Investing made simple with a global tracker fund

This post was updated in August 2021

If you want financial freedom, then you want your money to do its share of the hard work.

Your money can end up making more money than you…but first you need to get started with investing.

When you buy into the stockmarket, you are buying into human progress, technology and abundance. That sounds good right…but is it complicated?

No, investing can be made really simple. It’s as simple to invest in the stockmarket as it is to manage an online bank account.

This is important because the stockmarket is the best game in town for long-term wealth building. Long term returns have been about ~10% per year globally. That return comes partly from income (dividends) and partly from capital growth (price increases).

For illustration, let’s say that for every £100 you invested you get an annual dividend starting at £3 per year. Imagine that annual dividend then increased by roughly 7% a year and the price of the fund goes up by a similar amount. In year one, you received £3 of dividend and your investment went up in price from £100 to £107. That’s a 10% total return on your initial investment of £100.

Grumpy people and permabears will mutter that returns will be lower in the future. I used to think the same 20 years ago…and yet here we are. Bears get to sound smart and bulls get to be rich. I wish I’d been more bullish sooner.

No one knows what the future will be. Investing is (and always was) an act of optimism. There are no guarantees but your best shot at financial freedom is to stop dicking around procrastinating and chuck as much money as you can into your compounding machine, whilst you are still young(ish).

In order to buy into the stockmarket as simply as possible you need to choose 2 things:

  • an online broker / platform
  • an equities (shares) fund

First up: choose an online broker (also known as a platform) and open an account. Because all brokers / platforms in the UK are regulated by the Financial Conduct Authority, they all meet a certain standard of financial strength and the legal separation of client assets should protect you even if they go bust.

I’ve used Interactive Investor, Hargreaves Lansdown and AJ Bell. There are many others. These offer a wide choice of investments and all allow you to own shares (US, UK and international) and a decent range of funds from different fund managers. They have different charging structures so you need to compare their fees. But in the early days when you are just getting started, the fees are what they are so just get on with it and you can always switch later if you need to.

Or if you just want to buy a Vanguard fund with a one-stop shop then why not go direct to Vanguard’s own platform?

Now we need to choose a fund.

What’s a fund? I think of a fund as a box that contains share certificates…pieces of paper (now electronic obvs) that denote part-ownership of companies.

The value of the fund is determined by the value of all the shares that it owns. It’s a pooled investment vehicle that owns a little slice of all the great companies of the world.

When you invest in a global equities fund, you benefit from broad diversification.  You don’t care how individual companies are doing because, thanks to the magic of capitalism, if one company is losing, others will be winning. Once you own a global index tracker, the entire system is working for you.

Obviously prices will go down as well as up. But over the long run it should go a lot more up than down. And if it doesn’t, then something like the Zombie Apocalypse has happened, we’re all screwed anyway and none of this matters anyway.

But what to buy? With thousands of heavily marketed funds, it’s easy to get bombarded and over-loaded with information.

As I may have mentioned before, just investing in a Vanguard global tracker fund is a pretty tough strategy to beat.  Its simple, its low cost, it gives global diversification in a one stop shop. And its managed by a company (Vanguard) that’s owned by its customers (and is therefore NOT out to screw you).

Looking at Vanguard’s UK & European product range, there are at least 4 good options when it comes to global tracker funds:

  1. Vanguard LifeStrategy Fund
  2. The Vanguard Global All-cap Index Fund
  3. The Vanguard All World ETF (VWRL)
  4. The Vanguard Developed World ETF (VEVE)

Vanguard LifeStrategy funds

Despite their popularity, my reservation about the Vanguard LifeStrategy funds is that they’re not a true market weighted global tracker fund.

When they created it, Vanguard decided to overweight UK shares in the Lifestrategy funds.  So LS100 has about 25% of the fund in UK equities versus only about 6% based on market cap weightings.

Hhmmmm….25% of your money in UK shares. What could possibly go wrong?? Let’s keep going.

The Vanguard FTSE Global All Cap Index Fund

The Vanguard FTSE Global All Cap Index Fund includes smaller companies as well as global giants. 

The number of companies held by the fund at last count was ~7,000 (compared to ~3,600 in VWRL). The inclusion of mid caps means you get an even more broadly based fund. It’s low cost (fees = 0.23% per year). So we get better diversification at similarly low cost. What’s not to like?

