how to choose an index fund

[mumtobe9]

Hi,
I am new to investing and i have been reading about it and i have decided to invest in a passive index fund. I have 500 pounds to invest and i would probably put 100 every month (i could afford to put a larger lump sum but i am being very cautious until i know what im doing). I am in my later 30s with a stable job. so hoping to retire in 30 years and use this money to top up my pension. I was listening to meaningful money podcast about how to choose a multi-asset fund however it got me completely lost as i can't work out the morningstar page to search for some and compare them. I was thinking about investing in Vanguard lifestrategy (it seems like the easy option that everyone recommends) but i would like to know what else is available. Any recommendations?

PS: Silly question.... do you get dividends from passive funds?

TIA

Brilliant decision, @mumtobe9. I've been in index funds for 30 years and they've been a great investment. If you are comparing two funds that track the same index the difference will be in the expense ratio, the lower the better. Vanguard lifestrategy is a great choice, with very low expenses. Their customer service is excellent too. They have choices of different risk levels, which are determined by the mix of stocks and bonds.

In your 30's you can afford to be aggressive, either the 80 or 100% stocks.

www.vanguardinvestor.co.uk/what-we-offer/life-strategy-products

Happy to answer any other questions you might have.

I second what MissConduct says - but go for 100% equities if you’re not touching it for 30 years. And the shares in the index fund will earn dividends but if you buy an accumulating fund, dividends get reinvested in shares which improves your returns over time.

Oops, forgot the dividends question. Normally unless you specifically request payment of the dividends directly to you they will be used to buy more shares of the fund automatically. I also would go for the 100% stock option.

Minimise your fees. You can't control returns but you can control what you pay.

Personally I use a lifestrategy fund, which is a fund of funds, so well diversified.

There are two types of fund:
Accumulation - this increases the value of the units when a dividend is paid. You do not get the dividend, instead the value of holdings goes up.
Income - this pays out a dividend.

Generally within an ISA wrapper you will want to use the Accumulation type whilst you are building wealth.
You would use the Income type if you needed to pull an income off your investments, or if you have a General Investment Account as for that you would be reporting for tax purposes so is useful to have the dividend separated out.

Morningstar changed the fund screener. The old version can be found here: tools.morningstar.co.uk/uk/fundscreener/default.aspx?Site=uk&c=true&LanguageId=en-GB

Thank you so much, your replies are very informative.

So i take that i can only have 1 S&S ISA account? But I could open one in Vanguard and invest in different funds at the same time? Any advice when searching for a S&S ISA account?

@nannynick yes that's what i was looking for, thank you!

100% equity- interesting, i thought i was probably to old to start with 100% equity funds.

You can open 1 s&s isa per tax year

You're not going to retire for 20 years or more, and even then you'll want some money in stocks as an inflation hedge.

You can only PAY IN to one S&S ISA per tax year.

Try to keep things as simple as possible, so having just one S&S ISA account is simpler than having a new one every year.

The platform you use to provide the ISA will depend on various factors:

• Do they have the fund(s) you want to invest in?
• Their fee structure.
• Their ease of use, automation features.
• Their customer services.

Some give you a fancy app but charge you a fee which can be 2x, 3x what another platform charges.

Any decision you make now is not set in stone. You can move platform, you can change fund(s). The key is to get started... then review the situation perhaps 1/2 yearly.

Thanks. Any recommendations for A&E account were you can purchase vanguard? I might open one with vanguard this financial year as it seems like the easiest option at present

@mumtobe9

Thanks. Any recommendations for A&E account were you can purchase vanguard? I might open one with vanguard this financial year as it seems like the easiest option at present

Just deal directly with Vanguard. Anyone else acting as a middle man in the deal is going to find a way to charge you for it.

As many others have said, Vanguard really are excellent and for beginners the closest things to a safe haven, although there is definately risk...

Once you start, continue your research and expand your knowledge, i doubled some money this year using Baillie Gifford, but honestly a 7% return on investments is just as welcome to me... Trustnet has a massive index of funds available, and pension expert.com gives free advice on youtube...

Good luck, remember time in the markets is what counts, more so than even the amount invested...