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No savings at 40? I’d start by buying this FTSE 100 tracker inside a Stocks and Shares ISA

If you aren’t saving for your retirement, you need to get your act together, and fast. The alternative is to carry on working until you drop, or spend your final years scraping by on the State Pension, which is currently worth a maximum of just £8,767.20 a year.

Keep it simple

So well done for clicking on this article. It’s an important first step. Your next step is working out where to invest your money.

Investing in the stock market can seem complex and daunting to the beginner, as there are literally thousands of shares and funds to choose from. Many find the sheer weight of choice overwhelming. So in this article, I’m keeping things simple.

If you are looking to get exposure to the stock market – at any age – a great place to start is a low-cost tracker fund that passively follows the performance of the FTSE 100, the UK’s index of top 100 stocks, measured by size.

This instantly gives you exposure to the fortunes of the UK’s biggest companies, including names such as BP, British American Tobacco, GlaxoSmithKline, HSBC, Tesco, Unilever and Vodafone.

Never overlook dividends

Not only will you benefit when their share prices grow, you will also pocket the dividends that companies pay to shareholders, as a reward for holding their stock. Currently, FTSE 100 dividends yield around 4.5%, more than three times the very best savings accounts. Ideally, you should reinvest this income straight back into your fund, as that way it will steadily grow and your dividends will roll up, year after year.

Although listed in the UK, FTSE 100 companies generate more than three quarters of their total earnings overseas. This means you are plugging into the global economy, while reducing currency risk by investing in sterling.

High charges eat wealth

Many investors overlook the impact of underlying fund charges on their total return. Some funds can charge as much as 1.5% a year in total fees, while others charge a fraction of that. Expressed as a percentage, charges can seem minuscule, but they can be a real drain over time.

Say you invest £10,000 in a fund that grows at an average rate of 7% a year. If that fund has an annual management charge of 1%, your money will grow to £42,919 after 25 years. However, if the fund charges just 0.07% a year, your money will be worth £53,393 – more than £10,000 more.

That’s why I like low cost exchange traded fund iShares Core FTSE 100 ETF (LSE: ISF), because its charges total… 0.07% a year.

Avoid the taxman

You then need to keep your capital growth and dividend income out of the reach of HM Revenue & Customs, and the best way to do that is to buy the fund through an online platform that offers a Stocks and Shares ISA. Set up an ISA with one of the platforms listed on that link, or another of your choosing, then simply load up your account and start investing.

Over time, you may want to spread your wings and put money into other investment funds, or even individual company stocks. Nevertheless, I think iShares Core FTSE 100 is a great place to start.

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Harvey Jones owns shares of iShares FTSE 100. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended HSBC Holdings and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.