Let’s face it, investing in individual stocks and shares can be a tricky business. While the returns can be impressive when investors get it right, the very nature of equity markets means that stocks can fall in value too.
One cheap and popular way to invest in stock markets without focusing on picking individual stocks is to buy an index tracker fund.
Limiting exposure
Tracker funds work by allowing the investor to buy a ready-made fund which mimics the performance of an index, such as the FTSE 100.
These types of investments are popular for a number of reasons, particularly for beginner investors as they limit exposure to single sectors by giving you variety.
That said, when you buy tracker funds as an investor you will only reap the benefit of overall growth of the companies contained in the index, rather than any spectacular dividends paid out by individual firms. Even so, I still see them as a solid investment, particularly those which track some of the world’s major markets.
So what index tracker funds would I invest in right now?
Despite the ongoing uncertainty caused by Brexit and the potential knock-on effects for the UK economy, it’s my view that the FTSE 100 will provide attractive returns over the long term.
While the UK’s primary index has fallen in value over the last year, it has been a pretty turbulent period politically and one would expect more favourable conditions in the years ahead. The Legal & General UK 100 index tracks the Footsie and is available via private investment platforms such as Hargreaves Lansdown.
News Coverage
The beauty of investing in a fund that tracks the FTSE 100 is that it becomes easy to follow its performance, with mainstream news coverage generally devoting some time every day to reporting on the goings-on of the Footsie.
Another fund I’d buy and hold for the long term is the Legal and General UK Index, which tracks the FTSE All-Share. This index includes those within the FTSE 100, as well as more than 500 other UK-listed businesses. the tracker provides an even greater degree of diversification and covers sectors that are not heavily represented in the main index.
Over the last five years, the FTSE All-Share has actually outperformed the FTSE 100, growing more than 35% during the period, with the latter returning 32% during the same time.
For those more bearish about the prospects of UK stocks, Vanguard’s Global Small-Cap Index is made up of more than 4,000 smaller businesses from around the developed world. This fund tracks the performance of the Morgan Stanley Capital International (MSCI) Small Cap World Index and has yielded more than 80% over the last five years, although its value has receded 0.25% in the last 12 months.
Some investors hold back from putting money into individual small-cap stocks as they often carry greater risk, so this fund is a way to benefit from fast small-cap growth without being exposed to just one business or a small group of companies.