Mum and Dad Index

By Sandy Naidu | July 9, 2008

When Telstra listed on ASX, a lot of people became shareholders of a publicly listed company for the first time ever. And then came AMP. Then came Commonwealth Bank, Woolies, Coles and TAB (not sure about the order but they all listed in the past 15 years). A lot of mum and dad investors invested in one or all of these companies. Mum and dad investors are usually conservative investors. What attracted them to these companies is the fact that they are all ‘household’ names - they were investing in what they know.

Commonwealth Securities came up with an index called ‘Mums and Dads Index’ - an index created in a series of major floats, privatisations or demutualisations.

Today the mum and dad index is made up of nine stocks: AIG, AMP, Commonwealth Bank, Qantas, Suncorp-Metway, Tabcorp, Telstra, Wesfarmers and Woolworths (the composition of the index changed due to mergers and acquisitions).

All the stocks in this index are blue chip stocks. Notice how there are no resource stocks in the index. This is one of the main reasons why the performance of mums and dads index is usually quite different to the All Ordinaries Index. Financial pundits say that mums and dads index is not well diversified. Mum and dad investors can make it a diversified one by adding a couple of blue chip resource stocks. So if you are one of these investors with a portfolio of these nine stocks then give diversification a serious thought….