Best index funds in March 2024 | Bank rate (2024)

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Mercedes Barbara

Kenneth ChavisIV

Aindex fundsis an investment fund – a mutual fund or an exchange-traded fund (ETF) – that is based on a preset basket of stocks or indices. Fund managers aim to replicate the index without active management, whether they create it themselves or rely on another company such as an investment bank or brokerage. These funds track popular indices that are often cited in financial news as indicators of overall market performance, giving investors insight into their situationthe development of the sharesAs a whole.

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The list below contains index funds from a number of companies that track a broadly diversified index, and some of these are also includedthe cheapest fundsyou can buy and sell on the public markets. When it comes to index funds like these, costs are one of the most important factors in your overall return. Included are three mutual funds and seven ETFs:

• Fidelity ZERO Large Cap-index
• Shelton NASDAQ-100 Index Direct
• Invesco QQQ Trust ETF
• Vanguard Russell 2000 ETF
• Vanguard Total Stock Market ETF
• SPDR Dow Jones Industrial Average ETF Trust

Most popular indexes:

• Dow Jones Industrial Average
• Nasdaq Composite
• Russel 2000

The S&P 500 is one of the most followed stock indexes in the world and there are many funds that invest based on the index. These five stand out.

Fidelity ZERO Large Cap-index (FNILX)

Overview:The Fidelity ZERO Large Cap Index mutual fund is part of the investment firm's search for mutual funds without expense ratios, hence the name ZERO.

The fund does not officially track the S&P 500 – technically it does track Fidelity U.S. Large Cap Index – but the difference is academic.

The real difference is that it is investor friendlyFidelitydoes not have to pay licensing fees to use the S&P name, which keeps costs lower for investors.

Cost ratio:0 percent. This means that every €10,000 invested costs €0 annually.

Who is it good for?:Ideal for investors looking for a broadly diversified, low-cost index fund that can serve as a core position in their portfolio.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

Vanguard S&P 500 ETF (VOO)

Overview:As the name suggests, the Vanguard S&P 500 tracks the S&P 500 index and is one of the largest funds on the market with hundreds of billions in the fund.

This ETF started trading in 2010 and is backed byForefront, one of the powerhouses of the fund industry.

Cost ratio:0.03 percent. This means that every €10,000 invested costs €3 per year.

Who is it good for?:Ideal for investors looking for a broadly diversified, low-cost index fund that can serve as a core position in their portfolio.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

SPDR S&P 500 ETF Trust (SPY)

Overview:The SPDR S&P 500 ETF is the granddaddy ofETF's, which was founded back in 1993. It helped kick off the wave of ETF investing that has become so popular today.

With hundreds of billions in the fund, it is one of themmost popular ETFs. The fund is sponsored by State Street Global Advisors – another industry heavyweight – and tracks the S&P 500.

Cost ratio:0.095 percent. This means that every €10,000 invested costs €9.50 per year.

Who is it good for?:Ideal for investors looking for a broadly diversified, low-cost index fund that can serve as a core position in their portfolio.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

iShares Core S&P 500 ETF (IVV)

Overview:The iShares Core S&P 500 ETF is a fund sponsored by one of the largest fund companies, BlackRock. This iShares fund is one of the largest ETFs and tracks the S&P 500.

With an inception date in 2000, this fund is another long-term player that has closely tracked the index over time.

Cost ratio:0.03 percent. This means that every €10,000 invested costs €3 per year.

Who is it good for?:Ideal for investors looking for a broadly diversified, low-cost index fund that can serve as a core position in their portfolio.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

Schwab S&P 500 Index Fund (SWPPX)

Overview:With tens of billions in assets, the Schwab S&P 500 Index Fund is on the smaller side of the heavyweights on this list, but that's not really a concern for investors.

This investment fund has a strong track record dating back to 1997 and is sponsored byCharles Schwab, one of the most respected names in the industry.

Schwab is best known for its focus on creating investor-friendly products, as evidenced by this fund's razor-thin expense ratio.

