Just as dividends can compound positively over time, fees work in the opposite direction by steadily eroding returns.
While many brokerages have eliminated trading commissions and account maintenance fees, investors who use mutual funds and exchange-traded funds (ETFs) still pay an expense ratio.
This is an ongoing fee charged by the fund provider, expressed as an annual percentage of the fund’s average net assets. It covers the cost of managing and operating the fund, including portfolio management, administrative expenses, and, in some cases, marketing and distribution.
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For example, a fund with a 0.5% expense ratio would cost $50 annually on a $10,000 investment. This fee is not charged upfront but is deducted gradually from the fund’s assets, meaning it is reflected in the fund’s performance over time. As a result, the returns you see reported are already net of fees.
Once you understand what goes into an expense ratio, it becomes clear why some funds cost more than others. Actively managed funds typically charge higher fees because they require portfolio managers and research teams to select and monitor investments.
In contrast, passive funds simply track an index benchmark, such as the S&P 500 or Nasdaq-100, and therefore have much lower costs. They either fully replicate or sample the index, reducing the need for active decision-making and ongoing research.
“The returns of the market have been driven by a small percentage of big winners,” says Robert Johnson, professor of finance at Creighton University’s Heider College of Business. “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.”
The growing popularity of index investing has also led to a trend known as fee compression. As more investors shift toward low-cost passive strategies, fund providers have been forced to lower fees to remain competitive.
Vanguard has been a major driver of this trend, thanks to its unique cooperative structure where the company is effectively owned by its fund investors. However, it does not always offer the absolute lowest-cost option in every category.
Competing firms like Fidelity Investments have introduced zero-expense-ratio mutual funds, while others such as BNY Mellon offer zero-expense-ratio ETFs.
Here are 10 of the best low-cost index funds to buy in 2026:
| Fund | Expense Ratio |
| Vanguard 500 Index Fund Admiral Shares (ticker: VFIAX) | 0.04% |
| Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) | 0.04% |
| Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) | 0.09% |
| Vanguard Extended Market Index Fund Admiral Shares (VEXAX) | 0.05% |
| State Street SPDR Portfolio S&P 500 ETF (SPYM) | 0.02% |
| Fidelity Zero Large Cap Index Fund (FNILX) | 0.00% |
| Fidelity Zero Total Market Index Fund (FZROX) | 0.00% |
| Fidelity Zero International Index Fund (FZILX) | 0.00% |
| Fidelity Zero Extended Market Index Fund (FZIPX) | 0.00% |
| BNY Mellon US Large Cap Core Equity ETF (BKLC) | 0.00% |
Vanguard 500 Index Fund Admiral Shares (VFIAX)
“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,” explains Rodney Comegys, chief investment officer at Vanguard Capital Management and head of global equity at Vanguard.
The latest update to the S&P Indices Versus Active (SPIVA) report discloses that over the past 15 years, 89.9% of all large-cap funds underperformed the S&P 500. Investors can position themselves to succeed by investing in VFIAX, which tracks the S&P 500 at a low 0.04% expense ratio.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
“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, despite holding over 3,500 stocks VTSAX has a minimal annual portfolio turnover rate of just 2.6%.
This Vanguard fund offers greater diversification compared to VFIAX’s large-cap focus. VTSAX’s portfolio owns thousands of small- and mid-cap stocks excluded by the S&P 500 index. However, its use of market-cap weighting results in similar historical performance. VTSAX charges a 0.04% expense ratio.
Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
“Over time, as markets grew more global and complex, Vanguard’s index teams evolved alongside them, managing hundreds of benchmarks across regions and asset classes,” Comegys says. For example, investors looking for international diversification can invest in VTIAX at a 0.09% expense ratio.
This Vanguard fund is a popular complement to VTSAX. It tracks the FTSE Global All Cap ex US Index, which spans about 8,500 market cap-weighted international stocks across both developed and emerging-market countries. Like VFIAX and VTSAX, VTIAX requires a $3,000 minimum investment.
Vanguard Extended Market Index Fund Admiral Shares (VEXAX)
“Index funds require constant, hands-on discipline on the back end, from managing cash flows and index changes to navigating corporate actions and rebalances,” Comegys says. “Those details matter, because even small inefficiencies can compound over time.” This creates what is called tracking error.
