The world of index investing has seen tremendous growth over the past few years, offering investors a straightforward and cost-effective way to diversify their portfolios.
Index funds — particularly through exchange-traded funds, or ETFs — have democratized investing, making it accessible to people who may not have extensive financial knowledge or substantial resources.
“Too many people believe that active trading or moves specific to a current market environment are necessary to successfully build wealth,” says Robert Johnson, professor of finance at Creighton University’s Heider College of Business. “The best strategy for most investors is to simply invest in a broad index fund that tracks the overall performance of the market.”
Yet, despite this democratization, a financial hurdle remains: The share prices of some of the most popular index ETFs can be prohibitively high for new or small-scale investors.
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Take, for example, the SPDR S&P 500 ETF (ticker: SPY) and the Invesco QQQ Trust (QQQ), two well-known heavyweights in the index fund world. As of Aug. 30, SPY traded at around $450 per share, while QQQ hovers around the $380 mark.
For investors who are just starting out or those who operate with smaller account sizes, these price tags can be a significant barrier to entry. This obstacle exists even in the age of fractional trading and zero-commission brokerages, as the high share price may discourage new investors from taking that initial leap into building a diversified portfolio.
The good news, however, is that the ETF industry isn’t just there for the affluent. There are indeed options that offer broad index exposure at low share prices, combined with low expense ratios. These low-cost index funds make the markets accessible and affordable, opening the door to investment opportunities without requiring a large financial commitment upfront.
Here are six index funds that can be purchased for $55 or less per share:
| Index fund | Aug. 30 closing price | Expense ratio |
| SPDR Portfolio S&P 500 ETF (SPLG) | $53.06 | 0.02% |
| iShares Core Dividend Growth ETF (DGRO) | $52.16 | 0.08% |
| SPDR Portfolio S&P 500 Value ETF (SPYV) | $43.51 | 0.04% |
| Schwab U.S. Broad Market ETF (SCHB) | $52.60 | 0.03% |
| Pacer U.S. Cash Cows ETF (COWZ) | $50.99 | 0.49% |
| Invesco S&P 500 Top 50 ETF (XLG) | $35.81 | 0.2% |
SPDR Portfolio S&P 500 ETF (SPLG)
“After accounting for fees, a majority of actively managed funds underperformed their benchmarks in the last one year, three years and five years,” says Brian Walsh, senior manager of financial planning at SoFi. “The odds of an actively managed fund outperforming their benchmark over a one-year period is about 50%, and as you extend the timeline the odds significantly favor passive management.”
Walsh’s observations are backed up by the results of the S&P Indices Versus Active, or SPIVA scorecard, which shows that over a trailing one-year period, around 51% of all U.S. large-cap funds underperformed the S&P 500. The figure rises to 93.4% going back 15 years. With this in mind, consider a low-cost S&P 500 index ETF like SPLG, which is priced at around $53 per share and charges a 0.02% expense ratio.
iShares Core Dividend Growth ETF (DGRO)
Index investing isn’t just limited to tracking well-known benchmarks like the S&P 500 or Nasdaq-100. Due to high demand, numerous index providers such as Morningstar, MSCI, S&P and Solactive now provide ETF managers with customized indexes, which can be tailored to target a variety of underlying assets or strategies. A great example is DGRO, which tracks the Morningstar U.S. Dividend Growth Index.
As its name suggests, this ETF focuses on U.S. stocks that have grown their dividends for at least five consecutive years. In addition, DGRO’s index also implements quality screeners by checking for positive consensus earnings forecasts, a payout ratio of less than 75% and a yield not in the top 10%. DGRO can be purchased for around $52 per share and charges a 0.08% expense ratio.
SPDR Portfolio S&P 500 Value ETF (SPYV)
Interested in value investing but don’t have the time to hand pick a portfolio of individual value stocks? Consider saving time with an index ETF like SPYV. This ETF tracks the S&P 500 Value Index, which uses a set of rules to screen all the S&P 500 stocks based on price-to-earnings, price-to-sales and price-to-book ratios, selecting the ones that rank the best.
Therefore, SPYV aims to deliver a portfolio of stocks that hail from the S&P 500 index, but with possible undervaluation compared to their excluded peers. Currently, this ETF’s portfolio consists of around 400 stocks, including notable value names such as Berkshire Hathaway Inc. (BRK.A, BRK.B), JPMorgan Chase & Co. (JPM) and Walmart Inc. (WMT). The ETF charges a 0.04% expense ratio and costs around $43 per share.
[READ: How to Invest in the S&P 500]
Schwab U.S. Broad Market ETF (SCHB)
For around $52 per share, SCHB provides exposure to over 2,400 U.S. market equities. The ETF is highly diversified, spanning all 11 stock market sectors and includes small-, mid-, and large-cap stocks weighted in proportion to their market capitalization. All this is made possible by its benchmark, the Dow Jones U.S. Broad Stock Market Index, which as its name suggests provides exposure to the total U.S. market.
SCHB’s benefits don’t just end at high diversification. Its index structure ensures a very low annual portfolio turnover rate of just 3.4%, which makes the ETF more tax-efficient. Augmenting this is a low expense ratio of just 0.03%, which works out to just $3 in annual fees for a $10,000 investment. So far, SCHB has attracted around $23.5 billion in assets under management, or AUM.
Pacer U.S. Cash Cows ETF (COWZ)
COWZ is a highly unique ETF that makes use of a proprietary index, the Pacer U.S. Cash Cows 100 Index. This index begins by screening the 1,000 companies in the Russell 1000 index based on free cash flow yield, and then weighting the 100 highest ranking stocks based on the same metric. Each holding is capped at a 2% maximum weight, with the index rebalanced and reconstituted quarterly.
So far, the ETF has performed very well, with a five-year annualized return of 12.3%, beating the Russell 1000 index, which returned an annualized 11.9% over that same period. Morningstar gave COWZ a five-star rating, indicating that it was able to beat most of its 380 peers in the mid-cap value category on a risk-adjusted return basis. COWZ trades at around $50 per share and charges a 0.49% expense ratio.
Invesco S&P 500 Top 50 ETF (XLG)
Investors betting on continued outperformance from the largest names in the U.S. stock market can use a mega-cap index ETF like XLG for concentrated exposure. As its name suggests, XLG tracks the 50 largest stocks hailing from the broader S&P 500 index, weighted by market cap. This ETF is very top-heavy, with Apple Inc. (AAPL) and Microsoft Corp. (MSFT) occupying around 24% combined.
Also seen in the top 10 holdings after Apple and Microsoft are familiar names like Amazon.com Inc. (AMZN), Nvidia Corp. (NVDA) and both share classes of Alphabet Inc. (GOOG, GOOGL). As a result, XLG is very heavily skewed toward the technology sector, with a 39% weight. The ETF charges a 0.2% expense ratio and can currently be purchased for around $35 per share.
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6 Index Funds for Less Than $55 originally appeared on usnews.com
Update 08/31/23: This story was previously published at an earlier date and has been updated with new information.
