Index Fund vs Stocks

Post by **Dennis Ng** » Sat Dec 10, 2005 10:03 am

Andrew you said"looking for investment securities that provide an average of 10% return and probably more for a period of 10 years. Is index funds the appropriate choice in terms of

1) stability (less risky than stocks but more risky than bonds)
2) cost (less loading fee and management fee compared to unit trust)
3) return (higher than bonds but lower than stocks)

Is there any factors to consider beside the above critieria when choosing what to invest ?
And is there avenue for people in Singapore to invest in US index funds ?"

My comments:
it depends on which index you chose and invest over which period of time.
A guy who invested in the Japan's indes over 15 years from 1989 to 2004 would still have lost money as the stock index was much lower after the crash in 1989.

Anyone invested in U.S. index from 60s to 1980 might not make any money as U.S. stocks went through a very long period of "going no where".

yes, index fund might be lower in cost. No, it does not mean that an average of 10% returns is expected.

Before you start investing, things to consider include:

1. do you have any debt that you need to pay interest of 5% or higher. If yes, your first priority is to pay off such high interest debt first (as every dollar of repayment "guarantee" you returns equivalent to the interest you pay.

2. after paying off debt, make sure you have sufficient just in case fund that can last 6 months of your expenses. DO not invest any of this money.

3. any excess money you can consider investing.

4. before investing consider:
a. your investment objective - for income or capital gains?
b. your investment time horison - for 5 years? 10 years?
c. your risk profile.
d. asset allocation - don't put all your eggs in 1 basket.
e. regular review (at least once a year to see what changes to be made).

Any index funds here?
I understand that some index funds from Vanguard is distributed by OCBC
Commerzbank Asset Management also have some index funds. I understand these are not very popular yet. If you want S'pore Index funds, then STI ETF is available (it is traded like a stock, so usual stock trading commissions is applicable).

Cheers!

Dennis Ng