Low Cost Global Index Funds: This is HOW You Invest to Build Wealth

Gradragstoriches
Dec 18, 2025
5 min read

Learn how to build wealth by "buying the whole haystack". This guide simplifies passive investing, explains why the S&P 500 has seen ~250% growth, and shows you how to start with pound cost averaging

Investing is often made to look complex and dangerous, but it doesn't have to be. This guide helps you cut through the jargon and understand the concept of risk, enabling you to "do it yourself" and build long-term wealth.

What is Index Fund Investing? (Buying the Whole Haystack)

Instead of trying to pick a few individual companies you think will perform well, index fund investing allows you to buy the whole market at once—essentially buying the "whole haystack".

Passive Management: An index fund is a passive investment; it does not have a manager actively selecting assets.
Diversification: It simply invests in every equity or bond within a specific index.
Lower Costs: Because they aren't actively managed, these funds provide diversification at a lower cost than managed funds.
Broad Exposure: You buy shares in the fund itself, which then gives you exposure to all the companies on that list. It is an "off-the-shelf" investment where one transaction is spread across hundreds or thousands of companies.

An index example is the FTSE 100, which comprises the 100 largest companies in the UK stock market, or the S&P 500, which comprises the 500 largest companies in the US stock market. A global index can contain Equities or Bonds from markets all over the world.

The idea of an index fund is not to pick out individual companies that you think will beat the market or deliver outsized returns. You’re not trying to be an expert investor when you buy these; you’re just trying to capture the growth of the market as a whole.

How Index Funds Work: Weighting and Allocation

In most cases, companies within an index fund are weighted based on their size. This means you get more exposure to the largest companies and economies, and less to smaller ones.

These weights change as the companies grow and decline. For example, if a company like Microsoft fades away, the fund's allocation to it automatically shrinks.

Currently, the American stock market is around 60% of the global stock market. When you buy a global index fund, around 60p in every pound goes into US investments. Within this, Microsoft is so big that 5p in every £1 goes just to them.

Investing in the whole haystack means you don’t need to analyse each individual company out there.

Investing terminology

Investing is made to look complex and dangerous. This blog post helps you understand the jargon and the concept of risk, and enables you to 'do it yourself'.

Understanding Risk and Volatility

Building a portfolio relies on understanding your appetite for risk and how that shapes your asset allocation.

Firstly, how long do you have until you need the money? For example, if you are saving to buy a house, it doesn’t really make sense to take too many risks with that money.

On the other hand, if you don’t need the funds for a long period of time (10 years plus), you may be comfortable with more risk, on the understanding that it could lead to potentially higher returns.

Secondly, the other component of risk is how much you can stand to see the value of your investments drop.

How would you react if your portfolio dropped 20% in one morning, or dropped every year for three years?. These scenarios have both happened in the last 40 years. If you cannot cope with such declines, a 100% stock market portfolio is not for you.

Investments with the highest growth potential also have the highest chance of volatility or declines in price.

If the answer is that you couldn’t physically, emotionally, or financially cope with a decline in your portfolio’s value, then investing 100% in the stock market isn’t for you.

The Solution: Combining stocks and bonds is a traditional way to reduce portfolio volatility.

K I S S Investing.

This blog post looks at how to invest using investment platforms. Keep it simple, don’t be a player and try to time the market. Just buy and hold for long-term gains.

Risk and volatility are often used interchangeably in the financial press. Volatility is the measure of how far the price of an asset moves up or down, and risk is the likelihood of an asset losing value.

Equities provide higher returns than Bonds but they are more volatile, i.e. regular big ups and big downs in the value/purchase price and therefore more risk of loss. Bonds provide lower returns but with reduced volatility, i.e. lower ups and downs and therefore less risk of loss. This is why we buy both Equities and Bonds.

These splits are based on ready-made portfolios here

Comparison of Returns (2014–2024)

Historical data shows why long-term investing in indices is a powerful wealth-builder:

If you are saving for retirement through a SIPP or Company pension scheme, which is probably a 40 to 50 year time scale, you can afford to have higher exposure to equities.

Strategy: K.I.S.S. (Keep It Simple, Stupid)

The possibilities for structuring investments are endless, but the key is not to overcomplicate it.

You don’t need to add 100 different funds to your portfolio if they’re all doing the same thing and covering the same areas. If you just want to be 100% in equities and want global exposure to businesses of all sizes, one global all-cap index might be enough for you.

You don’t have to decide everything today. You will gain confidence and knowledge as you develop over time, and so will your portfolio.

How to Practice Investing for Real Without Risking Money

Are you looking to dive into investing but fear losing your hard-earned cash? Don't worry! In this blog, we will guide you through how to confidently open a real-world demo investment account and practice using all the available tools, without risking a penny.

When is the "Right Time" to Invest?

Everyone is searching for the answer to that question - the perfect time to start investing. Many people wait for a "dip" or a "crash," but this often leads to never starting at all.

If you’ve already decided that you’re going to invest every month for the next decade, or 3 decades, and you’re going to invest tens of thousands of pounds over that time period, does it make sense to sit on the sidelines stressing, worrying about the first £100?

A long-term ongoing investment into the market consistently is often referred to as pound cost averaging, which means investing a set amount regularly, for example, £50, £100, £500 a month, regardless of what the market is doing, whether it’s going up or down. The opposite is called lump sum investing, where you just dump all of your money into the market in one go.

Pound cost averaging is arguably the simplest and most effective strategy to combat timing temptations and benefit from volatility:

When prices are high, your £100 buys fewer shares.
When prices drop, your £100 automatically buys more shares.

Over time, this averages out your purchase price and drastically reduces the risk of investing a large sum right before a crash. It takes emotion out of the equation and turns market dips into an automatic advantage. It’s the perfect strategy for steadily building wealth through all market conditions.

When Should I Sell?

“I’m up 20%, I’m going to sell, then I’m going to rebuy when the prices come back down again.”

It is very hard to predict when stocks will rise or fall, and it can be stressful too. Selling because you are "up 20%" can backfire if the market continues to climb. This is why we say “Time in the Market, not Timing the Market”.

The general guidance that many advisers give is to try to be consistent, ignore the press, and ignore short-term price movements. Stick to the plan; the only thing that really matters is where your portfolio is when you plan to sell.