Cost ratio:0.02 percent. This means that every €10,000 invested costs €2 per year.

Who is it good for?:Ideal for investors looking for a broadly diversified, low-cost index fund that can serve as a core position in their portfolio.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

The Nasdaq 100 index is another stock market index, but it is not as diversified as the S&P 500 due to its heavy weighting in technology stocks. These two funds track the largest non-financial companies in the index.

Shelton NASDAQ-100 Index Direct (NASDX)

Overview:The Shelton Nasdaq-100 Index Direct ETF tracks the performance of the largest non-financial companies in the Nasdaq-100 Index, primarily includingtechnology companies.

This mutual fund started trading in 2000 and has a strong track record over the past five and ten years.

Cost ratio:0.52 percent. This means that every €10,000 invested costs €52 per year.

Who is it good for?:Suitable for investors looking for an index fund that gives them exposure to the technology sector and growth-oriented companies.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

Invesco QQQ Trust ETF (QQQ)

Overview:The Invesco QQQ Trust ETF is another index fund that tracks the performance of the largest non-financial companies in the Nasdaq-100 index.

This ETF started trading in 1999 and is managed by Invesco, a fund giant. According to Lipper, this fund is the best performing large-cap growth fund in terms of total return over the fifteen years to December 2023.

Cost ratio:0.20 percent. This means that every €10,000 invested costs €20 per year.

Who is it good for?:Ideal for investors looking for a relatively cheap index fund that focuses on technology and growth companies.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

While the S&P 500 and Nasdaq are two of the most popular stock indexes, there are many others that track different parts of the investment universe. These three index funds are also worth considering for your portfolio.

Vanguard Russell 2000 ETF (VTWO)

Overview:The Vanguard Russell 2000 ETF tracks the Russell 2000 Index, a collection of approximately 2,000 of the smallest publicly traded companies in the United States.

This ETF started trading in 2010 and is a Vanguard fund, so it focuses on keeping costs low for investors.

Cost ratio:0.10 percent. This means that every €10,000 invested costs €10 per year.

Who is it good for?:This fund is ideal for investors who want a low-cost fund that gives them broad exposuresmall companies.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

Vanguard Total Stock Market ETF (VTI)

Overview:Vanguard also offers a fund that effectively covers the entire universe of US-listed stocks, known as the Vanguard Total Stock Market ETF. It consists of small, medium and large companies from all sectors.

The fund has been around for a while and started in 2001. And with Vanguard as a sponsor, you know costs will be low.

Cost ratio:0.03 percent. This means that every €10,000 invested costs €3 per year.

Who is it good for?:Investors looking for a low priceindex fund that is broadly diversified across the market capitalization spectrum.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

SPDR Dow Jones Industrial Average ETF Trust (DIA)

Overview:You don't have much to choose from when it comes to ETFs that track the Dow Jones Industrial Average, but State Street Global Advisors comes through with this fund that tracks the 30-stock index of major stocks.

The fund is definitely one of the earlier ETFs, debuting in 1998, and has tens of billions under management.

Cost ratio:0.16 percent. This means that every €10,000 invested costs €16 per year.

Who is it good for?:Investors looking for exposure toblue chip companiesor the specific components of the Dow Jones Industrial Average at a low price.

How to buy:The fund can be purchased directly from the fund company or through most fundsonline brokers.

Index funds are popular with investors because they promise ownership of a wide range of stocks, greater diversification and lower risk – usually at a low cost. This is why many investors, especially beginners, consider index funds to be better investments than individual stocks.

