What factors should I consider when evaluating index funds?
Thanks to the people who answered in this question, I've decided to educate myself with index funds and to engage my mortgage preparation funds in them.
There are several choices for index funds. Some of them are under cash, international stock, property, shares, etc.
What would be a good method to evaluate which index funds I should get? Should I base it on previous performance?
FYI, here is the link of the list of index funds that Vanguard Australia provides.
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Your link is pointing to managed funds where the fees are higher, you should look at their exchange traded funds; you will note that the management fees are much lower and better reflect the index fund strategy.
The idea of an index is that it is representative of the market (or a specific market segment) as a whole, so it will move as the market does. Thus, past performance is not really relevant, unless you want to bank on relative differences between different countries' economies. But that's not the point.
By far the most important aspect when choosing index funds is the ongoing cost, usually expressed as Total Expense Ratio (TER), which tells you how much of your investment will be eaten up by trading fees and to pay the funds' operating costs (and profits). This is where index funds beat traditional actively managed funds - it should be below 0.5%
The next question is how buying and selling the funds works and what costs it incurs. Do you have to open a dedicated account or can you use a brokerage account at your bank? Is there an account management fee? Do you have to buy the funds at a markup (can you get a discount on it)? Are there flat trading fees? Is there a minimum investment? What lot sizes are possible? Can you set up a monthly payment plan? Can you automatically reinvest dividends/coupons?
Then of course you have to decide which index, i.e. which market you want to buy into. My answer in the other question apparently didn't make it clear, but I was talking only about stock indices. You should generally stick to broad, established indices like the MSCI World, S&P 500, Euro Stoxx, or in Australia the All Ordinaries.
Among those, it makes some sense to just choose your home country's main index, because that eliminates currency risk and is also often cheaper. Alternatively, you might want to use the opportunity to diversify internationally so that if your country's economy tanks, you won't lose your job and see your investment take a dive.
Finally, you should of course choose a well-established, reputable issuer. But this isn't really a business for startups (neither shady nor disruptively consumer-friendly) anyway.
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