Tracking error is the difference between a fund’s actual returns and the returns of the index it is designed to track. For example, VEXAX has posted a minimal 10-year tracking error of just 0.12% relative to its benchmark, the Spliced Extended Market Index. The fund charges a low 0.05% expense ratio.
State Street SPDR Portfolio S&P 500 ETF (SPYM)
“At just two basis points, or 0.02%, SPYM is currently the lowest-cost ETF tracking the S&P 500 index,” says Matthew Bartolini, managing director and global head of research strategists at State Street Investment Management. This S&P 500 ETF is highly popular, with over $128 billion in assets.
“With a share price below $100 — versus an average of over $650 for other S&P 500 ETFs — SPYM also lowers the capital required for entry and supports more precise portfolio allocation for retail investors,” Bartolini says. Contrast this with VFIAX, which requires a $3,000 minimum investment.
[READ: 7 Lowest Expense Ratio ETFs]
Fidelity Zero Large Cap Index Fund (FNILX)
The S&P 500 isn’t the only way to gain exposure to U.S. large-cap stocks. Investors looking to reduce costs to zero and avoid minimum investment requirements may like FNILX. This fund tracks the proprietary Fidelity U.S. Large Cap Index, which holds the largest 500 U.S. companies by market cap.
To keep costs low, FNILX uses a representative sampling approach rather than fully replicating the index. This reduces trading and operational expenses while maintaining similar exposure. The fund also engages in securities lending, generating additional income that helps offset costs.
Fidelity Zero Total Market Index Fund (FZROX)
Fidelity’s Zero lineup includes several funds designed to compete directly with popular Vanguard offerings. For example, investors considering VTSAX can look to FZROX as a zero-cost alternative. This fund tracks the Fidelity U.S. Total Investable Market Index, which includes about 2,500 holdings.
Like FNILX, FZROX uses a sampling technique to reduce costs while maintaining broad market exposure. It also employs securities lending to generate incremental income. The result is a fund with significant overlap to traditional total market funds but with no expense ratio or minimum investment requirement.
Fidelity Zero International Index Fund (FZILX)
While some international funds like VTIAX already offer low expense ratios, FZILX eliminates fees entirely and has no minimum investment. The fund tracks the Fidelity Global ex-U.S. Index, covering both developed and emerging markets. It currently holds over 2,000 market cap-weighted stocks.
Again, this fund uses a sampling approach to efficiently track its benchmark while minimizing trading costs. Its portfolio structure closely resembles other broad international index funds, with significant overlap with VTIAX. Portfolio turnover remains low at 3% annually, which helps with tax efficiency.
Fidelity Zero Extended Market Index Fund (FZIPX)
Investors looking to complement large-cap exposure with mid- and small-cap stocks may find FZIPX appealing. This fund serves as a zero-cost alternative to VEXAX. It tracks the Fidelity U.S. Extended Investable Market Index, which focuses on companies outside the largest 500 U.S. stocks.
The fund excludes the top 500 stocks included in FNILX, weighting the remainder by market capitalization. Like the other Fidelity Zero funds, FZIPX uses sampling and securities lending to keep costs at zero. Turnover is higher, at 13%, because companies frequently move in and out of this segment.
BNY Mellon US Large Cap Core Equity ETF (BKLC)
Not many ETF issuers have replicated Fidelity’s zero-cost model. A notable exception is BNY Mellon, which currently offers two zero-expense-ratio ETFs covering U.S. large-cap stocks and U.S. aggregate bonds. The former is represented by BKLC, which currently manages just over $4.6 billion in assets.
Instead of tracking the S&P 500, BKLC follows the Solactive GBS United States 500 Index. While the benchmark differs, the portfolio has significant overlap and holds many of the same top companies. Performance has been competitive as well, with BKLC delivering a 12.3% five-year annualized return.
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10 Best Low-Cost Index Funds to Buy in 2026 originally appeared on usnews.com
Update 04/13/26: This story was published at an earlier date and has been updated with new information.
