10 Best Index Funds to Invest in 2024
Index funds are defined as investments that mirror the performance of particular indexes, such as the S&P 500. Long seen as the easiest way to invest, these investments are becoming more and more popular among investors. Each fund provides unique advantages, from zero expense ratios to broad market coverage, catering to various investment strategies and goals.
S&P 500 Index Funds
S&P 500 index funds offer investors exposure to 500 of the largest U.S. companies, providing broad market diversification. These funds track the performance of the S&P 500 index, a benchmark for the overall U.S. stock market. When selecting an S&P 500 index fund, consider factors such as expense ratios, minimum investment requirements, and historical performance.
1. Fidelity 500 Index Fund (FXAIX)
The Fidelity 500 Index Fund (FXAIX) stands out as a top choice for investors seeking exposure to large-cap U.S. stocks in 2024. This fund tracks the S&P 500 index, providing access to 500 of the largest publicly traded companies in the United States. FXAIX offers a compelling combination of low costs and strong historical performance.
With a rock-bottom expense ratio of 0.015%, FXAIX ranks among the most cost-effective S&P 500 index funds available. This ultra-low fee structure means more of your investment returns stay in your pocket rather than being eaten up by fund expenses. The fund’s minimal expense ratio contributes to its ability to closely track the performance of the S&P 500 index.
FXAIX boasts an impressive 10-year average annual return of 13.08%, demonstrating its potential for long-term growth. This performance aligns closely with the broader S&P 500 index, reflecting the fund’s effectiveness in replicating the index’s returns. Investors can gain confidence from this track record of consistent performance over an extended period.
One of FXAIX’s most attractive features is its $0 minimum investment requirement. This low barrier to entry makes it accessible to a wide range of investors, from beginners just starting their investment journey to seasoned professionals looking to add a center of U.S. equity holding to their portfolios.
2. Vanguard 500 Index Fund Admiral Shares (VFIAX)
Vanguard 500 Index Fund Admiral Shares (VFIAX) stands out as another top-tier index fund choice for 2024. This fund tracks the performance of the S&P 500 index, offering investors broad exposure to 500 of the largest U.S. companies.
VFIAX boasts an impressively low expense ratio of 0.04%, making it an cost-effective option for long-term investors.
Performance-wise, VFIAX has demonstrated strong results. Its 10-year annualized return of 12.85% reflects the fund’s ability to capture the growth of the U.S. stock market effectively. This consistent performance aligns with the overall strength of the S&P 500 index.
One notable advantage of VFIAX is its association with Vanguard, a company renowned for its low-cost investment products and investor-friendly practices. Vanguard’s reputation for reliability and transparency adds an extra layer of confidence for investors considering this fund.
The Admiral Shares class of this fund requires a minimum investment of $3,000. While this amount may be higher than some other index funds, it’s still accessible for many investors looking to build a solid portfolio foundation.
VFIAX’s diversification across various sectors of the U.S. economy provides a balanced approach to investing. This diversification helps mitigate risk by spreading investments across different industries and companies, potentially smoothing out market volatility.
3. Schwab S&P 500 Index Fund (SWPPX)
As another well-known index fund, The Schwab S&P 500 Index Fund (SWPPX) boasts an incredibly low expense ratio of 0.02%, making it one of the most cost-effective S&P 500 index funds available in the market. SWPPX’s performance closely mirrors the S&P 500 index, delivering a robust 10-year annualized return of 12.80% as of June 30, 2024.
With $97.5 billion in assets under management, SWPPX demonstrates significant investor confidence and market presence. The fund’s substantial size allows for efficient tracking of the fundamental index and potentially lower trading costs. Investors appreciate SWPPX’s accessibility, as it requires no minimum investment to get started.
SWPPX’s low tracking error ensures that its performance accurately reflects the S&P 500 index. This characteristic is crucial for investors seeking to capture the market’s overall performance without deviations caused by active management strategies. The fund’s ability to closely track the index provides investors with a reliable representation of large-cap U.S. equity market performance.
For those looking to diversify their portfolio with a broad market exposure, SWPPX offers an excellent opportunity. It provides access to 500 of the largest U.S. companies, spanning various sectors and industries.
