A Beginner's Guide to
Global Index Funds

Global Index Funds: At A Glance

Introduction

If you've read my guide to index funds and ETFs, you already know what an index fund is: a basket of companies, rather than a single stock.

We're now going to take things one step further and answer a question I get asked constantly: which index fund should you actually track?

Out of everything I cover, this is the type of investment I talk about the most - simply because it's the one I use to grow the vast majority of my own money.

I'm not going to tell you it's the only way to invest. Hopefully, you know that isn't the case.

But I do want to make sure you know exactly what a global index fund is, how it works, and why it's the approach I've personally stuck with since 2018.

Let's get into it!

What Is a Global Index Fund & How Does It Actually Work?

Quick recap before we jump into things: aside from a few minor differences, index funds and ETFs are pretty much the same thing (if you need a reminder, you can read about both here).

A global index fund, then, is simply one which tracks the entire global stock market - rather than just one country like the UK's FTSE 100 or the US' S&P 500.

Because a global index fund is, well, global, they often have thousands of companies inside their "basket", meaning they're incredibly well diversified.

Just like the S&P 500 weights companies by size rather than splitting them evenly, global index funds use market-cap weighting: each country's slice reflects how much of the global economy it represents - so if the US makes up around 60% of the global stock market, it'll make up around 60% of your global fund too.

This shifts automatically as economies grow or shrink, so you'll never need to rebalance or predict which country dominates next - the fund does all the work for you.

It might look like the US will continue to dominate the stock market - but I bet everyone in Japan thought the same back in 1989!

No one has a crystal ball when it comes to the stock market, and that's precisely why I see global index funds as a bit of an insurance policy - more on why below!

Why I Invest in Global Funds

This has been my investing approach since 2018, but it wasn't always. Like a lot of people, I thought I'd be able to spot the next Apple or Nvidia and started by trying to pick individual stocks. I lost a lot of money doing this, and that's genuinely a big part of why I've stuck to global funds ever since.

Here's why I think this approach works:

• Diversification: I own thousands of companies across every corner of the world, including developed and emerging markets - all inside a single fund
• No guesswork: I don't need to predict which country, sector, or company performs best over the next decade - I already own them all because global index funds are...
• Self-cleansing: as countries and companies rise and fall, the fund automatically reflect that - just as they would have done as Japan gradually occupied less and less of the market
• Fewer behavioural mistakes: being self-cleansing, I'm far less likely to panic sell or try and time the market - that's where most investors go wrong
• Natural currency spread: because the underlying companies earn revenue in dozens of currencies, you're not exposed to fluctuations as much
• Passive and hands-off: low-maintenance and low-admin - I can set it up once and leave it to compound, which genuinely suits my time horizon and risk tolerance

Global Funds vs the S&P 500

One of the most common questions I get asked is "Should I just use an S&P 500 fund instead?" I get it - especially since legendary investors, including Warren Buffett, say that's genuinely all you need.

But it's worth remembering: global index funds still hold a huge chunk of US stocks anyway (currently 55-65%) so you're never actually avoiding the US.

Instead, you're just preventing overexposure to the US by adding some other countries into the mix.

To make this less theoretical, here's a real comparison between VUAG (an S&P 500 ETF) and VWRP (a FTSE All-World global ETF):

It's worth calling out: the US's heavy weighting isn't a flaw or a mistake, it's simply how market-cap weighting works - the fund reflects the global market as it actually exists today. If you'd like less exposure to the US, you can do that by adding in additional ETFs (an ex-US or emerging markets fund, for example), but that then becomes an active decision rather than something the global fund does automatically.

Ultimately, it comes down to what you're more comfortable holding for the long term and whether you believe the US will continue to dominate.

Weighing It Up

Let's have a look at some of the pros and cons below:

Hopefully, the above table shows you that some of the cons are really just trade-offs rather than dealbreakers.

For example, "average" returns from investing in a global index fund still outperforms 90% of actively managed funds, and if the heavy concentration in the US concerns you, remember that's a snapshot of today - not a permanent feature.

Popular Global Funds & ETFs

Which of these makes sense for you often comes down to what's actually offered on your platform - some only offer mutual funds, others only ETFs, and some offer both. Here's a look at both types:

Mutual Funds

ETFs

There are loads more I could have included, but, as you can see, there isn't that much different between them.

The main thing is, if you're going to use a global index fund as your main or only investment, to pick one and stick with it.

Given that the performance of these funds is so similar, fees become a far bigger deciding factor than they might first seem, since they're one of the few things within your control.

For a fuller side-by-side of the current options, you can compare them using my comparison tool here.

Your Next Steps

Hopefully, you're now clearer on what a global index fund actually is, how it works, and whether it's a sensible fit for your own portfolio.

Here's what to do next:

As with everything I cover, there's no single "correct" answer here, just what genuinely fits your own comfort level and what you're likely to stick with for decades, not months.

And if you want more hands-on help, whether that's deciding between global and US funds, or building your wider investing strategy, you can click here:

See How I Can Help