The DIY investor can construct a portfolio of passive investments in line with their risk tolerance.

 

Indices deliver exposure to most types of investment, home and abroad, with differing volatility and risk profile.

If you want a readymade, diversified range of investments without the costs that come with actively managed funds you may find index investing an attractive option; here are five reasons why:

 

Index Investing is Simple

 

By buying an Exchange Trade Fund (ETF) that tracks a particular index – you are automatically creating a portfolio of investments as diverse as the companies that make up the index.

Select the indices you wish to track and set up regular contributions via your stockbroker; rebalancing is effectively done for you; markets will rise and fall but you’re in for the long haul.

 

Index Investing Works

 

After costs and taxes index investors can consistently beat the performance of the average active investor and often beat the performance of actively managed funds.

A key factor is their very low cost; a FTSE 100-tracking Legal and General UK 100 Index, charges just 0.10% which several brokers discount.

£10,000 invested, achieving 6% annual growth over ten years returns £16,929 in a fund charging 1.5% and £19,185 in one charging 25bps; long term returns with diversified risk.

‘all things considered, here at the Fool we believe that an index tracker is the most suitable initial investment vehicle for the vast majority of people’

 

Index Investing can be Cheap

 

Most brokers offer ultra low commissions on regular investments into low cost index trackers with investments from as little as £50 per month; a good first step into DIY investing.

 

Index Investing for the Time Poor

 

Index investors are able to achieve solid long term investment performance without living and breathing their portfolio.

 

Index Investing for the DIY Investor

 

The government’s Retail Distribution Review changed the investment landscape for ever as many turned to DIY investing.

Investment community The Motley Fool concluded, ‘all things considered, here at the Fool we believe that an index tracker is the most suitable initial investment vehicle for the vast majority of people’.

When considering constructing a portfolio of index trackers the DIY investor should understand the risks they are exposed to, work out how much they will need to invest in order to achieve their financial goals and create a number of alternative scenarios by factoring in variables such as the effect of inflation.

Keep a watching eye on costs – even small increases to dealing commissions or platform fees can make a big difference to the long term return on your investments – then be confident and Do it Yourself.





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