Index funds - which market should I choose?

popniklas · #1 06-02-2005, 01:56 PM

Alright. I got some money to invest (not too much though). I don't know much about stocks. It seems that the best way to invest in stocks for someone like me, is index funds.

But an index fund on which market? U.S.A.? Japan? The U.K.? Eastern Europe? All of Europe? The Middle East? Some other market? A global index fund? Different index funds combined?

I am looking to get a decent return on investment in 6-8 years. I can accept some risk. If you have an opinion as to which market I should choose, feel free to share it. Thanks.

gvibes · #2 06-02-2005, 08:05 PM

Ideally, all of them (diversification is key), but you may not have the principal to do so in a cost-efficient manner. However, to a certain extent the developed world's markets are quite highly correlated, so it shouldn't matter a whole lot.

Also 8 years is way to short for an all-equity portfolio. For that sort of time frame, I'd probably shoot for at least 50% bonds.

popniklas · #3 06-03-2005, 06:45 AM

Thanks for your reply. Perhaps I should have mentioned that I already do own some bond, and also some stock funds. However, less than 50% of my savings are in bond... it's closer to 25%. Should I just forget about this index fund idea and go for more bonds instead?

By the way, if I do invest in an index fund, I am leaning towards either Europe or Japan. However, I already have some of my savings in a European hedge fund and in Swedish stock funds.

I understand that Japan is less correlated with Europe than western markets are, which means a more diversified risk. Could Japan be a good choice for, say, 10-20% of my savings?

gvibes · #4 06-03-2005, 11:52 AM

[ QUOTE ]
Thanks for your reply. Perhaps I should have mentioned that I already do own some bond, and also some stock funds. However, less than 50% of my savings are in bond... it's closer to 25%. Should I just forget about this index fund idea and go for more bonds instead?

[/ QUOTE ]

Are you going to need all your savings in ~8 years? If not, 25% is probably fine. Are you planning on purchasing a house or something? If that's the case (ie you have a finite amount of money that you will need some finite time in the future), put that amount in a more stable investment (ie 45/55 stocks/bonds), and your retirement investments (assuming you're young like most people on the site) can be a lot more aggressive (maybe, 80/20 stocks/bonds).

[ QUOTE ]
By the way, if I do invest in an index fund, I am leaning towards either Europe or Japan. However, I already have some of my savings in a European hedge fund and in Swedish stock funds.

I understand that Japan is less correlated with Europe than western markets are, which means a more diversified risk. Could Japan be a good choice for, say, 10-20% of my savings?

[/ QUOTE ]

Absolutely. For instance, I recently set up a portfolio for a friend of mine. The equities portion was about 50-60% US equities, and then the rest were spread through the rest of the world, both in developed and emering markets. Having a number of not-much correlated investments is always a good idea. If it were cost-effective, I'd probably tend towards the 10% number a little more. Maybe put the other 10% in an emerging market fund.