1. The UK

Should you track the FTSE 100? If you want to track the main component of the UK-listed market comprising the most liquid companies, this is the index to use. But be aware that it is by its very nature heavily concentrated on the biggest companies, and many of those companies have a very strong foreign business presence. It's estimated that up to 60 per cent of the turnover of FTSE 100 companies is earned in either dollars or euros.

Some institutional investors prefer to track the FTSE All-Share – like nearly all the indices in this list it's a market capitalisation weighted index representing the performance of all eligible companies listed on the London Stock Exchange's main market. On paper it sounds a much more comprehensive index than the FTSE 100 but it's still weighted by the size of the market capitalisation – the top 10 companies in the FTSE All-Share comprise 39 per cent of the index as opposed to 45 per cent with the FTSE 100, while in overall terms the FTSE 100 comprises 85 per cent of the FTSE All-Share. So, although the FTSE All-Share casts a wider net, it's still focused on mega-cap blue chips.

But there's another crucial point: the FTSE All-Share is not actually all the market as the title might imply. It doesn't include some really tiny companies, namely micro-caps in the FTSE Fledgling Index – ie, really tiny companies valued at less than £10m. There's a multitude of these very small companies but they don't really amount to much in 'economic size' or footprint so they're not covered by the FTSE All-Share. When you buy this index, don't think you're actually buying all the UK market – no one index captures that.

So FTSE 100 or FTSE All-Share – which one should you invest in? If you want a broader market consider using the FTSE All-Share as it is more comprehensive and includes the FTSE 250 and the FTSE Small Cap. If you want a more focused large-cap index, go for the FTSE 100. But don't buy both – you'll be effectively duplicating a lot of the holdings and the FTSE All-Share index tends to move in the same direction as the FTSE 100 so you won't get much diversification benefit.

Funds that track the 100 index tend to split into two broad categories – a wide range of unit trust trackers and a small number of ETFs. By and large the ETFs tend to be cheaper than the unit trusts although the Vanguard, Fidelity and HSBC OEICs are very competitive in pricing terms. But cost isn't the only factor – you also need to concern yourself with what the professionals call 'tracking error'. This is the difference between the underlying index and the fund returns – we've looked at the difference in returns over the 12 months to 31 December 2009. Over these 12 months the FTSE 100 returned 22.7 per cent but some funds delivered just over 20 per cent, while some returned over 27 per cent – a difference of more than 7 per cent.

FTSE 100 Mutual Trackers

FTSE 100 ETFS

All-Share ETFs