• Attractive return:Like all stocks, major indices will fluctuate. But over time, indexes have delivered solid returns, such as the S&P 500's long-term record of about 10 percent per year. This does not mean that index funds make money every year, but over long periods of time that is the average return.
• Diversification:Investors love index funds because they...provide instant diversification. With one purchase, investors can own many companies. A share of an index fund based on the S&P 500 offers ownership in hundreds of companies, while a share of the Nasdaq 100 fund offers exposure to about 100 companies.
• Lower risk:Because they are diversified, investing in an index fund carries lower risk thanowns a number of individual shares. That doesn't mean you can't lose money, or that it's as safe as, say, a CD, but the index will typically fluctuate much less than an individual stock.
• Discount:Index funds can charge very little for these benefits, with a small amount of moneycost ratio. For larger funds, you can pay $3 to $10 per year for every $10,000 invested. One fund we mentioned earlier, Fidelity's ZERO Large Cap Index, doesn't even charge you an expense ratio at all. When it comes to index funds, one of the most important factors in your overall return is cost.

While some funds, such as the S&P 500 or Nasdaq-100 index funds, allow you to own companies from different sectors, other funds only own a specific sector, country or even a certain investment style (e.g.dividend stocks).

How to Invest in an Index Fund in 3 Easy Steps

It's surprisingly simpleinvest in an index fund, but you want to know what you're investing in, and not just buy random funds you know little about.

1. Research and analyze index funds

Your first step is to find what you want to invest in. While an S&P 500 index fund is the most popular index fund, they also exist for different sectors, countries, and even investment styles. So you should consider what exactly you want to invest in and why this offers opportunities:

• Place:Take into account the geographical location of the investments. A broad index like the S&P 500 or Nasdaq-100 owns US companies, while other index funds may focus on a narrower location (France) or an equally broad location (Asia-Pacific).
• Company:Whichmarket sectorwhat does the index fund invest in? Will investments be made in pharmaceutical companies that make new medicines, or perhaps in technology companies? Some funds specialize in certain sectors and avoid others.
• Market opportunities:What opportunities does the index fund offer? Does the fund buy pharmaceutical companies because they are making the next blockbuster drug or because they are cash cows that pay dividends? Some funds invest inhigh yield stockswhile others want high-growth stocks.

You carefully investigate what the fund invests in, so that you have an idea of ​​what you actually own. Sometimes the labels on an index fund can be misleading. But you can check the index's holdings to see exactly what's in the fund.

2. Decide which index fund you want to buy

Once you've found a fund you like, you can look at other factors that might make it a good fit for your portfolio. Fund fees are huge factors that can earn (or cost) you tens of thousands of dollars over time.

• Expenditure:Compare the costs of each fund you are considering. Sometimes a fund based on a similar index can charge twenty times as much as another fund.
• Taxes:For certain legal reasons, mutual funds are generally less tax efficient than ETFs. At the end of the year, many mutual funds pay a taxable capital gains distribution, while ETFs do not.
• Minimum investment:Many mutual funds have a minimum investment amount for your first purchase, often several thousand dollars. Many ETFs, on the other hand, have no such rule, and your broker may even allow you to do sobuy fractional shareswith just a few dollars.

3. Buy your index fund

Once you've decided which fund fits your portfolio, it's time for the easy part: actually buying the fund. You can buy directly from the investment fund or through a broker. But it's usually easier to buy a mutual fund through a broker. And if you buy an ETF, you should toogo through your broker.

Considerations when investing in index funds

When looking at index funds, you should consider the following factors:

• Long-term performance:It's important to track the index fund's performance over the long term (ideally at least five to ten years) to see what your potential future returns might be. Each fund may track or outperform another index, and some indexes outperform others over time. Long-term performance is your best indicator of what to expect in the future, but it's also no guarantee.
• Cost ratio:The expense ratio shows what you pay on an annual basis for the fund's results. For funds that track the same index, such as the S&P 500, it doesn't make much sense to pay more than necessary. Other index funds may track indexes that perform better over the long term, potentially justifying a higher expense ratio.
• Trading costs:Some brokers offer very attractive prices if that's youpurchase of investment funds, even more than with the same investment fund itself. If you choose an ETF, you can now trade commission-free with almost all major online brokers. Also be careful when buying a mutual fundcost of salesor commissions, which can easily amount to 1 or 2 percent of your money before it is invested. These are easy to avoid by carefully choosing funds, such as those from Vanguard and many others.
• Fund options:However, not all brokers will offer all mutual funds. So you should see if your broker offers a specific fund family. ETFs, on the other hand, are typically available from all brokers because they are all traded on an exchange.
• Ease:It can be much easier to choose a mutual fund that your broker offers on its platform, rather than opening a new brokerage account. But if you choose an ETF instead of a mutual fund, you can also avoid this problem.

