Global Index Funds for New Investors: Ryan King’s Beginner’s Guide

This transcript is auto-generated and lightly edited for readability, it may contain errors.

[0:18] Sammie Ellard-King:

So you’re a big fan of index funds, and it’s like a big buzzword in, I suppose, in our world, but even when I get messages all the time, it’s like, you know, what is an index fund and how does it actually work? So yeah, would you mind sort of giving us the forward? Yeah.

[0:33] Ryan King:

So to go back to absolute basics, you obviously have companies all around the world. So even you’ve got obviously big companies like Tesco, Nike, Adidas, Tesla, you obviously got smaller companies, and obviously all these companies are like making products, selling a service, they’ve got employees, they got officers, they’re trying to survive and trying to make money. The really good companies essentially get listed onto the stock market. So once they’re listed on the stock market, me and you, and really anyone who have access can then sort of buy a share of Tesco from the stock market, buy a share of Apple from the stock market. What then sort of so these are all individual stocks we call them. So it’s like individual companies, and you of course can invest into individual companies. And if you actually work for an employer, like I think Apple have a really good scheme where they will give their employees like share options and you can then get shares in the company. Um, so people may even have shares that they don’t really realise what they are or they don’t even have them. But these are sort of individual stocks, individual companies. You can then group these companies into what’s called an index. So an index really is just a collection of sort of individual companies, individual stocks. So some famous ones that people probably would have heard of. You mentioned the S&P 500, the largest 500 US companies, the FTSE 100 is the largest 100 UK companies, other sort of ones, NASDAQ, you’ve got the Nikkei 225, but then you also have these global index funds, which group companies from all around the world in. But an index is just essentially a collection of individual companies or individual stocks. Index funds are then how like we, me and you, everyday investors, can then invest into that index. So rather than using the S&P 500 as an example, rather than going out and buying one single share of every 500 companies, which would be a pain in the arse, and those companies always changing, we can just invest into an S&P 500 index fund or ETF. They’re essentially the same thing, um, and then get access to those 500 companies through one index fund or ETF. Um there’s a massive emphasis, of course, on the US. I think because generally speaking, the US is probably the most sort of capitalistic and innovative country. It’s also the largest country that makes up the global stock market, about 60%. It’s got the biggest companies Apple, Tesla, Amazon, Facebook, or Meta. Um so there’s a lot of focus on it. And I’m not gonna lie, bullshit you, the S&P 500 has had amazing returns for the last 15 years. It’s been the best performing country by a mile. Some of the stocks like Apple, Nvidia, have had unbelievable returns. But my approach personally is to use global index funds. So global index funds, I guess sort of as we broke down what index fund already is, but it’s just invest into companies all around the world globally. So not just the US, but also the UK, Japan, China, literally everywhere around the world. And I personally choose to invest into that. It sort of means that although the US is the best at the moment, even if another country becomes better in the future, China or India are probably the two most likely, is it gonna happen? I don’t know. But if another country starts performing better than the US, then that’ll be reflected in the global index fund. If the US still performs well, don’t get me wrong, I’ll still be benefiting as well because the US makes up the majority of the global index fund. Um, but yeah, the reason why I like using global funds, it just keeps my approach really simple. Um, it means I’ve not got to have multiple funds. And if something did happen to the US, I’m still gonna be sort of fine either way, because I believe the global economy is gonna continue growing, innovating over time, and then slowly my wealth will grow with that. So that’s sort of whistle stop tour of the stock market and why I personally use global index funds.

[4:07] Sammie Ellard-King:

And there’s many different types of global index funds, and I get this question a lot. So I’m sure you do, right? What what what do you reply with normally when people ask you that?

[4:17] Ryan King:

So I actually think this is like probably one of the biggest barriers to entry that isn’t talked about much. It’s in so hard to work out what a fund actually does. If you type in global or world, you’ll get like FTSE global all cap accumulation, FTSE global all cap income, FTSE all world, VWRP, distribution.

[4:38] Sammie Ellard-King:

Yeah, yeah.

