What is an index fund?
An index fund is a collective investment that mechanically holds every constituent of a published index in the right weights. UK-domiciled options include Vanguard FTSE Global All Cap, HSBC FTSE All-World Index, and the iShares Core MSCI World ETF. OCFs typically sit between 0.10% and 0.25%, against 0.75% to 1.5% for actively managed funds. The FCA’s 2017 Asset Management Market Study found that active funds rarely justify their fees, and the long-running SPIVA Europe scorecard shows the majority of active UK and global equity funds lag their benchmark over 10 years.
Invest £200 a month for 30 years. At 7% real returns in a 0.15% global tracker, the pot lands around £232,000. In an active fund charging 1.0% returning the same gross, the pot is closer to £198,000. The 0.85% fee gap quietly costs £34,000, more than 14 years of contributions, with nothing extra to show for it.
Owning a FTSE 100 tracker and calling it diversified. The FTSE 100 is around 4% of global market cap, heavily tilted to oil, mining, and banks. One broad global tracker (FTSE All-World or MSCI ACWI) does the job properly.
A 60-second lesson on this, with a worked drill, lives inside the Finlo app. Free, forever, on the basics.