10 Best Low-Cost Index Funds to Buy

When it comes to financial industry innovations, few have persisted or gained as much acceptance as indexing. Its roots can be traced back to May 1896, when two financial reporters, Charles Dow and Edward Jones, created the Dow Jones Industrial Average.

At the time, it was remarkably simple, comprising just 12 of the largest U.S. companies across various sectors. The index was price weighted, so you could calculate it with pen and paper.

Fast forward to today, and indexes have grown far more complex. For example, creations like the S&P 500 GARP index automate strategies such as a variant of Peter Lynch’s iconic “growth at a reasonable price” approach.

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Unlike the Dow, the S&P 500 GARP Index selects 75 stocks from the broader S&P 500 based on “growth scores” and “composite scores” for quality and value.

Growth scores rely on metrics like three-year earnings per share (EPS) and sales per share (SPS) growth, while quality and value scores are based on financial leverage ratios, return on equity and earnings-to-price ratios.

This index also limits weights for individual stocks and sectors and uses a technique called “winsorizing,” which reduces the impact of extreme values by adjusting outliers in the data set.

Ironically, despite its complexity, the S&P 500 GARP index has underperformed the simpler Dow Jones Industrial Average. Over a trailing 10-year period, the Dow delivered an annualized return of 11.5%, compared to 11.1% for the S&P 500 GARP index.

The takeaway for investors? Indexing can range from simple to intricate, but the goal remains the same — to provide a transparent, objective and measurable way to track different assets, whether they be stocks, bonds, commodities or even cryptocurrencies.

Today, hundreds of indexes are available to investors through index funds, including both mutual funds and exchange-traded funds (ETFs). For instance, the SPDR Dow Jones Industrial Average ETF Trust (ticker: DIA) and the Invesco S&P 500 GARP ETF (SPGP) track the two aforementioned indices.

Here are 10 of the best low-cost index funds and ETFs to buy today:

Fund Expense ratio
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) 0.04%
Vanguard Total World Stock Index Fund Admiral Shares (VTWAX) 0.10%
Vanguard S&P 500 ETF (VOO) 0.03%
Vanguard Russell 1000 ETF (VONE) 0.08%
Schwab 1000 Index Fund (SNXFX) 0.05%
Fidelity Zero Large Cap Index Fund (FNILX) 0%
Vanguard Dividend Appreciation ETF (VIG) 0.06%
iShares Core High Dividend ETF (HDV) 0.08%
Invesco Nasdaq 100 ETF (QQQM) 0.15%
Invesco S&P 500 Equal Weight ETF (RSP) 0.20%

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)

“Index funds can help investors achieve long-term success through their low costs, broad diversification, low turnover and relative predictability,” says Rodney Comegys, global head of the equity indexing group at Vanguard. For an index fund that delivers on each of these points, consider VTSAX.

This fund provides comprehensive exposure to the investable domestic stock market via the CRSP U.S. Total Market Index. It spans over 3,600 small-, mid- and large-cap U.S. stocks across all 11 market sectors. VTSAX charges a 0.04% expense ratio and requires a $3,000 minimum investment.

Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)

“Beating the market is a zero-sum game — it’s impossible for all investors in aggregate to outperform the market, as investors can’t all be above average,” Comegys says. If you want to earn the global equity market’s long-term average return, the index fund to consider is VTWAX.

VTWAX tracks the FTSE Global All Cap Index, a benchmark of over 9,700 stocks from around the world. It is diversified across U.S., international developed and emerging-market countries. All this comes at a reasonable 0.1% expense ratio, along with a $3,000 minimum investment.

Vanguard S&P 500 ETF (VOO)

“The idea behind index investing is ‘if you can’t beat ’em, join ’em,'” says Robert Johnson, professor of finance at Creighton University’s Heider College of Business. “For the vast majority of investors, the KISS mantra — ‘keep it simple, stupid’ — should guide their investment philosophy.”

One of the simplest possible investments is an S&P 500 index fund like VOO. For a 0.03% expense ratio, it tracks 500 large-cap U.S. equities screened for size, liquidity and earnings quality. Over the past 10 years, this simple index ETF has delivered a hard-to-beat 13.1% annualized total return.

