Ask Colin

How would you manage exposure to the ASX200 index?

The long version of the question was:

Should exposure to index funds be managed much the same as individual stocks, using methods such as yours, or should they be bought at times of market weakness, with a focus on the available yield? 

What prompts the question is that much of my Super money can be moved in or out of shares at my choice, but the shares option is essentially an ASX200 index fund, so there is no control over the composition of the portfolio. Only the level of exposure to the whole basket of shares can be varied.

I  can see arguments in favour of both approaches. Any thoughts you might like to share would be welcome.


Your question is not something that I have had any personal experience with. However, here are some ideas.

As you will know, my investment strategies in Building Wealth in the Stock Market are based around two key ideas:

1. Timing exposure to the overall market.

2. Stock selection with a margin of safety.

In your case, stock selection is not relevant because the fund chooses the stocks. All you can really control is exposure to stocks. For this, you should be able to adapt my market exposure strategy to get into bull markets early and stage your way out before and at the time that a bear market begins.

That said, I recognise that there are many other possible strategies, but this is based on my investment experience. A simple one is to enter when the market index rises 10 or 20% from its low and get out in the opposite fashion.

My thought would be to develop some clear guidelines for timing exposure to stocks and test it on past data if you can, which will give you more confidence going forward with it.

I hope that these thoughts are helpful. Thanks for the question. It is a good one. Maybe down the track a few years you might let me know what your actual experience has been with it