[4:38] Ryan King:

Then you’ve got like all these other buzzwords, then like Vanguard have got one, iShares have got one, InvestCurve got one. It’s an absolute mindfield to work out what funds actually mean. So what I would say is if anyone actually looked into specific funds, the best thing to do, and is a bit of a manual job, is to look up the fund and then actually look at the fact sheet or the key investor document. Okay. Because in there it’s a two-pager, it’ll give you the objective, what the fund’s invested into, as well as the fees. There’s a few other bits, but I think those two are the two most important things that I look at when selected in a fund, what it’s actually invested into, and I of course want to invest globally, and then what the fees are, and of course, I want as low as fees as possible. Um, the fund that I talk about a lot in the book and just for years on social media is the FTSE Global All Cap, which is a Vanguard. So the whole the whole fund name is called FTSE Global All Cap Index Fund Accumulation. So it’s I C C Yeah bit of an absolute uh jargon sentence, but to break that down, no wonder it’s so bloody hard for people. And it’s and it’s actually got Vanguard at the start. So Vanguard are an investment platform, but they also offer funds, yeah, and that is their fund.

[5:44] Sammie Ellard-King:

Yeah.

[5:44] Ryan King:

The FTSE Global All Cap is the index it tracks, and that index is essentially a global index made up of companies from all around the world, the developed world and the emerging markets world. And the companies are of all sizes, large, medium, and small. So sort of the most diversified fund you can invest into. Index fund, we’ve covered that. There’s a passive index fund approach to invest in, so it’s low fee. And then accumulation, which is very important, means that all of the dividends will be automatically reinvested back into the fund. Okay. So generally speaking, you want to use accumulation funds because if you can automatically reinvest the dividends back into the fund, not only is that automatic and you haven’t got to do anything manually, it also is going to grow and compound your wealth slowly. But that is the main fund that I use. So in my Vanguard UK stocks and shares ISA and SIPP, 100% of my money is in the FTSE, Vanguard FTSE Global All Cap Index Fund Accumulation. 100%. Yeah. And that’s the only fund I invest into. Of course, it’s people, people can do whatever they want with their money. I could also invest into the SB 400. I could also invest into another global fund into individual stocks. But I personally just, like the name suggests, want to make money as simple as possible in my own personal life and just yeah, have one fund. And that’s the only fund I need, to be honest with you. Um, another very popular one is Vanguard’s FTSE All World VWRP, which is an ETF rather than an index fund, but it’s essentially it’s very similar. Yeah. That’s available on more platforms, so that’s probably actually a more popular fund to invest into. Yeah. But that’s if I’ve got the FTSE Global All Cap, the FTSE All World is very similar. And then what will happen is like iShares, Invesco, Fidelity, all these other they were all offer their own one. So what I say is normal, say just go with Vanguard because I have the lowest fee. Unfortunately, as well, I’m not actually sponsored by Vanguard. I wish I was because I’ve been talking about them for years. Um, honestly, let me know. Make a fortune. Um, but I normally go with Vanguard because I have the lowest fee. But if you wanted to, you could like click into all the fund fact sheets and actually see which is the lowest fee. And if every single fund is doing the exact same thing, then obviously pick the one with the lowest fee. Really good advice.

[7:48] Sammie Ellard-King:

Can you explain the dividend in a little bit more detail for people? Because I feel like it’s something people overlook. And actually, like, you know, for me it’s fantastic because it’s like 1.5% dividend, and I’m getting 8% that year, for example, is actually a 9.5% increase.

