Index fund

What is an index fund?

An index fund is a pool of investor money that’s automatically invested by an investment firm into multiple things (multiple shares, bonds or both).

Examples of index funds include:

• S&P 500: Top 500 USE companies
• FTSE 100: Top 100 UK companies
• FTSE Global All Cap: 7,000 companies worldwide.

For example, if you invest £1,000 in the Vanguard FTSE Global All Cap Index Fund, Vanguard (the investment firm) will automatically track the market and invest your money for you in various companies.

Benefits of index funds

• Historically strong returns – investment firms likely know the market better than you so they’re more reliable.
• Diversified: By investing in multiple companies, you’re less likely to be significantly affected if one or a few companies go bust.
• No effort required. You don’t have to pick individual investments.