Tag Archives: investment portfolio

Which is the best investment option, ETF or Indexes?

Prior to deciding on this answer it would be advisable to get the basics clear. Index is defined as a list of companies that are chosen from the stock markets. The rise and fall in the value of ratio of a consolidated collection of stocks in an index, for a specific time period is manifested through the return offered by the index. ETFs work on market capitalization and bonds. Since the index in itself is non-tradable, the investors are required to purchase all the stocks mentioned therein.

Although the ETFs can fluctuate, the investment can remain secure. You stand to receive the net asset value of your mutual fund investment. After the day’s transactions are over, this value is calculated. This is obtained by dividing the profits or losses by the total number of shares that constitute the fund. The movement of the ETF price is akin to the share prices. The closing price of the day is the ETF for that particular day. There are no further calculations required. The mutual funds are managed by professionals. For a mutual fund there might be a minimum subscription amount, while the ETF do not impose any such restrictions. But, the shares of the mutual funds are not burdened by brokerage charges; as such, the investor can transform his returns as handsome savings.

The choice basically depends on the expectation and objective of the investment portfolio.

Saving through Vanguard Index Funds

Proper allocation and investment of savings is an important part of an effective retirement plan. Today, there are a number of retirement plan sponsors who are interested in making the index funds the focal point of the investment portfolio. Reports referring to surveys indicate that 17% of 150 employers desired to substitute index funds for a part or whole of their actively managed investment options. This constitutes to around 8% increase. According to Mike Lucci of Vanguard Institutional Sales, the enhanced interest in Index Funds is a great opportunity for investors designing a retirement plan, as it can help them to secure their capital and save in turbulent market conditions. The plans are characterized by supplemental passive investment options and active funds are replaced with a unique line-up of highly diversified low cost index funds.

Participant communication, a simplified plan design coupled with multiple levels of investment choices are marked as endearing attributes for retirees. Savings can be attained through the low-cost indexing, broad diversification and the cash drag is kept low.

Just a few points of caution:

The investor is required to take note of the inflation risks, credits and the prevalent interest rates while investing in bonds. Diversification may not shield you in a declining market. As a plan sponsor, Vanguard believes that they can effectively determine what the best interest for their participants’ prudence is.

Investment management – The basic way to save

You might think about savings and investment in isolation. But, what you really need to focus on is the fact – what would you like your money to do for you? Once we are decided about the manner in which the money is slated to be used in future, an effective investment strategy can be formulated. This is also related to the prospective performance of your investments, as it would be a marker for your savings and your financial status.

Asset allocation plays a big role here. It will help you determine the portfolio returns and aid you to devise mechanisms through which you can improve them. It can aid you in mitigating the risks involved. If you are able to devise a effective plan to diversify your major asset classes, in the form of cash, commercial property, fixed interests and equities investment, to name a few, you would find yourself in a better position to manage your investment.

Each investment portfolio incurs a specific variant of risk. So, as you develop a precise idea of your investment requirements, building the rest of the strategy would become easier. Be it the purpose of investment, the time horizon for the investment, the amount of risks undertaken or the corresponding security you stand to attain. These are all vital factors that need to be considered to efficiently safe-guard your savings.