Key Takeaways
- Investing in low cost index funds allows for reliable long-term wealth building by tracking market benchmarks like the S&P 500.
- The expense ratio is crucial; lower ratios keep more money invested, potentially compounding over time.
- Ten recommended low cost index funds charge 0.05% or less, providing options across various asset classes and low minimum investments.
- Funds from reputable companies like Fidelity and Vanguard offer accessible, low-cost alternatives for diversifying portfolios.
- Low cost index funds provide diversification, lower expenses, and can enhance investment growth while requiring patience and realistic goals.
Who doesn’t like a bargain? Whether you’re a novice or seasoned investor, investing in low cost index funds is a reliable strategy for building long term wealth.
An index fund follows a particular market benchmark, such as the S&P 500. Instead of relying on a manager to select investments that could potentially outperform the market, index funds track the performance of the underlying index. They buy and hold every stock in a given index in exactly the same proportions as the index itself.
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What Makes an Index Fund Low Cost?
The main number to examine is the expense ratio which is the percentage of fund assets used annually to cover operating expenses. For example, a 0.03% expense ratio translates to approximately $3 annually for every $10,000 invested. A fund charging 1% would cost approximately $100 on that same amount.
This difference leaves more money invested and available to compound.
Criteria for Selecting Low Cost Index Funds
There are many low cost index funds available, but we narrowed down ten of our favorites. All ten selected below charge 0.05% or less annually (subject to change), keeping the annual fund expenses at approximately $5 or less for every $10,000 invested. These index funds are accessible, meaning they have zero to low minimum investment requirements.
The selection includes funds covering large U.S. companies, the broader U.S. stock market, international stocks, and investment-grade bonds, giving investors options for different portfolio needs.
Finally, many of the funds selected are offered by established, reputable institutions like Fidelity, Vanguard, and Schwab which generally offer reliable performance.
| Fund Name | Ticker | Asset Class / Focus | Fund Type | Expense Ratio | Minimum Investment |
|---|---|---|---|---|---|
| Vanguard S&P 500 ETF | VOO | U.S. Large-Cap Stocks | ETF | 0.03% | $0 (1 Share) |
| Fidelity 500 Index Fund | FXAIX | U.S. Large-Cap Stocks | Mutual Fund | 0.015% | $0 |
| Schwab S&P 500 Index Fund | SWPPX | U.S. Large-Cap Stocks | Mutual Fund | 0.02% | $0 |
| iShares Core S&P 500 ETF | IVV | U.S. Large-Cap Stocks | ETF | 0.03% | $0 (1 Share) |
| Fidelity Total Market Index Fund | FSKAX | Total U.S. Stock Market | Mutual Fund | 0.015% | $0 |
| Fidelity ZERO Total Market Index Fund | FZROX | Total U.S. Stock Market | Mutual Fund | 0.00% | $0 |
| Schwab Total Stock Market Index Fund | SWTSX | Total U.S. Stock Market | Mutual Fund | 0.03% | $0 |
| iShares Core S&P Total U.S. Stock Market ETF | ITOT | Total U.S. Stock Market | ETF | 0.03% | $0 (1 Share) |
| Vanguard Total International Stock ETF | VXUS | International Stocks | ETF | 0.05% | $0 (1 Share) |
| Vanguard Total Bond Market ETF | BND | U.S. Investment-Grade Bonds | ETF | 0.03% | $0 (1 Share) |
10 Best Low-Cost Index Funds
1. Vanguard S&P 500 ETF (VOO)
VOO tracks the S&P 500, providing exposure to approximately 500 leading U.S. companies. It spreads investments across industries, making it a great way to participate in the performance of large American businesses. Another benefit is that the largest companies receive the greatest weight.
Its 0.03% expense ratio costs approximately $3 annually per $10,000 invested. This makes VOO an attractive offer for investors seeking long-term stock market growth without paying substantial ongoing fees.
2. Fidelity 500 Index Fund (FXAIX)
FXAIX offers another way to invest in the S&P 500, this time through a mutual fund. Investors buy or redeem shares at the fund’s next calculated net asset value, rather than trading throughout the day. It is also one of the largest mutual funds.
Its 0.015% expense ratio works out to approximately $1.50 annually per $10,000 invested. Fidelity also offers its retail mutual funds without an investment minimum, making FXAIX accessible to people starting with modest contributions.
3. Schwab S&P 500 Index Fund (SWPPX)
SWPPX gives investors S&P 500 exposure with a 0.02% expense ratio, equivalent to approximately $2 annually per $10,000 invested. It also has no minimum initial investment and a relatively low share price.
The fund’s combination of accessible entry and low expenses makes it a strong candidate for investors building a portfolio through regular contributions.
