Ask a beginner retail investor what they think best predicts whether a fund will outperform, and the answers tend to vary.
Some point to the long-running dominance of U.S.-focused funds as evidence of geographic superiority. Others argue that technology-heavy portfolios have structural advantages that will allow them to outperform indefinitely. However, none of those factors consistently hold up as reliable predictors.
What does show persistent explanatory power is cost. Specifically, a fund’s expense ratio. The expense ratio is the annual fee charged by a fund, expressed as a percentage of assets under management, or AUM. It covers management fees as well as operational, administrative and marketing expenses.
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For example, a 0.5% expense ratio means that on a $10,000 investment, $50 is deducted each year regardless of market conditions. Over time, those fees compound in the opposite direction of returns. Just as reinvested dividends can work in your favor, recurring fees quietly work against you.
“Just as how the stock market returns compound, the deleterious effects of high fees and transaction costs also stack up over time,” says Robert Johnson, professor of finance at Creighton University’s Heider College of Business. “In fact, the late founder and chairman of Vanguard, John Bogle, termed this phenomenon ‘the tyranny of compounding costs.'”
Morningstar’s long-running research backs this up. Across multiple categories, including U.S. equity, sector equity, international equity, balanced funds, taxable bond funds and municipal bond funds, lower-cost funds have consistently shown higher success rates than their more expensive peers.
Importantly, Morningstar adjusts these studies using a “success ratio” that accounts for funds that were merged or liquidated. This helps control for survivorship bias.
If minimizing fees is a priority, the natural outcome is that many of the best options will be index funds. Instead of relying on active managers and teams of analysts to select securities, these are designed to track a market benchmark. A S&P 500 index fund, for example, seeks to replicate the index by holding its constituent stocks in proportion to their weights.
However, advances in indexing techniques mean full replication is no longer the only approach. Many funds now use sampling methods, holding a representative subset of securities that closely mirrors the risk and return characteristics of the index while keeping turnover low.
“Broad-market index funds use highly efficient investment strategies with minimal portfolio turnover, which means fewer taxable capital gains distributions for investors,” says Rodney Comegys, global head of the equity indexing group at Vanguard.
Here are 10 of the best low-cost index mutual funds and exchange-traded funds (ETF) to buy today:
| Low-Cost Fund/ETF | Expense Ratio |
| Vanguard Total Stock Market Index Fund Admiral Shares (ticker: VTSAX) | 0.04% |
| Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) | 0.09% |
| Vanguard Total World Stock ETF (VT) | 0.06% |
| State Street SPDR Portfolio S&P 500 ETF (SPYM) | 0.02% |
| Fidelity 500 Index Fund (FXAIX) | 0.015% |
| Fidelity Zero Large Cap Index Fund (FNILX) | 0% |
| BNY Mellon US Large Cap Core Equity ETF (BKLC) | 0% |
| Schwab U.S. Broad Market ETF (SCHB) | 0.03% |
| iShares Core Dividend ETF (DIVB) | 0.05% |
| iShares Core S&P Small-Cap ETF (IJR) | 0.06% |
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
“The returns of the market have been driven by a small percentage of big winners,” Johnson explains. “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.” VTSAX is a popular fund for this mindset.
This Vanguard mutual fund samples the CRSP U.S. Total Market Index, and includes more than 3,500 large, mid- and small-cap stocks weighted by market capitalization. It charges a 0.04% expense ratio, but does require a $3,000 minimum investment. However, this can be avoided by buying the ETF share class.
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
“Index funds can help investors achieve long-term success through their low costs, broad diversification, low turnover and relative predictability,” Comegys says. To further diversify a U.S.-heavy stock portfolio, Vanguard offers VTIAX for broad exposure to a wide swath of international stocks.
This Vanguard fund passively tracks the FTSE Global All Cap ex US Index, which spans more than 8,600 companies. Importantly, VTIAX diversifies across both developed and emerging-market countries. The fund charges a 0.09% expense ratio and requires a $3,000 minimum investment.
Vanguard Total World Stock ETF (VT)
“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 earning the global equity market’s average return is the goal, VT could be a suitable core holding for a long-term investor.
This Vanguard ETF passively tracks the FTSE Global All Cap Index, which spans more than 9,900 U.S., international developed, and emerging-market stocks. An investment in VT is currently functionally similar to owning VTSAX and VTIAX in a 63%/37% split. VT charges a 0.06% expense ratio.
