Tracker Fund

The Idea:
Stock Market trading

Investing and trading can be a stressful business

I have been saying for a while now that I need to put my money somewhere that it is going to work for me and earn something towards my total. Whilst over the course of a year it might not make that much, each pound that I earn can be used as a tool to make more money. With UK interest rates at a record low level for the fourth year running, there aren’t many savings accounts that even offer a rate that beats inflation. Whilst low interest rates might be good news for borrowers, it’s certainly not for people with savings. This doesn’t mean my money can’t make a return, but just means I have to look elsewhere.  I had a look at lending on Zopa, but felt this wasn’t right for me at the moment. Then I turned my attention to a more traditional form of investing – the Stock Market. Ideally I would have liked to picked my own stocks and shares to invest in and build up a portfolio that way. This isn’t because I think I’m some mastermind investor or the next Warren Buffet, but because by picking my own and researching, even if I lost money, I would certainly have learnt something in the process. Whereas when just investing in a fund, it is still possible to lose money, and nothing would have been learnt in the process. However, after looking into it and running a few permutations, it became clear that when investing a small amount, the fees involved in trading would quickly gulf any potential gains – even with a relatively cheap online stockbroker like SelfTrade. As such I turned my attention to funds instead. In looking into funds I quickly ruled out a managed fund – the table below shows just how few fund managers beat the market. It really is staggering when you consider they take huge fees to more often than not provide a product that doesn’t even outperform the market rate. On a happier note, the UK seems to fare surprisingly well in comparison to others, but even then it’s only a 50-50 chance of outperforming the benchmark.

Amount of Fundmanagers who beat the market

Source: Citywire

This then left me with Tracker Funds. These are essentially a fund that invests in a way designed to track the performance of a whole index – such as the FTSE 100 or Dow Jones. The advantages of this is that fees are significantly lower – which can have a big impact on the return on investment. I decided this is the way to go for now, at least until I have a larger sum of money. I found a FTSE All Share index (Fidelity Moneybuilder UKI liked the look of. This tracks all 700 or so companies who trade on the London Stock Exchange. Is this because I think the UK economy is about to boom? No. But it is because I feel that it is likely to grow steadily over the coming months. This is just my opinion and I may well be wrong, but taking positive action is necessary to get anywhere. I chose Fidelity as the provider for a couple of reasons – mainly that the fees are very low – 0.3% annually and no upfront fees. Very good by any standard of funds. The second reason is that it comes nicely packaged within an ISA, meaning all earnings are protected from tax.

Investment Required

Clearly investment is key to this plan. I have initially decided to invest £600 – this leaves me with a little capital accessible in my current account. One of the benefits of this fund is that there is no withdrawal fee, so it offers flexibility if circumstances change, and it can be topped up at any time (minimum top up is £250). Whilst while researching my various options took some time, applying for the fund only took 15 minutes or so. I will keep a regular check on it’s performance, but this won’t take up enough time to even factor in.

Capital: £600

Time(hrs): 1

Return On Investment

This is a tough one to call. Trying to predict the performance of the stock market is not something I particularly want to pretend I can do with any degree of accuracy. Whilst every investment product you’ve ever come across is keen to point out that “past performance is not a guide to future returns” – and that’s very much true – for simplicities sake in this analysis I am going to use the historic yield, which after fees is 2.88%. As shown below, it is not a huge amount, but would be better than nothing.

Projected ROI:  2.88%

ROI inc. labour:  N/A (based upon minimum wage of £6.19/hour)

Expected Return: £17.28

Skills/Resources Required

This could be argued either way. Some would say it takes no skill at all to invest in an Index Fund – and to a large extent that is true. It is a passive form of investment and as such not a lot is required once it is opened. At the same time however, some would argue that it takes a great amount of skill to choose the right investments at the right time and avoid losing money. In my opinion, whilst educated decisions certainly help, for the majority of investors the stock market is more about the gain is made in the long-run through consistent investing – as such it doesn’t require huge amounts of knowledge or time. It does need a bit of upfront capital though – the  Fidelity Moneybuilder UK, which I have gone with has a minimum initial investment of £500, although many funds have a minimum of £1,000. These are the minimums amounts – the more money the greater potential reward becomes.


Risk is a serious factor here. Whilst I feel the FTSE will steadily grow in the coming months, I could easily be wrong. And if I am my £600 begins to reduce in value. This is just a fact of life when it comes to investing in stocks, and whilst plenty of people will tell you they have a foolproof way of guaranteed gains, this is very rarely – if ever – true. The upshot of this is that in a tracker fund, risk is spread through diversification – if one company fails, the effect is limited. It is also worth bearing in mind this type of investment is often more long-term – perhaps a loss will be made one year, but over the course of 5 years usually a market will show net growth. I feel that the risk/reward ratio is reasonable enough to justify the investment.


I can invest as much as I like in this way – so it is certainly a scalable offering. However, I feel when I have more money available to invest I would most likely be better off finding an alternative investment. I view this fund as a good way to get my money actively achieving something right now, but perhaps not the ultimate long term solution for the ever growing stash to be invested in.


I think this is worth doing for now. I have money that needs to be invested – and whilst this is hardly going to make me huge returns, it is in my opinion better than not doing anything with it. As such I will go ahead with this investment. However, I am certainly still on the look out for more profitable investments. Particularly I would like to find some kind of good I could invest in and sell on and certainly make a better return than this is likely to offer. When I find that I can take this money out if needs be and reassign it elsewhere. Until then I will stick with this fund and see how it performs.

The Verdict


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  1. Chris says:

    What’s the trading cost per purchase? Cheapest way to get general FTSE exposure is generally acknowledged to be vanguard ETF, ticker symbol: VUKE.

    • With the fund I’ve gone for it’s a 0.3% annual charge. The cheapest stockbroker I could find was £9.50 a trade (and a fee if a trade is not made once each quarter). The general consensus from what I read was that vanguard is better for larger sums – although I have had a closer look at it and it seems it may have worked out about 0.1% cheaper than what I’ve gone with. Having said that, I’m not sure I’ve fully understood all of the costs involved with the vanguard option.

      • Chris says:

        I top up vanguard UK equity fund which has a total expense ratio of 0.1% each month. I do it through TDWaterhouse online regular saver ISA. They charge £12.50 Per trade or £1.50 per regular purchase. I believe it’s a cheaper way to go than fidelity. I used to use fidelity but found their platform too funds based, too expensive, and very difficult to trade individual shares.

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