SWPPX serves essentially the same investment role as FXAIX and VOO. Choosing among them often comes down to account convenience, trading preferences, and any brokerage transaction fees, rather than a meaningful difference in the underlying stock exposure since they all track the same index.
4. iShares Core S&P 500 ETF (IVV)
Managed by BlackRock, the world’s largest asset manager, IVV is another established ETF tracking the S&P 500. Its 0.03% expense ratio translates to approximately $3 annually per $10,000 invested, matching VOO’s ongoing fund charge.
The appeal with this fund is the broad exposure to large-cap U.S. companies, which tend to have a market capitalization above $10 billion. Large-cap companies are considered to be more stable and less volatile than small-cap companies.
5. Fidelity Total Market Index Fund (FSKAX)
Are you looking for exposure beyond the largest businesses? FSKAX tracks the Dow Jones U.S. Total Stock Market Index, covering large, midsize, and small American companies.
Its 0.015% expense ratio costs approximately $1.50 annually per $10,000 invested. That is relatively inexpensive for such broad domestic stock exposure. Smaller companies broaden their coverage, although large companies still dominate because holdings are weighted by market value.
6. Fidelity ZERO Total Market Index Fund (FZROX)
FZROX stands out because its expense ratio is 0%. It follows Fidelity’s proprietary U.S. stock market index rather than a standard like the S&P 500, so it is only available at Fidelity.
For long-term investors who are comfortable with Fidelity as their brokerage, FZROX is a great low-cost fund that offers exposure to large, mid and small-cap U.S. companies without an annual fund operating expense charge.
7. Schwab Total Stock Market Index Fund (SWTSX)
SWTSX tracks the Dow Jones U.S. Total Stock Market Index, giving investors access to large, midsize, and small companies in one mutual fund.
Its 0.03% expense ratio amounts to approximately $3 annually per $10,000 invested, and there is no minimum initial investment.
Although investors can obtain broad U.S. equity exposure with different company sizes with the SWTSX, it remains heavily weighted in the largest companies.
8. iShares Core S&P Total U.S. Stock Market ETF (ITOT)
ITOT tracks the S&P Total Market Index, extending its reach beyond the S&P 500 to include smaller U.S. businesses. Although this can make the fund more volatile, it could offer better long-term returns. Its 0.03% expense ratio costs approximately $3 annually per $10,000 invested.
ITOT is attractive for investors who want broad domestic stock exposure in an ETF.
9. Vanguard Total International Stock ETF (VXUS)
VXUS brings a different mix to the list, which is stocks outside the United States. It invests across developed and emerging markets, helping investors spread their exposure beyond one country.
Its 0.05% expense ratio amounts to approximately $5 annually per $10,000 invested. That is an inexpensive way to access a broad international stock portfolio.
VXUS can complement a U.S. stock fund because American and international markets do not always perform alike. Its appeal is diversification, but investors should also expect things like currency fluctuations, political and other risks that can typically impact foreign investments.
10. Vanguard Total Bond Market ETF (BND)
BND tracks the Bloomberg U.S. Aggregate Float Adjusted Index and provides broad exposure to U.S. investment-grade bonds, including government, corporate, and mortgage-backed securities. Its 0.03% expense ratio costs approximately $3 annually per $10,000 invested.
Bonds can generate income and potentially reduce overall portfolio volatility. BND may suit investors seeking a more balanced investment mix.
However, a bond fund is not without risks. Its price can fall when interest rates rise, and some holdings carry credit risk.
Best Low-Cost Index Funds to Buy
Low cost index funds offer an accessible way to build a diversified portfolio while keeping more of your money invested. These ten options combine exceptionally low expenses with clear investment purposes, from owning American businesses to adding international stocks or bonds.
Low fees are a valuable advantage, but lasting investment success also requires patience, realistic expectations, and a portfolio you can hold through the ups and downs of the market.
Low-Cost Index Funds Frequently Asked Questions
Yes. Stock index funds collect cash dividend distributions from the underlying portfolio companies and pass them directly through to fund shareholders, typically on a quarterly basis.
A competitive low-cost index fund should feature an expense ratio below 0.10% ($10 annually per $10,000 invested). Top broad-market funds from Vanguard, Fidelity, and Schwab charge as little as 0.015% to 0.04%.
Index funds offer instant diversification and low maintenance, making them ideal for wealth accumulation. However, individual dividend growth stocks allow investors to generate higher organic yields, eliminate fund management fees, avoid companies that pay no dividends, and precisely control tax location.
Index mutual funds trade once per day after market close at net asset value (NAV) and often allow automated dollar-based investing. Index ETFs trade continuously throughout the trading day like individual stocks and are often more tax-efficient in taxable brokerage accounts.
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Nadia Tahir is a freelance writer and content creator. She mostly writes in the areas of lifestyle and personal finance. She also enjoys writing on her blog about motherhood at This Mom is On Fire.
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