How do I choose an index fund from scratch?
Choosing an index fund comes down to five things: which index it tracks (a broad global one like FTSE All-World or MSCI ACWI gives you thousands of companies in a single fund), the ongoing charge (OCF — aim for 0.25% or less), whether it's accumulation (reinvests dividends) or income (pays them out), how big and well-established the fund is, and how closely it actually tracks its index. For most people starting out, one broad global tracker does almost all the work.
Start with the index, not the fund
An index fund just mirrors a list of companies, so the most important choice is which list. For a first or core holding, a broad global index — FTSE All-World or MSCI ACWI — gives you exposure to thousands of companies across developed and emerging markets in one product. That single decision delivers most of the diversification you need. Narrower indices (a single country, a single sector) concentrate your risk and are choices to make consciously, on top of a broad core, not instead of it.
Check the ongoing charge (OCF)
The OCF is the annual cost of running the fund, taken automatically from returns. Broad index trackers should be cheap — many cost 0.07% to 0.22%. As a rule of thumb, aim for 0.25% or less for mainstream global or US exposure. Two funds tracking the same index are nearly identical products, so among like-for-like trackers the cheaper one usually wins. Over decades, the cost difference compounds into real money.
Accumulation or income?
Most index funds come in two versions. Accumulation (Acc) reinvests dividends back into the fund automatically — best for long-term growth and simplest inside an ISA or pension. Income (Inc/Dist) pays dividends out as cash — useful if you want regular income. The underlying holdings are identical; only what happens to the dividends differs. For someone building wealth over time, accumulation is usually the default.
Size, structure and tracking quality
- Fund size — larger, well-established funds (hundreds of millions or more) are liquid and unlikely to be closed or merged.
- Tracking difference — how closely the fund matches its index after costs. Small and consistent is what you want.
- Fund vs ETF — an index fund (OEIC) is priced once a day and ideal for regular monthly investing; an ETF trades like a share through the day. For long-term passive investing the difference is minor — pick whichever your platform handles cheaply.
- Domicile — Irish-domiciled funds (often labelled "UCITS") are the standard, tax-efficient choice for UK investors.
Keep it simple
You don't need many funds. A single broad global tracker is a complete portfolio for many people; adding a second (say a bond fund, or a small tilt) should be a deliberate choice with a clear reason, not an attempt to own everything. More funds rarely means more diversification — it usually just means more overlap.
Key takeaway: Pick the index first (broad and global for a core holding), then choose the cheapest, well-established, accumulating tracker that follows it closely. One good fund beats five overlapping ones.
Arken reads every fund you hold, shows its real cost and what it actually tracks, flags overlap between your funds, and suggests lower-cost equivalents with the projected saving over ten years.
