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A Complete Guide to Passive Investing in the UK

Ruby Layram 28th Jan 2025 No Comments

Passive investing is a strategy that has gained significant attention over the last few years, largely due to the appeal of sitting back and watching your money grow without too much intervention. Furthermore, passive investing comes with lower fees which makes it an accessible option to consider.

But, is passive investing really a good strategy to consider in 2025 and if so, how can you get started? In this guide, we will reveal everything that you need to know about passive investing in the UK.

What Is Passive Investing?

At its core, passive investing involves constructing a portfolio designed to mirror the performance of a specific market index, such as the FTSE 100 or the S&P 500. Instead of actively selecting individual stocks or bonds, passive investors purchase a broad spectrum of assets that collectively represent the chosen index.

This strategy aims to achieve returns that closely align with the overall market, minimizing the need for constant monitoring and decision-making.

Active vs. Passive Investing

Understanding the distinction between active and passive investing is crucial.

Active investing involves a more hands-on approach where fund managers or individual investors make deliberate decisions to buy or sell assets, hoping to outperform the market. This method often involves higher fees due to the extensive research and management required.

On the flip side, passive investing seeks to replicate market performance, typically resulting in lower fees and reduced trading activity. Passive funds are automatically adjusted to follow the index and align with wider market trends.

Passive investing comes with lower fees because there are no expensive fund managers to pay for.

Benefits of Passive Investing

So, why might an investor choose a passive investing strategy?

Diversification: By investing in a broad market index, passive investors inherently achieve diversification, spreading risk across various sectors and companies.

Cost-effectiveness: Passive funds generally have lower management fees compared to active funds, making them an attractive option for cost-conscious investors.

Simplicity: With a passive strategy, there’s no need to constantly monitor market trends or make frequent trading decisions. This hands-off approach suits those who prefer a more relaxed investment style.

How to Start Passive Investing in the UK

Embarking on a passive investing journey in the UK is a lot easier than it might sound – I mean, you don’t exactly need a finance degree!

Here’s a step-by-step guide to get you started.

Step 1: Learn as much as you can

Before diving in, it’s essential to understand the basics of investing and the specific indices you wish to track. Numerous resources, including books, online courses, and financial news outlets, can provide valuable insights.

I will also use this opportunity to promote our investing newsletter which you can sign up to for free. In the newsletter, I break down investing strategies, market insights and advanced concepts into a digestible format so that you can start investing like a pro!

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Step 2: Choose an investing platform

Select a reputable investment platform or brokerage that offers access to UK market indices. Ensure the platform aligns with your investment goals and provides the necessary tools and resources.

Here is a rundown of our top investing platforms that are available to UK investors. For passive funds, I personally like Vaneck and eToro.

Step 3: Search for funds

Look for Exchange-Traded Funds (ETFs) or index funds that track your chosen market index. Consider factors like the fund’s expense ratio, historical performance, and the underlying assets it holds.

I recommend sticking with reputable options that have a long track record for returns. I will go into more detail about the best passive funds to consider as a UK investor further down in this guide!

Step 4: Decide how much you want to invest

Decide how much money you wish to invest. It’s a good idea to start with an amount you’re comfortable with and can afford to invest for the long term.

Never invest any money that you will need for living expenses – there is no guarantee that the value of your investment will go up.

Step 5: Set up regular contributions

To benefit from dollar-cost averaging, consider setting up automatic monthly contributions. This strategy involves investing a fixed amount regularly, regardless of market conditions, potentially reducing the impact of market volatility.

This is a particularly good idea if you’re someone who often forgets to put money away, or struggles to see it through! By automating the process, you minimize the effort involved.

Step 6: Monitor and adjust

While passive investing requires less frequent attention, it’s still important to periodically review your portfolio to ensure it aligns with your financial goals.

Rebalancing may be necessary if certain assets have significantly outperformed or underperformed.

Popular Passive Investment Options in the UK

Several passive investment vehicles are popular among UK investors. However, just because something is popular, doesn’t mean that the value of your investment will go up.

It is important to understand that all investments come with a bit of risk. Nevertheless, here are some popular options to consider.

  • FTSE 100 Index Funds: These funds track the performance of the 100 largest companies listed on the London Stock Exchange, offering exposure to a diverse range of industries.
  • Global Equity ETFs: For those seeking international diversification, global equity ETFs provide exposure to companies worldwide, mitigating the risk associated with any single country’s economic performance.
  • Bond Index Funds: For a more conservative approach, bond index funds offer exposure to a broad range of government and corporate bonds, providing regular income with lower risk.

Common Mistakes to Avoid

While passive investing is relatively simple, it’s essential to be aware of common mistakes that could prevent you from seeing returns.

Overlooking fees

Even small differences in fees can significantly impact returns over time. Always compare the expense ratios (a fancy term for expenses) of different funds before investing.

Where possible, try to choose funds with the lowest costs.

Neglecting diversification

Ensure your portfolio is well-diversified across various asset classes and sectors to spread risk effectively. For example, you might want to consider investing in emerging markets alongside the UK or US, to take advantage of movements in these parts of the world.

It is also a good idea to keep a percentage of your portfolio (20%-40% is common) in ‘safe-haven’ assets such as gold.

Emotional decision-making

Avoid making investment decisions based on short-term market fluctuations. Stick to your long-term investing strategy and resist the urge to react impulsively to market news.

Passive investing makes it possible to grow your money, without having to constantly watch the market, juggle financial documents and make tough decisions.

The easiest way to start passive investing in the UK is to invest in an ETF that tracks a long-standing market index, such as the FTSE 100.

Passive investing offers lower fees than active investing, which makes it accessible to investors with a smaller budget. However, its important to understand that passive investing comes with risk and you should never invest more money than you can afford to lose.

Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.

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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.



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Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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