Vanguard Russell 1000 ETF (VONE)

“Broad-market index funds use highly efficient investment strategies with minimal portfolio turnover, which means fewer taxable capital gains distributions for investors,” Comegys says. For example, VONE, which tracks the Russell 1000 index, has an annual portfolio turnover rate of only 2.6%.

This ETF tracks 1,000 large- and mid-cap U.S. companies, making it broader than VOO in scope. However, because it is market-cap-weighted, its top holdings remain similar to those of the S&P 500. Thus, this ETF could be a viable tax-loss harvesting partner for VOO. It charges a 0.08% expense ratio.

Schwab 1000 Index Fund (SNXFX)

“The returns of the market have been driven by a small percentage of big winners,” Johnson says. “For most, trying to pick winners ex-ante is a loser’s game, so the solution is to invest in diversified index funds where you don’t have to pick the winners.” A great example is SNXFX.

This mutual fund tracks the Schwab 1000 Index, a simple yet effective benchmark that market-cap weights the largest 1,000 U.S. stocks. This provides SNXFX exposure to around 90% of the domestic equity market. All this comes at a 0.05% expense ratio with no minimum required investment.

[7 Best Mutual Funds With No Minimum Investment]

Fidelity Zero Large Cap Index Fund (FNILX)

“Just as how the stock market returns compound, the deleterious effects of high fees and transaction costs also stack up over time,” Johnson says. “In fact, the late founder and chairman of Vanguard, John Bogle, termed this phenomenon ‘the tyranny of compounding costs.'”

Budget-conscious investors can further slash expense ratios by replacing an S&P 500 ETF like VOO with FNILX, which tracks the largest 500 U.S. stocks via the Fidelity U.S. Large Cap Index. Notably, this fund has a 0% expense ratio along with no minimum required investment, making it very affordable.

Vanguard Dividend Appreciation ETF (VIG)

“A consistently increasing dividend can be a signal of a firm’s strong balance sheet, disciplined capital allocation and commitment to returning value to shareholders,” Comegys says. Some index funds like VIG specifically target companies with these traits, which can provide a quality tilt.

VIG tracks the S&P U.S. Dividend Growers Index, which only holds stocks that have a 10-year track record of dividend increases. It also excludes the top 25% highest-yielding companies to ensure financial robustness. The ETF pays a 1.7% 30-day SEC yield and charges a 0.06% expense ratio.

iShares Core High Dividend ETF (HDV)

Index funds can also target high-yielding dividend stocks. A great example is HDV, which is the opposite of VIG. This ETF tracks the Morningstar Dividend Yield Focus Index, a benchmark of 75 stocks screened for high yields and strong balance sheets. It currently pays a 3.5% 30-day SEC yield.

HDV’s composition differs significantly from the broad market. Currently, the ETF is overweight value stocks from the energy, consumer staples and health care sectors. Top holdings include blue chips like ExxonMobil Corp. (XOM), Johnson & Johnson (JNJ), Chevron Corp. (CVX) and Procter & Gamble Co. (PG).

Invesco Nasdaq 100 ETF (QQQM)

QQQM encompasses the 100 largest non-financial stocks listed on the Nasdaq exchange. This ETF contains all of the Magnificent Seven stocks — Nvidia Corp. (NVDA), Microsoft Corp. (MSFT), Apple Inc. (AAPL), Meta Platforms Inc. (META), Alphabet Inc. (GOOG, GOOGL), Amazon.com Inc. (AMZN) and Tesla Inc. (TSLA).

“These companies are known for a high level of spending on research and development, which has led to patent discovery and innovative technologies,” says Nick Kalivas, head of factor and core equity ETF strategy at Invesco. “The R&D spend has contributed to strong growth in sales, earnings and dividends.”

Invesco S&P 500 Equal Weight ETF (RSP)

“The U.S. equity market is more concentrated than at any point in the last half century,” says Chris Dahlin, factor and core equity ETF strategist at Invesco. “The 10 largest companies in the S&P 500 now comprise nearly 40% of the index’s total value.” Investors worried about this risk can buy RSP.

This ETF weights the S&P 500 stocks equally. This provides greater exposure to mid-caps while introducing a natural “buy low, sell high” mechanic whenever the index rebalances. On average, RSP also delivers lower valuations relative to the S&P 500 and a more balanced sector representation.

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10 Best Low-Cost Index Funds to Buy originally appeared on usnews.com

Update 01/13/25: This story was previously published at an earlier date and has been updated with new information.

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