The fund is available in either dividend paying form (income units which pay cash dividends) or in automatic reinvestment form (accumulation units which use the cash dividends to buy you more units in the fund).

The Vanguard FTSE All-World ETF

We then come to the Vanguard FTSE All-World ETF (VWRL). This exchange traded fund does the job of one stop shop at similarly low cost (0.22%).  It doesn’t include small caps but it does own ~3,600 of the biggest companies in the world from all countries.

Vanguard’s product range includes both exchange traded funds and traditional open ended mutual funds.  It doesn’t really matter that much whether you choose an Exchange Traded Fund or a traditional mutual fund structured as an open ended investment company. Both do the job nicely.

So what’s the difference? Well, in summary, exchange traded funds trade on stock exchanges during market hours.

For the user, an ETF is much quicker to get your order filled and you know the price at the moment you buy. For the battle-hardened investor turned bargain hunter, this makes ETFs ideal when buying in the middle of a market crash. In contrast, with traditional funds you have to wait a couple of days for the transaction to get processed at the prevailing net asset value.

In theory, there could be a gap between the share price of the ETF and the market value of the underlying shares in the fund but in practice arbitrage keeps those gaps tiny.

Both are physically backed, meaning the funds hold the underlying shares in all the companies in the fund. The bottom line is that a Vanguard exchange traded fund and a Vanguard traditional mutual fund are far more similar than they are different.

I personally like the way that Vanguard ETFs (such as WWRL) pay a quarterly dividend: for me its a regular motivational boost.  This is more of an emotional factor than anything: I like a cash reward every 3 months that should come even if the price of the fund has gone down.  The cash dividends can be withdrawn and spent or reinvested every now and again.In contrast, Vanguard’s traditional funds (such as VRXXB) pay the dividends annually.

Vanguard’s ETFs are now generally available in either dividend paying form (income units which pay cash dividends) or in automatic reinvestment form (accumulation units which use the cash dividends to buy you a greater share of the fund). The income version is VWRL and the accumulation version is VWRP.

Don’t be put off by the fact that the title of the fund says USD (it’s reporting currency is US dollars). It’s traded on the London Stock Exchange and priced in GBP and you will receive dividends as GBP.

The Vanguard Developed World ETF

So maybe this last one is a bit of a stretch? It’s not a true global tracker fund as it excludes emerging markets.

Why would you do that? Well it’s cheaper for one thing with annual fees of only 0.12% which makes it the cheapest of the bunch.

But a better reason perhaps would be if you don’t want exposure to emerging markets (and especially China) due to their greater political risk, lower governance standards or other risk or ethical concerns you may have. Or maybe you already have enough emerging markets exposure via a specialist fund?

Again, don’t be put off by the fact that the title of the fund says USD (it’s reporting currency is US dollars). It’s traded on the London Stock Exchange and priced in GBP and you will receive dividends as GBP.

So, that’s it, we’re done.  All you have to do now is make a choice and remember to never sell in panic during a crash. A fund is for life, not just for Christmas.

People will tell you its more complicated than this.  And you could make things more complicated…but would it justify the extra time, cost and effort involved?

There is no one single “correct” fund to buy.  If you are struggling to choose, don’t sweat the small stuff obsessing about micro differences between different platforms or products. The most important thing is to get started.


If you want to hear someone else’s thought process, check out this short (5m), clear and helpful video from The Money Plant Youtube channel:


This is provided for information and is not regulated investment advice.


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37 comments

  1. I have a sizeable chunk of my money in vwrl and it’s almost too simple to invest like that.
    Much of the investment advice of “but this and that and diversify ” ends up with people having money in dozens of actively managed funds all of which hold maybe thw same shares in more Or less the same proportions. And they charge you for the privilege.
    It’s an industry that aims to bamboozle you out of your money and I for one say “no more”.

    Thanks TEA for the article!

  2. Nice one Barney,

    I am with HL as well, who are more expensive, I should probably move it across to Vanguard directly to save a bit on fees!

    I have been slightly worried about having most of my private S&S ISA investments in Vanguard Life Strategy 80% for a number of years. Do you think I should switch them all into a more globally diversified Vanguard fund (like Vanguard FTSE Global All Cap Index Accumulation), if you were me? 25% tilt to UK is a considerable amount, I do agree.