Risks of index funds

Putting money into market-based investments, such as stocks or bonds, means that investors could lose everything if the company or government issuing the security gets into serious trouble. But the situation is slightly different for index funds, because they are often so diversified.

An index fund typically owns at least dozens of securities and can own hundreds, meaning it is highly diversified. For example, if it is a stock index fund, each stock must go to zero before the index fund and therefore the investor loses everything. So while it is theoretically possible to lose everything, this doesn't happen with standard funds.

That said, an index fund can underperform and lose money for years, depending on what it is invested in. But the chance that an index fund will lose everything is very small.

Are there fees associated with index funds?

Index funds may have a number of different types of fees, depending on the type of index fund:

• Investment funds:Index funds sponsored by mutual funds may charge two types of fees: a sales tax and an expense ratio.
  • A sales charge is simply a commission for buying the fund, and this can happen when you buy, when you sell, or over time. Investors can usually avoid these by choosing an investor-friendly fund company such as Vanguard, Charles Schwab or Fidelity.
  • An expense ratio is an ongoing fee paid to the fund company based on the assets you hold in the fund. These are usually charged daily and come off the account without any problems.
• ETF's:Index funds sponsored by ETF companies (many of which also manage mutual funds) charge only one type of fee: an expense ratio. It works in the same way as a mutual fund, with a small portion being subtracted seamlessly each day you hold the fund.

ETFs have become more popular recently because they help investors avoid some of the higher costs associated with mutual funds. ETFs are also becoming popular because they offer other important advantages over mutual funds.

What is considered a good expense ratio?

Mutual funds and ETFsare among the cheapest average expense ratios, and the number also depends on whether they invest in bonds or stocks. In 2022, the average stock index fund charged 0.05 percent (on an asset-weighted basis), or $5 for every $10,000 invested. The average stock index ETF charged 0.16 percent asset-weighted, or $16 for every $10,000 invested.

Index funds are usually much cheaper than average funds. Compare the above figures to the average stock fund (on an asset-weighted basis), which charged 0.44 percent, or the average stock ETF, which charged 0.16 percent. While the ETF expense ratio is the same in each case, mutual fund fees are generally higher. Many mutual funds are not index funds and charge higher fees to pay for the higher costs of their investment management teams.

So anything below average should be considered a good expense ratio. But it's important to keep these costs in perspective and realize that the difference between an expense ratio of 0.10 percent and 0.05 percent is only $5 per year for every $10,000 invested. Yet there is no reason to pay more for an index fund that tracks the same index.

Is Now a Good Time to Buy Index Funds?

If you're buying a stock index fund or almost any broadly diversified stock fund like the S&P 500, now may be a good time to buy if you're willing to hold it for the long term. This is because the market tends to rise over time as the economy grows and corporate profits increase. In this regard, time is your best friend because it allows you to compound your money and make your money make money. That said, narrowly diversified index funds (such as those that focus on one sector) can underperform for years.

That's one reason why it's critical that investors stick to a patient approach to avoid short-term volatility. Experts recommend adding money to the market regularly to make profitsthe dollar cost averageand reduce their risk. Strong investment discipline can help you make money in the market over time. Investors should avoid timing the market, that is, jumping in and out of the market to capture profits and avoid losses.

In short

These are some of the best index funds on the market, offering investors a way to own a broad collection of stocks at a low cost while still benefiting fromthe benefits of diversificationand a lower risk. With these benefits, it's no surprise that these are some of the largest funds on the market.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.