more than daily-liquidity). I am in Australia, but am happy to invest the money outside of Australia. I'm partial to buying the US index just because I've held US stocks in the past.

I’d also like some tips on the mix of funds I should hold. This would be my main exposure to equities, with the remaining portfolio made up of cash, property and alternative investments. The fund would be held on a long-term basis (say greater than 10 years).

My default plan would be to just buy an index fund over the S&P 500, but it feels like this may be a bit simplistic. I could certainly do this, but I’d also like to consider things like if I should buy the Australian index, sector funds, etc.

Thanks for your help.

posted by cestlavie to Work & Money (8 answers total)

I'd also ask this question on /r/personalfinance. You'll get a lot of good answers. They have a FAQ too, but it might be too US-focused for you.
posted by devnull at 3:30 AM on December 4, 2014 [3 favorites]

For overall simplicity, diversity, and low cost, you can't really do better than Vanguard Total World Stock ETF.
posted by Durin's Bane at 5:32 AM on December 4, 2014 [5 favorites]

Your goals, risk tolerance, time horizon, and tax situation should all be considered, however Durin's Bane has the simple answer: pick a couple Vanguard ETFs for broad exposure and low cost. I believe a lot of studies say the one variable that's the best predictor of long-term gain is low expenses.
posted by achrise at 6:36 AM on December 4, 2014 [1 favorite]

If all you want is equity exposure, it's fine to do something as simplistic as buy a single stock index fund or ETF. That's the whole point of index investing, simplicity. Pick the lowest fee choice that's convenient and be done with it.

I'm in the US and known nothing about Australian investment process. Be aware though that if you buy a US index fund, unless you take special measures you are also effectively making a bet on the US dollar vs. the Australian dollar. That's been surprisingly volatile. There may be special Australian funds you can buy that give US stock returns with the US dollar risk hedged out. If that's done right it should add small extra fees to the fund (0.1%?) and let you plan your finances in your local currency.
posted by Nelson at 8:37 AM on December 4, 2014 [1 favorite]

I looked for an ETF in Australia for you (I don't live there). There is the "Vanguard® MSCI Index International Shares (Hedged) ETF", symbol VGAD, which provides exposure to non-Australian markets, and is currency hedged, which means that the performance of the Australian dollar will not affect (for better or worse) the value of the investment. (See the "Download the VGAD Profile" PDF for details of what companies and geographie are included.) You'll see this is about 2/3 weighted to the US, and provides exposure to Europe etc. as well.

You seem to already know this, but don't make the mistake of investing very much in your local equity market when you live in a commodity-heavy economy such as Australia or Canada, since performance can differ drastically from international markets as a whole.
posted by sylvanshine at 10:37 AM on December 4, 2014

Best answer: I'd also ask this question on /r/personalfinance.

Specifically /r/AusFinance for Australian answers. One of the most recent questions is about buying Vanguard low-cost index funds.
posted by Harvey Kilobit at 2:54 PM on December 4, 2014

Vanguard Total Index (VTI) has significantly outperformed Vaguard Total World (VT).
posted by Johnny Wallflower at 7:27 PM on December 4, 2014

Response by poster: Thanks all for the excellent tips. The Australian finance Reddit looks like a really good resource. I'll check it out and ask some questions there too. I'll probably end up going with one or more of those Vanguard funds as well (it looks like the people at Reddit approve).
posted by cestlavie at 4:19 AM on December 5, 2014