There’s lots of different strategies when it comes to investing, one being the trusty Index Fund. To understand what these do you need to have an understanding of what exactly a fund is, how it’s valued, what it’s tracking and where the fund comes from. If you’ve read my article on your workplace pension in the UK and why it’s important, you’ll know that your pension is probably invested into a fund of some description. So lets talk about Index Funds and why you should be considering them for part of your investment strategy.
What an Index Fund Actually is
Index Funds put really simply aim to follow a specific market or group of companies. You invest into the fund and your investment should closely follow the growth or decline of whatever it is tracking. Let’s take the S&P 500 Index for example, this is a group of 500 US top-performing companies that are selected for their market capitalization in the US markets. This means that the value of the selected 500 companies goes up and down as one single value (this value varies depending where you are buying into the index and which provider you use). The idea here in it’s most basic terms is that you are invested in the top performing companies, giving you diversification from one single Index Fund. Easy, right?
Types Of Index Funds Available
There are two main types of Index Fund available for you to buy into, these are Mutual Funds or ETFs (Exchange Traded Funds). Mutual Funds pool money from investors and purchases stocks, shares, commodities or bonds at the end-of-day price. To be honest these kind of funds come in so many shapes and sizes that you can find a Mutual Fund for just about anything through loads of different providers.
ETFs (Exchange Traded Funds) however are traded throughout the day as the price fluctuates and can be purchased through a stock exchange instead of directly through a fund provider. On investment apps such as Trading 212 you can purchase ETFs such as VUSA which is a Vanguard fund tracking the S&P 500 Index. Some other investment apps such as Moneybox use Fidelity as their tracking fund manager and the fund they use can only be purchased through them directly rather than on a stock exchange.
The Long-term Investment
Index Fund investing is a long players game, it’s not going to get you rich quick, but then again if you’re looking at getting wealthy quickly you would be looking at high-risk investments anyway. Statistically Index Fund investing grows wealth as a constant steady rate over a number of years.
Long term investments are a great way to passively build your wealth. With Index Funds you can invest every month and see it grow over time, this is how most people plan for a future where they don’t have to work anymore. You can invest as much as you like per month into these funds, and you don’t even have to purchase the full cost of a ‘share’ of the fund. Providers in this modern day and age are making it easier and easier to get involved with the stock market and Index Funds are the biggest part of that.
Who Provides These Index Fund Investment Services?
So if you’re not investing in index funds already, then who could you sign up with to get started? There are loads of options out there, with different fees for providing the service being charged. It’s good to have a look at the fees and your investment goals to see if the provider you like the look of is right for you. Below are a few examples of providers in the UK, however there are so many more so do your research before investing.
This article is not financial advice and you should seek professional guidance if you cannot work out your risk profile or investment goals on your own.