Which Index Funds do you invest in?

Throughout the FI community the default advice on investing and building wealth seems to be  “…invest in low-cost index funds…”.

So when deciding to invest, whether in a pension, Isa, or other investment vehicle, just buy your low-cost index fund and forget about it.

That’s it.

End of post?

This investing lark is easy, isn’t it?

It’s not really that simple. There are other considerations and possible options that should be taken into account.

I recently set up saving into a LISA for my son, FU#1, as part of his investment strategy for his FI plan.

As part of this process I had to decide what investments to put his LISA contributions into.

Cash LISAs are paying a dismal interest rate of around 1%, so I decided to invest his monthly contributions into a Stocks and Shares LISA.

But what actual shares or funds should the contributions be invested in?

The general population have no idea what to invest in and are often scared of the stock market and financial advisors. This results in not investing at all, or putting the money in low-interest cash accounts resulting in losses after the effect of inflation.

OPTIONS

The advice often given in the FI community is to invest with Vanguard.

First of all, if you do choose Vanguard, there are numerous index funds to choose from with differing costs, so which one do you pick? A UK index fund, or a European index fund, or a US index fund or a Global index fund?  The choices for the novice investor are dizzying.

Are Vanguard the cheapest provider? – There are other providers out there that have index funds that charge similar or less than Vanguard.

What about performance? – By their nature surely index funds all perform equally? Wrong. The performance of different index funds can vary massively.

Below I will list some possible index fund options for a portfolio along with performance data.

Global Trackers

Fund                                                             Ongoing charge %  Yield     1 yr.    3 yr.    5 yr.   10 yr.

L&G intnl. index trust                                     0.13                        1.8      5.9      49.1    90.7    168.3

Vanguard FTSE Dev World ex uk                 0.15                        1.55     7.7      52.8    97.0      n/a

Vanguard FTSE All world ETF VWRL         0.25                       n/a      5.7       45.4    87.8    n/a

Vanguard Lifestrategy 100%                         0.22                         1.73    7.6       44.7    84.7    n/a

 

North America

Fund                                                  Ongoing charge %  Yield    1 yr.    3 yr.    5 yr.   10 yr.

Vanguard US Equity index                   0.10                    1.26      10.9   62.2    117.9    n/a

L&G US Index Trust                               0.10                   0.8         8.4    56.6    108.9  240.9

iShares core s&p 500 ETF                     0.07                    n/a       10.2    63.5     119.1   n/a

Vanguard S&P 500 ETF VUSA             0.07                   n/a       10.3     63.4     119.1   n/a

 

UK

Fund                                                              Ongoing charge %  Yield    1 yr.    3 yr.    5 yr.   10 yr.

L&G UK Index Trust                                          0.10                      3.5      7.5       25.2    n/a     n/a

iShares UK Equity Index                                  0.06                      3.2      7.1        25.5   55.2    n/a

Vanguard FTSE UK All Share Index              0.08                      3.07    5.7      24.3    52.7     n/a

 

The ongoing charges for some of the above funds may be lower as investment platforms often offer a rebate on the fees. Remember though there may be the ongoing platform charges on top.

Looking at the performance of the funds over 5 years shows the North American funds giving  better performance than either Global or UK funds.

The funds I invested in for FU#1 was the Vanguard Lifestrategy 100% equity, though after this exercise I may have chosen a different fund with lower charges such as the L&G international index trust. I chose a global fund for diversification even though the S&P 500 funds seem to have better performance.

The above is not advice and DYOR. There are many ways to invest. YoungFiGuy sets out the funds he invests in here.

 

What funds are you invested in?

Are there any you would add to the list above?

Do you think Global funds provide better diversification and are safer than an S&P 500 fund?

 

 

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6 Responses to Which Index Funds do you invest in?

  1. Tuppenny says:

    I invested in Vanguard life strategy 60% and a small amount 80% but then I am not FU#1 age. I had analysis paralysis so lifestrategy worked for me. I know I could possibly replicate a smidge cheaper but for the sake of those pennies I’ll take the easy route.

  2. Edel says:

    i went life strategy 100 as I have years of investing ahead of me. Interested to see comparisons to L&G int

    • FU MON CHU says:

      Yes, I didn’t realise the charges on the L&G are nearly half of vanguard’s lifestrategy. Also if invested with Hargreaves Lansdown there is a discount that brings the charges down to 0.07% which is a 1/3 of lifestrategy.

  3. I went all-in on Vanguard US Equity index – because I don’t mind taking risks and genuinely believe that it will recover from any volatility.

    • FU MON CHU says:

      I’d only really looked at the global and uk trackers before I did this post.

      Seeing the big difference in performance to the American funds has made me reconsider my allocation.

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