Total Market Index Funds
Total market index funds offer investors broad exposure to the entire U.S. stock market, including companies of all sizes. These funds provide an efficient way to diversify your portfolio across multiple sectors and market capitalizations.
4. Vanguard Total Stock Market ETF (VTI)
The Vanguard Total Stock Market ETF (VTI) is one of the significant funds in the category for Total Market Index. VTI tracks the CRSP US Total Market Index, encompassing nearly all publicly traded US companies. This broad market exposure offers investors a thorough slice of the entire US stock market.
VTI’s expense ratio of 0.04% ranks among the lowest in the industry, making it an exceptionally cost-effective option for long-term investors. Over the past decade, VTI has delivered impressive returns, with a 10-year return of 12.82% as of June 30, 2024. This performance demonstrates the fund’s ability to generate substantial growth over time.
With assets under management exceeding $1 trillion, VTI boasts significant liquidity and stability. The fund’s size allows for efficient trading and helps minimize tracking error, which has remained at 0.25% or less over the past 10 years. This low tracking error indicates VTI’s ability to closely mirror its benchmark index.
VTI has earned a minimum 4-star Morningstar rating, reflecting its strong performance relative to peers. This rating considers factors such as risk-adjusted returns, expenses, and manager tenure, providing investors with additional confidence in the fund’s quality.
5. Fidelity ZERO Large Cap Index (FNILX)
The Fidelity ZERO Large Cap Index (FNILX) tracks the Fidelity U.S. Large Cap Index, which closely mimics the performance of the S&P 500. FNILX offers investors exposure to over 500 U.S. large-cap stocks, providing broad market coverage.
One of FNILX’s most attractive features is its 0% expense ratio and the fund’s performance has been impressive, with a 12% gain as of mid-May 2024, aligning closely with the S&P 500’s year-to-date returns.
For those looking to start investing, FNILX presents an excellent opportunity as it requires no minimum investment, making it accessible to investors with varying capital. The fund’s 5-year annualized return of 15.3% demonstrates its strong historical performance.
Growth Index Funds
Growth index funds offer investors exposure to companies with high growth potential, typically focusing on sectors like technology and consumer discretionary. These funds aim to capture market gains by tracking indexes composed of stocks with above-average earnings growth.
6. Vanguard Growth ETF (VUG)
The Vanguard Growth ETF (VUG) offers investors exposure to high-growth potential stocks with minimal costs as a Growth Index Fund. This ETF tracks the CRSP US Large Cap Growth Index, closely mirroring the S&P 500 Growth Index in composition and performance.
VUG’s investment strategy focuses on 200 U.S. large-cap growth stocks, with a significant tilt toward the technology sector. The fund’s portfolio allocation includes a 56% concentration in tech stocks, followed by 19% in consumer discretionary and 8% in industrial stocks. This sector weighting positions VUG to capitalize on innovative and rapidly expanding companies.
Cost-conscious investors will appreciate VUG’s remarkably low expense ratio of 0.04%, which helps maximize long-term growth potential.
Performance-wise, VUG has demonstrated impressive results. As of April 30, 2024, the fund’s five-year average annual return stood at approximately 16%. This outperformance is notable when compared to the S&P 500’s return of about 13% during the same period, highlighting VUG’s ability to deliver superior returns in the growth segment.
International Index Funds
International index funds offer investors exposure to global markets beyond the United States, providing diversification and potential growth opportunities. These funds track indexes that represent developed and emerging markets worldwide, allowing you to tap into the economic progress of various countries.
When considering international index funds, it’s crucial to evaluate factors such as geographic coverage, expense ratios, and historical performance. Investing in international index funds can help balance a portfolio and reduce reliance on a single market. As global economies become increasingly interconnected, these funds present opportunities to capitalize on growth in diverse regions while mitigating some country-specific risks.
7. Vanguard FTSE Europe ETF (VGK)
The Vanguard FTSE Europe ETF (VGK) offers a thorough representation of large-cap, mid-cap, and small-cap stocks from developed European markets.
VGK boasts an impressively low expense ratio of 0.08%, making it an attractive option for cost-conscious investors. The fund’s investment strategy closely mirrors the performance of its benchmark index, providing a broad European market exposure.
