The question we’re most often asked in our guise as passive investing nerds is: “Should I buy index funds or Exchange Traded Funds (ETFs) as my tracker vehicle of choice?”

A quick recap:

• An index fund is a unit trust (or OEIC) whose portfolio is designed to track the return from a particular market index.

• An ETF is a security that is again designed to track the return from a particular index. ETFs trade on stock markets like any other share, and their price moves up and down during the trading day.

So are there different situations – or types of investor – for whom an index fund trumps an ETF, or vice versa?

This isn’t new territory for Monevator. We’ve looked before at the differences between ETFs and index funds. We’ve even done a huge multi-part guide to buying the best index tracker on a fund-by-fund basis.

However we’re now going to break it down into a bite-sized battle of the trackers.

Over a half-a-dozen small posts, we’ll look at each of the aspects you need to consider in your quest to find the best funds for you.

We’ll start by explaining why you should buy index funds if simplicity is your most important consideration!

Index funds are simpler than ETFs

If simplicity is paramount to your investing life then index funds are the way to go.

Like the mortice lock or the four-legged chair, index funds are straightforward products that do a good job and aren’t subject to the constant product innovation and morphing that can make ETFs something of a minefield .

Index funds have been available since 1975 with nary a whiff of financial scandal that entire time.

With index funds you can skip complications that affect ETFs like:

• Synthetic index replication that exposes you to counterparty risk.

• NAV premiums and discounts that affect cost calculations.

• Wide bid-offer spreads that make illiquid ETFs more costly.

• Dealing fees (unless you choose Vanguard funds).

• Using limit orders to control your buy/sell price.

You don’t need to understand any of that with index funds, and you can buy index funds cheaply through a fund supermarket or online broker.

Part two: Which vehicle is best when it comes to cheaper costs?

Take it steady,

The Accumulator

Great articles to invest some of your time in.

You can’t keep up with the soaring pay of Britain’s fat cats. By 3am Friday I had only half-finished an article on income inequality, so I posted my photos of the St Paul’s protests and parked my chin-stroking for next week.

But a week is a long time in executive pay bloat.

Later that very day, a new report thudded into our consciousness, weighed down by all the ink needed to print all the zeroes at the end of a FTSE 100 directors’ paycheck.

According to Income Data Services’ latest report – a steal for fat cats at £460 a pop but summarised by the BBC for the rest of us – the pay of directors of FTSE 100 businesses rose 50% over the past year.

This means earnings of almost £2.7 million for the average director of a FTSE 100 company! And these aren’t even the bosses we’re talking about here, just any old director. (Chief execs had to make do with a paltry 43% rise in a year).

As a result of the IDS report, the subject has had another thorough airing, and my little contribution is going to look as significant as the annual salary of a secretary that’s accidentally paid into the bank account of her blue chip boss – i.e. pretty much a rounding error.

So I won’t spoil my damp squib thunder by venting any more outrage now.

Instead, for more insight try Investors Chronicle economics editor Chris Dillow’s blog, where he points out that all the usual reasons for sky-high executive pay don’t cut it, and concludes:

Given all this, you might wonder what the real reason is for bosses’ high pay. Simple. Power. Bosses, generally, might not have the power to create super-efficient high-performing firms, but they do have the power to extract rents from shareholders and workers

Like some City traders, they must, in effect, be bribed not to plunder the firm’s assets.

From the point of view of shareholders, the small theft that is a multi-million  pay-packet is better than the large theft of wilful mismanagement.

[continue reading…]

A few days ago I paid a visit to see the St Paul’s campsite protestors who are demanding… well, something.

They don’t know exactly what they want and neither do I. Yet we all believe some changes are required – doubtless very different ones.

I had a pleasant enough time at St Paul’s, and thought the protestors were a genial bunch. It felt far more like the fringes of the Glastonbury Festival than Paris in 1968 – besides the tents and the harmless nutters, I was even met by a fire-tossing juggler.

Perhaps that’s the problem. The US protestors have their clever We Are The 99% slogan, which imperfectly points to financial elites as a symptom (and perhaps a cause) of today’s dysfunction.

In contrast, the St Paul’s mob seemed to be the same crew with the same varying agendas who have been cropping up at these things since I first moshed as a left-leaning student to The Levellers two decades ago.

It didn’t feel like a movement, or even a stalemate – just a bit stale.

Their flag said ‘capitalism is crisis’, and I don’t doubt their (often misguided) convictions. But the wider lack of energy, ideas, or leadership in the response to the SNAFU of the past four years suggests it’s socialism that’s in peril.

To me the camp almost felt like a dumb animal response to a hurt, some sort of festering that reveals a deeper wound, but no sign yet of a precise cause or cure.

As George Carey writes following yesterday’s resignation of Giles Fraser, the Canon Chancellor of St Paul’s and surprise ally of the protestors:

As the story developed, thermal images of empty tents seemed to illustrate the hollow nature of the protest movement. The emerging picture of spoilt middle-class children returning home at night for a shower and a warm bed begged questions about their commitment to their cause. It also seemed to suggest that the cathedral authorities in their initial welcome had been duped.

And what was the cause anyway? “This is what democracy looks like,” claimed Occupy’s opening statement. It explained that it was engaged in a process of public assemblies in a democratic process. But it is making up its demands as it goes along – truly rebels without a cause.

In some senses this is what our society now looks like. We are all protesters, even if we don’t take to the streets. We all have an inchoate sense that something is wrong and we have any number of culprits to blame – from Europe, to immigrants, to the banks, to politicians and media barons. Public distrust of the institutions of a civil society has reached an all-time high as the performance of some bankers, public servants and even recently some sections of our media has sunk to the lowest depths after waves of recent scandal.

This protest is distinctly lacking a Martin Luther King, a Bob Dylan, or even a Billy Bragg. But then so did all the uprisings of the Arab Spring. We seem to be everywhere morphing into a split society of ultra-elites and amorphous also-rans, and perhaps that’s part of the problem, too.

Anyway, here are a few photos of the St Paul’s camp for those who wouldn’t be seen dead near a hippy.

(All photos shot on my lovely new Panasonic TZ10).

St Paul's, from the heavily policed Paternoster Square direction

Clever. Big future in advertising for this student.

They say "is" crisis, I say "in" crisis, but let's not call the whole thing off.

Big Buddha is watching them, too.

Sun-powered salvation. I'm just *guessing* they've done this before.

Most of the walls had messages respectfully taped (rather than graffitied!) onto them. They varied from the sublime to the sub-Socialist Worker.

Real global democracy demanded: A hung parliament highly likely.

I was curious how they kept their tents rooted to the ground.

No London paving was injured in the making of this protest.

Have multi-purpose protest sign, will travel.

A bit like Camden market on a Saturday, without the smell of petunia oil and fried onions.

I'm not going to knock recycling bins. Shame they put so many ideas through them.

I bet this conveniently located branch of Blacks did a great trade in tents with the anti-capitalists. Presumably on the barter system.

...and bin the bankers?

Even the toilets were revolting. (Geddit?)