How to....Index Funds

How to....Index Funds

May 28, 2022

Firstly, I only invest in “passive” funds, because if I am going to invest in the entire market, I don’t need to pay for some over paid fund manager to buy and sell any of the parts of the fund when they see fit, I just want to own the whole fund without them tweaking or justifying their existence.

To start with I would read this book before you do anything else, as the “inventor” of index funds going back to 31st December 1975 John C Bogle changed the investing landscape so why wouldn’t you want to take advantage of his knowledge and insights

The Little Book of Common Sense Investing - John C Bogle

Simply put a fund is a collection of investments that track the market they belong to, what! let me put it another way, the FTSE 100 is the top 100 companies in the UK, you can buy a FTSE100 fund that owns a percentage of every company in this index, so in effect you also own part of every FTSE 100 company, and therefore will grow (or fall) with the index, and get all the growth and dividends that are paid in proportion to the value of your holding, phew….that’s it in a nutshell

There are funds covering most markets you can think of, for example, Dow Jones, S&P500, Global Infrastructure, Healthcare, Emerging Markets the list is endless so whatever you interest, passion or research finds there will be a fund for you.

I don’t trade funds, I buy them forever and add regularly, so one month I may buy at a higher price, and the next month a lower price to average my costs as the fund trades up and down but ultimately increases over time.

Just another couple of points there are ACC funds and INC funds, ACC accumulate dividends back into the fund to grow, INC pays out dividends to you in cash.

The best way for me is to have the cash paid as I invest tax free in an ISA soo then I can choose where to re-deploy my income, ACC funds can grow more quickly over time, but each to their own and pleases always do your own research.

Good luck with your financial freedom journey

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