Morningstar, a respected investment research firm, has awarded VGK its prestigious Gold Medalist Rating. This accolade indicates the fund’s potential to outperform over a full market cycle, instilling confidence in its long-term prospects. Additionally, the fund’s analyst-assigned percentage of at least 80% as of July 24, 2024, further underscores its strong positioning in the market.
The diversification of VGK helps mitigate country-specific risks while capitalizing on the growth potential of the European economy as a whole.
Bond Index Funds
Bond index funds offer investors a low-cost way to gain exposure to the fixed-income market. These funds track broad bond market indices, providing diversification and steady income potential.
8. Vanguard Total Bond Market ETF (BND)
The Vanguard Total Bond Market ETF (BND) offers investors broad exposure to the U.S. bond market at an exceptionally low cost. BND tracks the Bloomberg U.S. Aggregate Float-Adjusted Index, encompassing a wide range of U.S. bonds, including government and corporate securities.
With an expense ratio of just 0.03%, BND provides a cost-effective way to diversify portfolios with fixed-income assets. The fund’s significant assets under management, exceeding $300 billion, demonstrate its popularity and liquidity.
BND’s performance has been consistently strong, delivering a 5-year annualized return of approximately 4.5% as of July 2024. This track record showcases the fund’s ability to generate steady returns in various market conditions. Morningstar’s Gold rating for BND further reinforces its potential to outperform peers over a full market cycle.
Investing in BND offers an exposure to a broad spectrum of the bond market, including Treasury bonds, corporate bonds, and mortgage-backed securities. This diversification helps mitigate risk while potentially enhancing overall portfolio stability. As interest rates fluctuate, BND’s diverse holdings can help cushion the impact on the investment.
Specialized Index Funds
Specialized index funds offer unique investment opportunities by focusing on specific market segments or themes.
9. Vanguard Real Estate ETF (VNQ)
The Vanguard Real Estate ETF (VNQ) offers investors exposure to the real estate sector, providing a unique opportunity to diversify portfolios beyond traditional stocks and bonds. This fund tracks the performance of the MSCI US Investable Market Real Estate 25/50 Index, encompassing a broad range of real estate investment trusts (REITs) and other real estate-related companies.
VNQ boasts a low expense ratio of 0.12%, making it an attractive option for cost-conscious investors seeking real estate exposure. The fund’s holdings span various real estate subsectors, including residential, commercial, healthcare, and specialized REITs, providing thorough coverage of the U.S. real estate market.
Investing in VNQ allows to benefit from potential income generation through dividend yields, as REITs are required to distribute a significant portion of their taxable income to shareholders. This feature makes VNQ particularly appealing for income-focused investors seeking regular cash flow from their investments.
The fund’s diverse holdings help mitigate risk associated with individual property investments, offering a more stable approach to real estate investing compared to direct property ownership. VNQ’s portfolio includes well-established REITs with proven track records, providing exposure to professionally managed real estate assets across different geographic regions and property types.
While real estate can be cyclical, VNQ’s broad market exposure helps smooth out some of the volatility associated with individual property investments. The fund’s liquidity, being an ETF, allows for easy buying and selling on major exchanges, providing flexibility for investors to adjust their real estate exposure as needed.
10. Invesco NASDAQ 100 ETF (QQQM)
The Invesco NASDAQ 100 ETF (QQQM) offers investors exposure to the 100 largest non-financial companies listed on the NASDAQ stock exchange. This ETF tracks the NASDAQ-100 Index, providing a concentrated portfolio of innovative and high-growth potential stocks. QQQM’s holdings primarily consist of technology giants, consumer discretionary companies, and communication services firms.
With an expense ratio of 0.15%, QQQM presents a cost-effective way to gain access to some of the most influential companies in the market. The fund’s top holdings include industry leaders such as Apple, Microsoft, Amazon, and Alphabet. These companies have demonstrated strong financial performance and continue to drive technological advancements across various sectors.
QQQM’s performance has been impressive, with a 5-year annualized return of approximately 20%. This outperformance can be attributed to the fund’s focus on growth-oriented companies that have benefited from secular trends like digitalization and cloud computing. However, investors should note that the concentrated nature of the portfolio may lead to higher volatility compared to broader market indices.
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