The S&P 500 Index

A few friends have been asking me whether they should invest now. In general I suggest indexing utilising market timing to further enhance dollar cost averaging. A friend cut me short the other day and asked what an index fund was. It is amazing what you to start to take for granted when you’re familiar with a topic.

The S&P 500 is an actively managed market-value-weighted index. It represents the best large companies in America, not simply the largest by market cap, sales or any one measure. It has been been argued by the likes of Abby Joseph Cohen in A Fundamental Strength that the index could outperform GDP growth. Abby wrote a Fundamental Strength in 1996 and while she was much derided after the tech collapse I find it interesting that the topic is still discussed today.

For the complete skinny on the S&P 500 look no further than http://www.marketvolume.com/indexes_exchanges/sp500_description.asp

Now is the time to be buying, not selling. It is easier to profit in the stock market from the long term accumulation of wealth, than by short term speculation. Now is when you should be doubling your dollar cost averaging with the plan to do so for the next 12-18 months. As the Australian dollar has dropped so quickly against the USD now is not the time to be investing in US assets. Australian investor should look closer to home.

Index Funds and ETFs in Australia

Two main choices in Australia, though others do exist:
Vanguard Index Australian Shares Fund” charges a management fee of 0.75% p.a. for the first $50,000, then 0.50% p.a. for the next $50,000 and 0.35% p.a. for the balance over $100,000. There is also a spread of .2% on purchase and .1% on withdrawal.

State Street Spiders ETFs on the top 50 or
top 200. Management costs are 0.286% and there will be the bid/ask spread.

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