[8:02] Ryan King:

100%. So to very basics, all dividends are is essentially cash that is paid out by companies to shareholders for holding the stock. So a lot of fast growing companies like Tesla, Amazon, Meta, they won’t pay dividends because they’re reinvesting all of their money back into the business. Old older companies generally, though, so think like Coca-Cola, McDonald’s, they will pay dividends and that because they’re not as fast growing, but that’s sort of a way to reward shareholders for holding their individual stock or individual share. And of course, the more shares you have, the higher dividends you’ll get. Funds, index funds, inherently are made up of hundreds, if not thousands, of companies. So the S&P 500 has 500 companies. The FTSE Global All Cap invests into 7,000 companies all around the world. So inherently, they will also pay a dividend, and it’s called the dividend yield. So as you mentioned, 1.5%, that is the dividend yield, how much is paid out of the share price every single year. Um, those dividends are actually really powerful because for years and years, the S&P 500, when interest rates were like 0% in this country for years, uh, the S&P 500 still had a 2% dividend yield. Yeah. So even if it returned nothing, you were still getting more from dividends than keeping money in a savings account. Of course, it’s a bit different now because interest rates have risen, but you make a great point, it’s so often overlooked, and that is part of your return. And it’s actually there’s a bit of a tangent, but there’s some really good studies, and I actually touched on them in the book where over the long term, about half of your return will actually come from reinvesting dividends. So that’s how powerful it is, actually, I guess using index funds and then reinvesting all your dividends because they will obviously compound as well over the long term. Yeah. Um, but yeah, so how does this actually work in practice? Well, you have accumulation funds and income funds, and these accumulation funds will automatically reinvest the dividends back into the fund. So that one and a half percent you mentioned, that’ll get reinvested back in it normally either quarterly or yearly, depends on the fund. With the FTSE Global All Cap, it’s um quarterly. Normally the S&P 500, sorry, with the FTSE Global All Cap, it’s yearly. With the S&P 500, it’s normally quarterly, but I guess reinvested back into the fund and then grows your wealth even quicker over the long term.

[10:11] Sammie Ellard-King:

I love dividends.

[10:12] Ryan King:

Yeah, dividends are good. I agree, aren’t they? And the sort of end goal is well, imagine you can get your pot to a point where you can then switch to an income fund and then live off of the income from the investment pot. That is the dream. Yeah.

[10:24] Sammie Ellard-King:

I funny fact, today on the way in, um, I got an email from Free Trade, which I just completely forgot I’d opened the account, and I got a dividend for 0.01. Every penny, the start of the next million. I was like, get in. And I was like, oh right, all like that. It’s like absolutely smashing wealth growth right now. You gotta start somewhere. Yeah, I think I looked at it and I looked at it and I was like, oh yeah, good cool. I think it’s got like £5.69 or something on it. And I was like, oh wow, amazing. Yeah, I’m I’m going up in the world, guys. Um, obviously, you you’ve spoken about the S&P 500, it’s the probably the most famous, but why is it that you just 100%? Why only that? Like a lot of because I’m I split, um, so I do like 80% index funds, 20% individuals, and then even my 80%, I do 50% global. Yeah. And if you make that 80% 100%, yeah. So then 30% S&P and then 20% UK. Yeah. And that’s just like for me, I feel more balanced with that. And it I suppose it’s different for everyone.

[11:27] Ryan King:

Yeah, different. And that’s the guess, I guess, the beauty of investing. You can literally invest into whatever you want. Just because I’m doing this, she got this is my approach. She might have a different view on things with the US market. It’s like undeniable that over the last 15 years, the gains have been much better than investing into a global fund. Global funds have still benefited because they’re made up primarily about 60% of US stocks. But it’s no doubt the US market has performed better. The problem is it’s impossible to know if that’s going to continue. And with a global fund, you’re efficiently investing into countries around the world in the direct proportion that they make up of the global stock market. Right. That’s a bit of a mouthful.

[12:07] Sammie Ellard-King:

But what that essentially means that world’s economy, basically. Essentially, yeah.

[12:10] Ryan King:

So the UK only makes up about 4% of the global stock market. Interesting fact, there’s like a few US companies that are actually more valuable than the entire UK stock market, which shows just how massive the US is. Um, but so the UK is made up, is makes up 4% of the global stock market, which means in my global fund, there’s 4% UK stocks. The US makes up about 60% of the global stock market, which means in my global index fund, the FTSE Global All Cap, it’s about 60% US stocks. So what then happens is over time, as different countries and companies grow and some fail, that’s then reflected in the global index fund. So I’m sort of always efficiently investing into companies and countries in direct proportion that they make up of the global stock market.