UK Markets open in 6 hrs 26 mins

3 index funds I’d buy with £10k today

Rupert Hargreaves
Board game pawns on wooden table. Contarian

The FTSE 250 might have experienced a strong 2019, but the index still appears to offer excellent value for money, considering its growth prospects and international diversification.

As such, I think if you’re looking to invest £10,000 today, buying a low-cost FTSE 250 tracker fund is a great place to start.

FTSE 250 tracker

As tracker funds only replicate their underlying index, it’s pretty easy to choose the best one on the market because it’s all about cost. The lowest cost FTSE 250 tracker fund at the moment is HSBC’s FTSE 250 Index tracker.

This fund charges an ongoing fee of 0.18%, although if you buy it through Hargreaves Lansdown, the cost falls to just 0.08%.

Such a low fee you could help you grow your wealth rapidly over the long term. Since inception, the FTSE 250 has produced an average annual return of 12%, which would be enough to double your money every six years.

Equity Income

Another low-cost tracker fund that appears to offer value at present is Vanguard’s FTSE UK Equity Income Index Fund. This aims to track the performance of the UK Equity Income Index, an index of the best income stocks listed on the London market.

Unlike actively-managed equity income funds, Vanguard’s offering doesn’t try and pick investments. All the fund does is buy the stocks that make up the underlying equity index, so there’s no risk of a Neil Woodford-style disaster. There are 125 stocks in a portfolio with an average price-to-earnings (P/E) ratio of 13.2 and price-to-book (P/B) ratio of just 1.4.

The fund’s average yield is 5.6%, which implies the investment could produce a growing passive income stream for investors and offer an attractive risk-reward profile at current levels. An annual management fee of only 0.14% sweetens the appeal and allows investors to buy a share in this well-diversified income fund for a minimal cost.

US Index fund

Finally, Legal & General’s US Index fund would make an attractive addition to any portfolio. This tracks the performance of the S&P 500, the world’s largest and most liquid stock market.

While it’s a US market tracker made up of US companies, most of these businesses are global enterprises so, in many respects, the index is a global stock market.

The S&P 500 has also produced the best returns of any major blue-chip stock market over the past 100 years or so. The index has produced an average annual return of around 9%. That compares to about 7% for the FTSE 100.

With a management fee of 0.1% per annum, or 0.06% if you buy the fund through Hargreaves Lansdown, Legal & General’s offering is a fantastic way to gain exposure to the world’s largest stock market at minimal cost.

The bottom line

This relatively simple portfolio of index funds offers a mix of income and value as well as growth, which could improve your chances of building a substantial nest egg. It could even allow you to retire early.

More reading

Rupert Hargreaves owns the FTSE U.K. Equity Income Index Fund. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020