This recipe will explain how to invest in Index Funds and why this may be great idea for you.
What is good about it:
- It doesn’t require knowledge about financial markets or comapnies
- It can be very cost effective with low fees (as low as only £1.50 per investment) and as low as 0.27% a year
- It doesn’t require much effort
- It is considerably safer than any other stock market investment
- 7% is argued as a long term expected average (details by thesimpledollar)
What minimum level of investment we recommend:
- At least £50 monthly, depending on the option chosen
How does it work:
You are investing some of your savings every month into either ETF (exchange traded fund) or Index Fund. These funds emulate the behaviour of a whole stock market (it could be FTSE100, S&P500 or pretty much whatever you choose) and you benefit from the fact, that historically stock market offered much better return than any saving account. Sounds simple? It is very simple, and very good recipe.
The key is to choose the right index and the right fund. The differences between indexes are mostly to do with the different markets. FTSE is mostly for British companies and S&P mostly American. Do your research here- you may want to invest in a few different ones! How to chose a specific product? You will have to compare what is on the market at the moment. At the time of writing this (according to This is Money) the cheapest for FTSE100 are:
- HSBC FTSE 100 Index: AMC – 0.25 per cent (£1,000 or £50 per month)
- Liontrust FTSE 100 tracker: AMC – 0.30 per cent (£1,000 or £50 per month)
- F&C FTSE All Share Tracker. AMC – 0.30 per cent (Source: Betinvest.co.uk)
Where AMC stands for annual management charge. If you are interested in other indexes- you need to have a look yourself.
What do we think:
A lot of people, who hand pick the companies they invest in, struggle to ‘beat the market’. This strategy is pretty much guaranteed to behave just like the market, with minimal fees. And 7% long term as an average sounds pretty good compared to what your saving account can do! We think that if you are looking for hassle free investment recipe- this is one of the best!