What is the market sentiment about investing right now regarding Ukraine and what advice is available about the different types of tracker?

10 February 2022

Question by Duncan

I am looking to invest into a tracker for the next 4.5 years. What is the market sentiment about investing right now re: Ukraine and what advice is available about the different types of tracker?


Answered by Boring Money

Hello Duncan,

I will answer to your question in two parts: the timing of your investing and investing in trackers.

Regarding the timing:

I understand your reticence to invest money if there is the chance of stock market losses in the short term; it's perfectly rational and normal to think that way. However, if we wait for the 'right' or 'perfect' time to invest we would never do so. There is always something going on globally that we could look at and conclude that a stock market crash is likely. Currently, it is Russia/Ukraine tensions plus inflation uncertainty. Previously it has been COVID, Brexit, a container ship stuck in the Suez blocking global supply lines, an economic slowdown in China, Russia (again), a banking crisis leading to concerns over Greece, Italy, Ireland etc, Gulf wars etc etc.

There is always a chance that if you invest now you will see the value of your investment fall. However, history shows us that the long-term trend of the global stock markets is upwards and they go up more often than they go down (approximately 5 years out of 7 are positive).

Whenever you invest capital you should do so accepting this uncertainty (it is the cost of entry to long-term capital gains because if there was no risk there would be no reward) and only invest money that you can take at least a medium-term (3-5 year) view on, which you are.

Regarding Trackers

Trackers are a sensible way to invest. Evidence shows that paying more for a fund manager to make active decisions on your behalf rarely pays off consistently. When choosing trackers you need to consider a couple of things:

Firstly, spread your money around the globe rather than choosing funds that only invest in the UK, and within different asset classes (i.e. not just shares but government bonds too). This reduces the volatility of investing and prevents you from having all your eggs in one basket. The ratio of shares to bonds will depend upon how much risk you are willing and able to take (as per my point above). Typically most people will be somewhere between 40% shares:60% bonds to 60% shares:40% bonds but it is a personal choice, you may choose to take more or less risk than that.

The second thing to consider when choosing a tracker is the 'tracking error'. This is how much the actual returns vary from the returns of the benchmark the tracker is trying to outperform (the FTSE100, S&P 500 or the MSCI World Index); the larger the error the worse the relative performance. It is the level of charges that influences the tracking error, so the lower you pay in charges the smaller the tracking error.

An 'OCF' is the standard measure of ongoing charges of a fund which allows you to compare one fund with another. Funds with an OCF of 0.20% or lower is competitive. For regulatory reasons I can't give direct advice on forum such as this but fund management companies like Vaguard, HSBC and BlackRock have a reputation for providing access to low-cost trackers.

I hope this answers your question satisfactorily.

Kind regards,

Andrew

Answered by

Boring Money