What's the average rate of return for some of the most mainstream index funds?
"When asking about rate of return it is imperative to specify the time period. Average over all time? Average over the last 10 years? I've heard a good rule of thumb is 8-10% on average for all stocks over all time. That may be overstated now given the current economic climate. You can also look up fund sheets/fact sheets for major index funds. Just Google ""SPY fund sheet"" or ""SPY fact sheet"". It will tell you the annualized % return over a few different periods." "This page from simplestockinvesting.com gives details of total returns for the S&P500 for each decade over the last 60 years, including total returns for the entire 60 year period. It is important to understand that, from an investors point of view, the total return includes both the change in index value (capital gain) plus dividends received.  This total then needs to be adjusted for inflation to give the ""total real return"". As noted in the analysis provided, 44% of the total return from the S&P500 over the last 80 years comes from dividends.  For the DowJones30, this site provides a calculator for total returns and inflation adjusted total returns for user selected periods. Finding comparable analysis for the NASDAQ market is more difficult.  The NASDAQ market site provides gross values for total returns over fixed periods, but you will then need to do the arithmetic to calculate the equivalent average annual total returns.  No inflation adjusted values for ""real"" returns are provided, so again you will need to combine inflation data from elsewhere and do the arithmetic."
"Since this is your emergency fund, you generally want to avoid volatility while keeping pace with inflation.  You really shouldn't be looking for aggressive growth (which means taking on some risk).  That comes from money outside of the emergency fund. The simplest thing to do would be to shop around for a different savings account.  There are some deals out there that are better than ING.  Here is a good list. The ""traditional"" places to keep an emergency fund are Money Market Mutual Funds (not to be confused with Money Market Accounts).  They are considered extremely safe investments.  However, the returns on such a fund is pretty low these days, often lower than a high-yield online savings account. The next step up would be a bond fund (more volatility, slightly better return).  Pick something that relies on Government bonds, not ""high-yield"" (junk) bonds or anything crazy like that. Fidelity Four in One comes pretty close to your ""index of indexes"" request, but it isn't the most stable thing.  You'd probably do better with a safer investment." "Is this amount an adequate starting amount to begin investing with? Yes. You can open an account at a brokerage with this amount. I'm not sure I would invest in individual stocks at this point. Which services should I use to start buying shares? (Currently my bank offers this service but I'm willing to use other sources) I can't make UK-specific recommendations, but I'd compare your bank's fees to those of a discount broker -- as well as the variety and level of service available. I would like to regularly increase the amount invested in shares. Is it worth doing this in say £200 increments? Take a look at the fees associated with each investment. Divide the fee by the increment to see what percent you'll lose to fees/commissions. Keep in mind that you have to gain more than that percentage to start earning a positive return on your investment. If you have access to fee-free automatic mutual fund investments, and you can commit to the £200 amount on a regular basis going forward, then this can be a completely free way of making these incremental investments. See also this answer on dollar cost averaging, and my comment on the other answer on that question for how fees impact returns. When buying shares should I focus on say two or three companies, or diversify more? I would diversify into two or three different index funds. Read up on asset allocation. For example, you might invest 1/3 of your balance into S&P 500 index fund, bond index fund, and MSCI EAFE index fund (but that's just a rough example, and not necessarily good for you). I highly recommend ""The Intelligent Asset Allocator"" by William Bernstein for excellent info on diversification and asset allocation." It depends what you mean by 'gain'. Over long period of times the market increases so using a blind monkey with a dart or index fund should be sufficient to get an average returns. The key difference is that changes in currency are close to zero sum game while money in equity or bonds is actually used for something (building a company etc.). If you mean 'get above average returns' then you will likely get answers depending on person. If you think that markets are efficient then you won't beat the market consistently - over long periods the returns are likely to be no better then average - because of large number of 'smart people' trying to beat each other (and even them are likely to have below-average returns). If you don't think so then it is possible to get above average consistently - as long as you know how to beat those 'smart people'. Current evidence is that, after you subtract their commission and the additional trading costs, actively managed funds average no better than index funds, maybe not as well. You can afford to take more risks at your age, assuming that it will be a long time before you need these funds -- but I would suggest that means putting a high percentage of your investments in small-cap and large-cap stock indexes. I'd suggest 10% in bonds, maybe more, just because maintaining that balance automatically encourages buy-low-sell-high as the market cycles. As you get older and closer to needing a large chunk of the money (for a house, or after retirement), you would move progressively more of that to other categories such as bonds to help safeguard your earnings.  