  3. Good advice as always TEA, personally I invest a good percentage of my SIPP in VWRL and a smaller percentage in VHYL as I am with H&L the 0.45% fee is capped at £200 a year if you invest in ETF, IT & Shares which can make a big difference over time, I do have some funds Fundsmith, Lindsell Train at present my fee’s are about 0.11%.

  4. mmm i like that all cap index fund. didnt know about that one! still its heavy with US at 60 %

  5. arcyallen · · Reply

    I think the caveat here is people need to be “capable” of staying the course when the tides turn rough. Many people think they have the right demeanor, but haven’t ridden through a financial storm. It’s been my experience that most people get very uneasy when their investments plummet, especially when it’s paired with the news blaring that it’s only going to get worse. Even those with a complete understanding of what they’re invested in often pull the trigger and cash out, often near the bottom.

  6. Orlando Costa · · Reply

    Hi, for ETF’s that distribute dividends, you have to pay taxes twice I guess. I am not UK-based (Portugal) and for funds that are domiciled in Ireland, I have to pay 15% (the funds does it) and then an additional 28% when I actually receive them in my bank account. Plus, there is the currency risk since that base fund currency is USD (even if it sold in GBP or Euro) and for Euro or GBP based people, that is not optimal. Do yo take in account these 2 issues of taxes and currency risk?

    1. I, as a seeking-FIRE investor form Poland, invest in VWRL via Euronext Amsterdam and the only tax I pay on received dividends is 19% capital gains tax payed once a year here, in Poland.

      As for the currency risk – there is always one, since the companies you invest in are global companies, trading in many currencies. The ETF base currency doesn’t matter.

      “Note that it’s the currency in which the underlying assets are ultimately priced that determines your currency risk.”
      You can read more here:
      https://www.justetf.com/uk/news/etf/the-effect-of-currencies-on-etfs.html

  7. ladyaurora · · Reply

    mmmm Ive never lived through a stock market crash,. my portfolio is 43 % in equities. I have a rental property solely for diversification. so ill live off cash and rental income . im hoping that will keep me to stay the course and not sell my equities . i think sites like these will be invaluable when that time comes too. all encouraging one another. Also, my equity portfolio is 40 % UK rightly or wrongly. if it wasnt in the UK it would have to be in US which i dont fancy due to its high valuation.i missed getting in early on the US bull run so entered the US market quite high so dont think i would be happy with 60 % in there at this moment in time.

    1. el Deco · · Reply

      I maxed out my ISA last year in LS100 dripped in from September to Jan. Currently +9.25% . Am switching to to FTSE global all cap index fund for this year’s ISA. So glad to have the money working. Just wish I’d found this site earlier. ( 41 this year ! )

  8. One point you don’t make which is worth noting is quite how easy it is to set all of the above up to happen automatically. The knowledge that every month I’m going to be putting another slug of a Vanguard fund into my ISA without having to lift a finger gives me immense satisfaction. I had to spend a hour or two in total getting that set up and now it will happen until I retire (hopefully early…).

    On simplicity, I also think that we forget quite how easy things are in an online world compared to the past. I can remember my father filling in piles of paper application forms when the public were allowed to buy BT shares. Frankly that’s the sort of barrier to entry that would still put many people off. By contrast, as you rightly point out, if you can do online banking you have the skills you need to open an investing portfolio.

  9. Very simple to invest online now. ETFs are extremely popular in Australia as they have a lower management fee then the same mutal fund. A lot of Aussie’s over weight Australia because of how well over recent years it has performed and high dividend rate. But seeing as we are only 2% of world economy that is missing out on a big share of the rest of the world.

  10. John of Hampton · · Reply

    Once again, very timely advice. I have watched my investments lose a lot lately. But (a) I am still ahead of where I was when I started, (b) I am beating anything a “high-interest” account at a bank would have brought, (c) having read you and Mr Money Mustache, I was expecting a downturn, and have the patience to sit it out until the good times return. So, thank you for your blog, and keep up the good work!

