Index fund investment strategies

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4th Feb '15 by adriand

4 comments 11974 reads

Hello everyone,

I recently started my investing experience with an index fund that's +90% equity. I would like to know more about investing strategies and would appreciate any book/ website you can recommend.

Also, I was thinking to set myself a target of 15% increase (in one year or more, since there's a commission for withdrawal before the year ends), after which to withdraw the money, wait until stocks fall, then invest again. Would this be a good idea?

Thank you,
Adrian

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Adriand

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4 comments

Edward Croft

4th Feb '15

Hi Adrian, We are very much a DIY website here, but much more focused on direct stock investing strategies than index investing. You can read a few of the Stockopedia team's books for free here www.stockopedia.com/books/ - the value investing book is a good place to start.

Regarding index strategies - shooting for 15% per year is very difficult in indices... which may average much lower growth rates. Personally I'm very biased against index investing as I believe the popular indices are becoming oversold and overfollowed - there's plenty of research to suggest that a bubble is forming in popular indices like the S&P 500 due to the massive weight of money blindly following the index.

The history of investing has shown that when a strategy becomes over-followed, it tends to underperform. Index investing is definitely the strategy du-jour... and that makes me bearish. There are though probably tens of thousands of "Bogleheads" who will vehemently contradict my own argument and claim anyone who doesn't invest in indices is a muppet. I've got all of John Bogle's books and love them, but I'm just not a buyer of Vanguard products.

The important thing is to DYOR and read as much as possible !

Edmund Shing

4th Feb '15

Hi adrian,

I believe that both stockpicking and index investing strategies have their place for the long-term investor, much as I have great respect for Ed.

On the index strategy side, you could look at two simple strategies which have oputperformed over the long-term:

- Momentum investing - see http://www.optimalmomentum.com/ for great explanations of how this can work for indices;

- Low Volatility index investing - see here http://monevator.com/how-to-invest-in-low-volatility/

That will give you a good start.

On the targets, 15% is very high and essentially random. I would certainly not go for this type of approach... A more reasonable long-term expectation of returns from equities should be much lower...

Edmund

cig

4th Feb '15

As I read it, the OP doesn't seem to want 15% annualised return, but a simplistic reversal to mean strategy (buy randomly, sell when +15%, buy back when cheaper, repeat). The problem is the strategy gets stuck in cash the first time there's no "when cheaper" moment, if the price goes up and stays there after an exit. The temptation is then to buy back when more expensive, possibly resulting in a lower return than buy and hold.

adriand

12th Feb '15

Hello everyone and belated thanks!

@Edward: Thank you for the thorough comment. I've found this board after searching through many others and it seemed like the right place to ask for Europe related stocks. I chose the 15% after looking at previous performances of the Austrian ATX index, but I understand your concern. The stocks went down last years in CEE because of the crisis in Ukraine and maybe that led me to assume 15% growth is possible.

@Edmund: Dual Momentum Investing is highly praised on Amazon. Thanks for sharing the link, many new sources of info came from asking on this forum.

@cig: that is exactly what I meant. As you mentioned, my investment actions are 'simplistic' and 'random' because I lack investing knowledge. Do you know of any resources that would present the +/- of this "strategy"? That being said, I'm not looking for the fast buck. Having been freshly introduced to investing, I try to find an assertive balance between making poor choices and 'freezing' in front of investing literature.

Many thanks,
Adrian

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Index fund investment strategies

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Adriand

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