Some folks will say this an overly conservative approach. On the other hand, it requires almost zero effort and has netted me an average 10% return (or so claims Quicken) over the past two decades, and that average includes the dot-bomb and the great recession. Past results are not a guarantee of future performance, of course, but the point is that it can work quite well enough. "Morningstar is often considered a trusted industry standard when it comes to rating mutual funds and ETFs.  They offer the same data-centric information for other investments as well, such as individual stocks and bonds.  You can consult Morningstar directly if you like, but any established broker will usually provide you with Morningstar's ratings for the products it is trying to sell to you. Vanguard offers a few Emerging Markets stock and bond funds, some actively managed, some index funds.  Other investment management companies (Fidelity, Schwab, etc.) presumably do as well.  You could start by looking in Morningstar (or on the individual companies' websites) to find what the similarities and differences are among these funds.  That can help answer some important questions: I personally just shove a certain percentage of my portfolio into non-US stocks and bonds, and of that allocation a certain fraction goes into ""established"" economies and a certain fraction into ""emerging"" ones.  I do all this with just a few basic index funds, because the indices make sense (to me) and index funds cost very little." "If you want a ~12% rate of return on your investments.... too bad. For returns which even begin to approach that, you need to be looking at some of the riskiest stuff. Think ""emerging markets"". Even funds like Vanguard Emerging Markets (ETF: VWO, mutual fund, VEIEX) or Fidelity Advisor Emerging Markets Income Trust (FAEMX) seem to have yields which only push 11% or so.  (But inflation is about nil, so if you're used to normal 2% inflation or so, these yields are like 13% or so. And there's no tax on that last 2%! Yay.) Remember that these investments are very risky. They go up lots because they can go down lots too. Don't put any money in there unless you can afford to have it go missing, because sooner or later you're likely to lose something half your money, and it might not come back for a decade (or ever). Investments like these should only be a small part of your overall portfolio. So, that said... Sites which make investing in these risky markets easy? There are a good number, but you should probably just go with vanguard.com. Their funds have low fees which won't erode your returns. (You can actually get lower expense ratios by using their brokerage account to trade the ETF versions of their funds commission-free, though you'll have to worry more about the actual number of shares you want to buy, instead of just plopping in and out dollar amounts). You can also trade Vanguard ETFs and other ETFs at almost any brokerage, just like stocks, and most brokerages will also offer you access to a variety of mutual funds as well (though often for a hefty fee of $20-$50, which you should avoid). Or you can sign up for another fund providers' account, but remember that the fund fees add up quickly.  And the better plan? Just stuff most of your money in something like VTI (Vanguard Total Stock Market Index) instead." "The best predictor of mutual fund performance is low expense ratio, as reported by Morningstar despite the fact that it produces the star ratings you cite. Most of the funds you list are actively managed and thus have high expense ratios. Even if you believe there are mutual fund managers out there that can pick investments intelligently enough to offset the costs versus a passive index fund, do you trust that you will be able to select such a manager? Most people that aren't trying to sell you something will advise that your best bet is to stick with low-cost, passive index funds. I only see one of these in your options, which is FUSVX (Fidelity Spartan 500 Index Fund Fidelity Advantage Class) with an exceptionally low expense ratio of 0.05%. Do you have other investment accounts with more choices, like an IRA? If so you might consider putting a major chunk of your 401(k) money into FUSVX, and use your IRA to balance your overall porfolio with small- and medium-cap domestic stock, international stock, and bond funds. As an aside, I remember seeing a funny comment on this site once that is applicable here, something along the lines of ""don't take investment advice from coworkers unless they're Warren Buffett or Bill Gross""." "You quickly run into issues of what denotes ""similar"", and how to construct an appropriate index methodology. For example, do you group all CB arb funds together globally or separate them by country? Is long-bias equity long-short different to no-bias and variable-bias? Is a fund that concentrates on sovereign debt more like a macro fund or a fixed income fund? And so on. By definition, hedge funds try not to mimic their peers, with varying degrees of success.  Even if you get through that problem, how do you create the index? You may not be able to get return numbers for all the ""similar"" funds, and even if you do, how do you weight them? By AUM, or equal weight?  There are commercial indices out there (CSFB, Eurekahedge, Marhedge, Barclays, MSCI, etc) but there's no one accepted standard, and it's unlikely that there ever will be as a result. It's certainly interesting to look at your performance versus one of these indices, and many investors do monitor fund performance this way, but to demand strict benchmarking to one of them is a big ask..."