Index funds give investors an opportunity to own shares in multiple companies from the UK and around the world. Your index fund manager does the hard work of determining how much to invest in every company, when to sell and how much you should collect in dividends. As such, all you need is to check with your index fund manager regularly to collect dividends and to keep track of your profits.
As with all stocks, shares and investments, remember, your investment and capital is at risk, and TechRound does not recommend any specific investments.
iShares FTSE 100 UCITS ETF
Many investors in the UK prioritise local index funds to international indices. The iShares FTSE 100 is one of the most recommended companies if you want to invest in the top 100 companies tracked by the Financial Times Stock Exchange (FTSE). The FTSE is the UK’s equivalent of the S&P 100, a leading tracker of the most capitalised companies. On average, the FTSE 100 index fund has a growth rate of 7.8% per year, a healthy return considering the UK charges almost zero fees on such investments.
That said, the best way to make money from the FTSE100 fund is by compounding your returns. To provide some context, a compounded investment of £10,000 in the fund in 1986 was worth £195,852 in 2020. But without compounding, it would have returned £53,000. In terms of fees, iShares charges 0.07% to maintain your account per year. However, you can purchase shares from the index through a third-party with zero annual fees. Etoro and FCA Broker are great examples.
iShares isn’t the only company that can help you find the UK best index funds. There are lots of alternatives. That includes index that track other index funds besides the FTSE. Compare them to determine where you can get the best returns for your money.
S&P 500 Index Funds
The Standard and Poor 500 Index fund tracks the best 500 best performing companies in the US. Historically, the S&P 500 delivers an average return of 10% every year. The only period it didn’t deliver results was during the 2007/2008 financial recession.
But still, to be clear, the S&P 500 has always returned a profit for everyone who invests in the index for a period of at least two decades. According to Warren Buffet, a portfolio of low-cost S&P index fund is much better for the average investor than a high-cost portfolio picked by an expert.
In case you’re wondering, below are some fund trackers to help you buy shares from S&P 500 companies:
- iShares Core
The S&P 500 outperforms ETFs slightly on average: you have to pay fees by investing through ETFs. All the same, most of these companies deliver results no matter how you look at it. Precisely, a £10,000 investment in the S&P500 in 2015 would have returned at least £23,000 by last year.
Fidelity ZERO Large Cap Index Fund
All official S&P 500 index funds must pay licensing fees to the S&P. Of course, the companies trickle down the fees to investors, which lower their eventual returns. Fidelity ZERO Large Cap tracks 500 of the largest US companies. But since it’s not an official S&P 500 partner, it doesn’t have to pay the parent company licensing fees. And guess what? This translates to higher returns. A case in point: S&P 500 had an ROI of 17.4% in 2020. Fidelity delivered 20% in the same period.
The best part of choosing Fidelity is that it manages your money at zero fees. What’s more, it has no minimum limit, so you could invest from $10 to as much as you want. Additionally, it tracks over 2000 stocks. So, what’s the catch with Fidelity? First it charges an expense ratio of 0.06% of the amount you’ve invested per year. On the other hand, it doesn’t track exactly the same companies as S&P 500. That means your returns can vary every year. And that means if it delivers low returns even by 2%, it could be a lot less money than the S&P 500 would offer.
Vanguard Growth Index Fund
The Vanguard Growth Index Fund is a historically profitable fund that picks companies based on rigid criteria. Although it has a bias for large-cap companies, the index uses six principles to pick stocks to invest in.
First, it looks at a company’s return on assets. This describes the revenues generated by assets. Then it looks at the investment to asset ratio of a brand. After that, it checks out a company’s three-year growth in sales per share, and earnings per share. Finally, it compares both short-term and long-term growth in earnings per share.
Owing to the criteria, tech companies make up nearly half of all Vanguard holdings. We’re talking about brands like Apple, Alphabet, Amazon, Oracle, and Microsoft. In turn, it has an average return of 16.12% in the last decade and 64.74% in 2020.
FTSE Small Cap Index
The FTSE Small Cap Index is exactly what the name says. It’s an index that tracks the best performing small-cap indices in the UK. Precisely, it tracks the companies ranked from 351 to 619 on the London Stock Exchange. Don’t get it confused, though. The small-cap companies the FTSE tracks have a market capitalisation of up to $2 billion. But since they have generally low-cost stocks, they’re attractive to many beginner investors.
Crucially, small-cap companies have a great potential for growth. They perform exceedingly. And when diversified, they provide a much better ROI compared to alternative investments. With that in mind, there’s also an index fund that tracks medium-sized companies known as the FTSE 250. It’s a great option if you want to invest in average-sized companies in the UK.