  11. SurreyBoy · · Reply

    The Bogleheads forum from 2014 has interesting reflections on the 2008 crash

    https://www.bogleheads.org/forum/viewtopic.php?t=168261

    From memory there are posts on there from 2008 and 2009 where people report reaching the end of their tether and selling out. I guess what this tells you is invest to your risk tolerance and if all else fails just grin and bear it – though easier said than done

  12. Ok so numpty question incoming…
    Current SIPP consists of around 200k invested in Lifestrategy 60 via HL.
    If one were to wish to reallocate to a similar portfolio to the Simplicity Portfolio, would this incur actual sales of stocks or (being as everything is moving around within the realm of Vanguard) would the units merely be transferred?
    And if so, would there likely be a large transactional fee? I suspect that the transfer of units would also be dependent upon market timing as well i.e. if LS60 was down (currently returned -0.7% over the last 12 months!) and the other funds were priced higher?

    1. Noviss, you will need to sell, wait for the money to appear,and then buy.
      There is no transaction fee to sell funds in HL.
      Note that if you buy ETFs then there is a 0.5% stamp duty fee, however here’s the big win with HL. HL have a 0.45% annual fee on funds and shares in a SIPP. However the charge on shares (which includes ETFs) is capped at £200 a year. So after one year you will be significantly better off to the tune of £700 a year (£900 – £200). S breakeven in about a year and a bit as far as fee s are concerned.
      Re your market timing, if LS60 is down so will VWRL or similar be, because they are still large diverse funds. So I wouldnt worry about that.

      1. Jon, that is an excellent reply, very helpful thank you!

        1. Joe sorry ☺️

      2. No stamp duty when buying ETFs.

  13. Could you please explain how you calculate the yield on VHYL to be 4.1% ? I have checked the Vanguard website, and also done my own calculation based on distributions received. I cant get it to be more than 3.56%. How is it 4.1%, please? I am really puzzled over this and would be most grateful if you could explain.

  14. Castlearcher · · Reply

    Hi TEA. Love the website. What are your thoughts on so called ethical/socially responsible investing? I believe Vanguard has a global SRI fund but charges a bit more (0.35%). I guess that a themed fund also risks diverging from average market performance which your aforementioned world/global funds seek to replicate…

  15. Eddie · · Reply

    Hi All, are there currently any better options than Share Centre who charge £7.50 per deal? Quite significant if monthly drip feeding in to Vanguard funds….

    1. el Deco · · Reply

      Can’t you go direct to Vanguard?

  16. el Deco · · Reply

    Ignore

  17. […] This step is important in terms of long term growth of your savings, but I’m really not a financial expert. If you’re interested I’d recommend having a look at this blog on the subject of FIRE and investing. […]

  18. Extremely helpful article!! Thank you 🙂
    Have just set up my own Vanguard account and also set up regular monthly payments, very very simple to do.
    I’m a complete noob in the world of investing, I have selected 4 equity and one lifestrategy in the ratio below.
    Can anyone tell me am I being stupid here with overlaps? Am I better to just pick one equity fund ?
    Not averse to a bit of risk, 33 yrs old and looking to invest long term. Want to be in the market so I can buy easily during any crash that may be coming!! Thanks for any advice people wish to share…

    VHYL 25%
    VUSA 28%
    VEUR 18.5%
    LS60 18.5%
    Global All Cap 10%

  19. Hi could you please do an article on platforms to use for investing?
    Many thanks

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  26. Naeclue · · Reply

    Good article, but I would like to point out that ETFs pay dividends in the unerlying currency, which is not usually pounds even if the ETF is priced in pounds. For World tracker ETFs, dividends are paid in dollars. The dollars are then converted to pounds by brokers who charge a fee, but some brokers allow dividends to be kept in dollars. This adds to holding costs compared to holding funds where the currency conversions are handled by the fund managers without additional fees. Hargreaves Lansdown charge me 1% for converting my ETF dividends to pounds.

  27. Andrew Leicester · · Reply

    Excellent article that spells out clearly and simply what you’ve invested in and why. I think dividends paid incur some additional currency exchange charges though. For me, I went down the Global All Cap Index and the Developed World ex UK route which reduces the overall UK exposure. I also wanted some small cap and EM exposure. Thank you.

  28. I hold VEVE in my ii SIPP and the dividends are paid quarterly in USD. I have to initiate a sale of USD to GBP and ii charge 1.5% for FX conversion £0 to £25K

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