State Street SPDR Portfolio S&P 500 ETF (SPYM)
There are quite a few S&P 500 ETFs trading in the U.S. market, but SPYM reigns as the cheapest with a 0.02% expense ratio. This ETF is very popular with more than $97 billion in AUM and trades with a minimal 0.01% 30-day median bid-ask spread, indicating excellent liquidity.
SPYM is part of State Street’s “Portfolio” lineup of affordable and beginner-friendly ETFs. Some of these are broadly diversified index ETFs providing comprehensive exposure to equities and fixed income. Others are more specialized by geography, sector or maturity, but still charge low fees.
[READ: 7 Best Long-Term ETFs to Buy and Hold]
Fidelity 500 Index Fund (FXAIX)
FXAIX provides S&P 500 exposure while undercutting SPYM slightly with a 0.015% expense ratio. The current share class has been a part of Fidelity’s lineup since 2011, but the overall fund dates back to 1988. As of late December, FXAIX has grown to $738.6 billion in net assets.
FXAIX is also fairly tax efficient thanks to a low 3% annual turnover rate. By not constantly buying and selling securities, FXAIX is able to minimize both the frequency and size of potential year-end taxable capital gains distributions. Moreover, it has no minimum required investment or transaction fees.
Fidelity Zero Large Cap Index Fund (FNILX)
Licensing the S&P 500 costs money. However, it’s not the only way of obtaining exposure to large-cap U.S. stocks. A good example is FNILX, which uses the proprietary Fidelity U.S. Large Cap Index. The holdings of this index fund are very similar to FXAIX, but the benchmark is technically different.
The hallmark of this index fund is a true 0% expense ratio, which makes it free to own. This is made possible thanks to cost-efficient index sampling, and also securities lending within the portfolio to offset trading costs. Fidelity has similar Zero funds targeting broad U.S. and international stocks.
BNY Mellon US Large Cap Core Equity ETF (BKLC)
Fidelity helped popularize zero expense ratios in mutual funds, but most ETF providers have not followed suit. A notable exception is BNY Mellon, which offers BKLC at a true 0% expense ratio with just $5 billion in AUM. The firm has a similar zero-cost ETF for aggregate core bond exposure.
BKLC tracks the Solactive GBS United States 500 Index, which results in a portfolio that looks very similar to the S&P 500. The difference is structural. Unlike the S&P 500, which relies on an active committee to add or remove companies, BKLC’s benchmark follows a more rules-based approach.
Schwab U.S. Broad Market ETF (SCHB)
VTSAX is a popular choice for broad U.S. equity exposure, but it is not the only option. Charles Schwab offers a close substitute through SCHB, which tracks the Dow Jones U.S. Broad Stock Market Index, differing slightly from the CRSP U.S. Total Market Index used by VTSAX.
The methodology is straightforward. The index holds roughly the largest 2,500 U.S.-listed stocks and weights them by market capitalization. The end exposure is very similar to Vanguard’s total market approach, but SCHB avoids mutual fund minimums and charges a low 0.03% expense ratio.
iShares Core Dividend ETF (DIVB)
Index funds are not limited to broad market exposure. Factor-based strategies such as dividend investing can also be implemented systematically at low cost. A good example is DIVB, which tracks the Morningstar US Dividend and Buyback Index and charges a 0.05% expense ratio.
DIVB’s benchmark weights companies based 75% on dividend yield and 25% on share-buyback yield. The result is a diversified portfolio of more than 400 holdings with a 2.8% 30-day SEC yield. Morningstar also assigned DIVB a gold medalist rating, meaning it believes the fund will likely outperform peers in the future.
iShares Core S&P Small-Cap ETF (IJR)
Broad index funds like VTSAX and SCHB naturally emphasize large-cap stocks due to the use of market-cap weighting. Investors seeking meaningful exposure to smaller companies need a dedicated size-specific fund. IJR fills that role for small caps at an affordable 0.06% expense ratio.
The ETF tracks the S&P SmallCap 600 Index, which has historically compared favorably with the Russell 2000. A key difference is the S&P index’s profitability screen, which excludes companies without positive earnings history, thus reducing exposure to highly speculative and more volatile small-cap names.
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10 Best Low-Cost Index Funds to Buy in 2026 originally appeared on usnews.com
Update 12/31/25: This story was published at an earlier date and has been updated with new information.
