Tracker/Index funds

Sam Harris
May 2025 • 2 min read

Tracker/Index funds

You may have heard the terms ‘Tracker’ and ‘Index’ thrown around when we talk about investments or your portfolio, but what do these terms mean and what are the key features?

Simply put, a tracker portfolio aims to mimic the performance of global markets. This is typically done through index funds. An index in the context of stock markets is essentially just a list of companies. Though, there are often certain criteria a company must satisfy in order to be included, such as market capitalisation (the value of the company).

I’m sure you’re already familiar with well-known indices such as the FTSE 100, which is an index made up of the 100 largest British publicly traded companies. Or even the S&P 500 which is comprised of the 500 largest American companies. These funds ‘track’ the UK stock market and the American stock markets respectively.

Index tracking funds come with the added benefit of generally being less expensive than most alternatives. This is due to the passive nature of this type of investment, these funds are simply trying to replicate an index so most of the hard work has already been done by another organisation. For example, Vanguard might offer an equity fund which tracks the FTSE 100 index, however the index itself is calculated and maintained by FTSE Russell.

The Tracker portfolios we use at Solomon’s are prime examples of utilising index funds to ensure investments are well diversified. Meaning, that the markets which are performing well help mitigate losses from markets which are struggling. Conversely, this could also be seen as underperforming markets eating into the gains of strong markets. Though ultimately, diversification is a strategy used to reduce risk, rather than to increase returns. The aim is not to beat the global markets, but rather to match them.

BACK TO ALL BLOGS

Tracker/Index fundsJemima Thomas2025-05-27T10:47:03+01:00

IN SEARCH OF ANSWERS

TODAY’S BLOG

IN SEARCH OF ANSWERS

I had the unwelcome task of writing to clients to advise that the value portfolios have fallen by over 10% since the start of 2020. The emails that I sent seemed to be well received. Today has been another very tough day for investors (and their advisers). The charts are rather frightening, this comes at a time when we are all (most of us anyway) rather anxious about the state of the world and a deep sense of unease.

So, without wishing to fudge any issues, I thought it best that I re-use the bulk of the content that I have been sending.

It is now a regulatory requirement to tell you when a portfolio falls by 10%. This is a new experience for me, despite being an adviser for several decades. I genuinely believe that this new requirement comes from well-meaning regulation, but is entirely counter-productive, because it is essentially alarmist. I will endeavour to add a little more flesh to the bones.

SHOULD YOU WORRY?

Should you worry? No; but anxiety and concern are normal responses to ‘seeing’ the value of your portfolio fall. Anxiety or fear are normal responses to ‘danger’ or bad news. We are built that way and it is why we have survived as a species for as long as we have. However, the instinct of ‘flight’ is of no use to investors. The stock markets of the world fall in value each year. I would refer you to the various articles I have written about this over the years and remind you that 1 in 4 calendar years have negative returns. This is part of ‘the norm’ and indeed we don’t get the positive returns without the negative. However yesterday’s headlines of the FTSE’s second largest fall in a single day does not really help calm nerves.

UNCERTAINTY IS NORMAL

The problem with investing is that markets are not predictable, despite appearing so. What is predictable is irrational investor behaviour. This is precisely why we ask you to complete an attitude to risk questionnaire. So that a suitable portfolio is constructed for you – one that provides the chance of delivering the returns you need whilst enabling you to sleep at night. You will have experienced similar falls in value before, but either didn’t notice, or were reassured.

WHAT IS A LOSS?

When the value of anything falls, it only impacts those selling. A crash in property prices, impacts those selling their home, most of us do not notice, although it may provide conversation around the dining table with friends or colleagues. Unlike property, the value of equities and bonds are transparently priced throughout the day in a highly regulated market. When you sell your home, frankly the price is a bit of a guess by the estate agent, surveyor and then haggled over by seller and buyer … in practice, a very small and biased market.

The key is not to panic; not to sell. You know this, but we also know it is hard to do. You know that you should sell at the top and buy at the bottom, however as humans we tend to do the exact opposite. I’m not going to pretend that this doesn’t make us all wince and wonder, but equally I will remind you to stick to your plan – yours; not those of a media which seems only intent on making you miserable.

Your portfolio is globally diversified, it is well balanced, it is low cost and it is properly reviewed. We have biases towards smaller and value equities which over time will demonstrate to be better value. There is a huge amount of research that should you wish it, I can point you to. However, I tend to think of that as my job … to help you make better decisions with money and help reduce or avoid all the daft ones.

THE UNCOMFORTABLE TRUTH

If you are investing on a monthly basis, the fall in prices is a bit of a bonanza – because you buy more for the same money. We expect values to rise. They will; it’s just a question of when. For those who add lump sums, similarly now is essentially a discount sale that will not last.

Those who are withdrawing money have a much tougher time. The fall in prices means you sell more holdings to get the same figure out. Thereby not benefitting as much when prices rebound. They will, and you will, but not as much. In an ideal world, you will have discussed and outlined your plans for income or lump sum withdrawals and we have already factored this in. If you need to review this, then please get in touch.

DO NOT OBSESS OVER THIS

Looking at your portfolio each day will never help anyone. It will rarely provide comfort. Worry will not help you to live your life well. You have to trust that the fundamentals of investing will remain true today, next week and next year as they have done over the decades. Yes – there are ‘bad times’, but remember that market returns are positive 3 in 4 years on average, we simply don’t know the order or reason.

You are investing for decades and I have no doubt that this too will pass.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk
Call – 020 8542 8084

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PRIVACY POLICY | DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

IN SEARCH OF ANSWERSDominic2023-12-01T12:13:22+00:00

Investing: Q2 2015

Solomons-financial-advisor-guest-blogger-SW

Q2 – 2015

The second quarter (Q2) saw the domestic equity market fall 2.8% while the market for government bonds fell 2.6% in value. A portfolio composed of 60% equities and 40% bonds finished the quarter 2.6% lower.

Index	1 year	3 years	10 years	Low Point	Greatest Loss
FTSE100	0.2%	9.2%	6.3%	Feb 2009	-39.8%
FTSE Gilts (5-15years)	7.4%	2.1%	5.6%	Dec 2013	-6.7%
60-40 Portfolio	3.2%	6.5%	6.3%	Feb 2009	-20.4%
LIBOR (3 months)	0.6%	0.6%	2.3%
Consumer Price Index	0.3%	1.5%	2.5%

Taking a longer term view, and given a minimum of 7 years for investment, we look for returns from the FTSE 100 Index to lie somewhere between 6.9% and 10.1% per annum. The most recent decade (from 30 June 2005 to 30 June 2015) is characterised by a return of 6.3%, outside of the lower end of our range. That makes good sense when one considers that the starting and ending points in that period coincide with a maturing bull market in 2005 and some volatility today.

Our hypothetical 60-40 portfolio, comprising 60% in the FTSE 100 Index and 40% in the FTSE Gilts (5-15 years) Index, has gained 3.2% over the last 12 months, 6.5% p.a. in the last 3 years and 6.3% p.a. over the 10 year period. Adjusting those figures for inflation gives us a healthy set of real returns of 2.9%., 4.9% p.a., and 3.7% p.a. respectively.

Those positive inflation-adjusted returns are particularly pleasing when we consider that cash investments have, somewhat unusually, lost ground relative to inflation – a result of 6 years of unprecedented monetary easing.

The last year is characterised by a mixed set of results with the US and Japan performing strongly. Meanwhile relatively low returns have been provided by markets in Asia, Europe and developing world.

Steve Williams

Investing: Q2 2015Dominic2025-01-21T15:53:27+00:00