Because they all do the same thing: they passively track a market index, the cheapest index funds are often the best to buy. Buying high-priced index funds isn't always a good idea because low-cost index funds can accomplish the same thing.It's possible that it's not a good idea to invest in a fund that has a sales charge, which could be a front-load (paid when you buy shares) or a back-load (paid when you sell shares). Sales charges make sense only when you're getting solid advice and top-notch active management does. You won't need this input with index funds if you do your homework, so always go with no-load funds.As of May 2021, these are some of the cheapest index funds, as measured by their expense ratios. They're divided into six groups.Note: Consider it as if you were purchasing a basic food item like bread. All three brands are likely to have the same ingredients, so go with the cheapest! When purchasing index funds, apply the same logic.
S&P 500 Index Funds with the Lowest Fees
These index funds follow the S&P 500 index, which is made up of about 500 large-cap stocks in the United States. The expense ratio for the Schwab S& P 500 Index (SWPPX) is 0.02 percent, or $2 for every $10,000 invested. There is no minimum investment required to get started.The expense ratio for the Fidelity 500 Index (FXAIX) is also 0.015 percent. A minimum investment is not required.These are extremely low costs, especially when compared to some of the average expense ratios for mutual funds, which are frequently more than ten times higher, up to 1.5 percent.
Large Growth Stock Index Funds with the Lowest Fees
The Russell 1000 Growth index, the Nasdaq Composite, and the Nasdaq-100 are all popular growth index funds. They invest in the largest growth stocks in the United States based on market capitalization.Many of the same stocks will be found in S& P 500 index funds, but these will only be growth stocks, which are more aggressive. They are riskier than other stocks, but they also have a higher potential for long-term gains.Vanguard Growth Index Fund Admiral Shares (VIGAX) is one of the most affordable mutual funds that track a large-cap growth US stock index. It has a 0.05 percent expense ratio or $5 for every $10,000 invested. The initial investment is $3,000 as a minimum. If you have a budget of less than $3,000, there's also the Vanguard Growth ETF (VUG), which has a 0.04 percent expense ratio and no minimum investment.The expense ratio for the Fidelity NASDAQ Composite Index (FNCMX) is 0.29 percent or $29 for every $10,000 invested. A minimum investment is not required.Both funds have high ratings, so you get good value for your money.
The Lowest-Cost Large-Cap Stock Index Funds
Value stock indices aren't well-represented in stock index funds. There are a few that are quite expensive and a few that are both good and inexpensive. Because value stocks are frequently undervalued in the market, they trade at a discount. Value funds are mutual funds that pay dividends. The Russell 1000 Value index and the S& P 500 Value index are two popular value stock index funds.The expense ratio for Vanguard High Dividend Yield Index Admiral Shares (VHYAX) is 0.08 percent or $8 per $10,000 invested. The initial investment is $3,000 as a minimum. The Vanguard High Dividend Yield ETF (YVM) is similar, but it does not have a minimum investment.The expense ratio for Vanguard Value Index Admiral Shares (VVIAX) is 0.05 percent or $5 per $10,000 invested. The initial investment must be at least $3,000 to be considered. The Vanguard Value ETF (VTV) is similar, but it does not require a minimum investment.If you want to invest for long-term growth or current income, value funds may be good.
Mid-Cap Stock Index Funds with the Lowest Costs
Mid-cap stock index funds follow a growth index, a value index, or a hybrid index, similar to large-cap index funds. Mid-cap stock mutual funds that track indices like the S& P MidCap 400 index or the Russell Mid Cap Index frequently include a mix of growth and value stocks.The Northern Mid Cap Index (NOMIX) has a 0.15 percent expense ratio or $15 per $10,000 invested. The initial investment requirement is $2,500.The expense ratio for Vanguard Mid Cap Index Admiral Shares (VIMAX) is 0.05 percent or $5 for every $10,000 invested. The initial investment is $3,000 as a minimum. The Vanguard Mid-Cap ETF (VO) is the equivalent ETF that does not have a minimum investment.Mid-cap stocks are more volatile than large-cap stocks, but they have a better long-term track record. They have lower market risk than small-cap stocks, but they can still outperform them. Mid-caps are a good fit for long-term investors willing to take on more risk in exchange for higher returns because they fall into a "sweet spot" of investing.
Small-Cap Stock Index Funds with the Lowest Costs
These small-cap stock index funds follow an index that incorporates both growth and value investing strategies. They are based on small-cap indices such as the Russell 2000 Index and the S&P SmallCap 600 Index.The expense ratio for the Northern Small Cap Index (NSIDX) is 0.15 percent or $15 per $10,000 invested. A $2,500 initial investment is required to get started.The expense ratio for the Schwab Small Cap Index (SWSSX) is 0.04 percent or $4 per $10,000 invested. To get started, there is no required investment.Small-cap stocks are riskier than large- and mid-cap stocks, but they can provide excellent long-term returns, particularly if expenses are kept to a minimum.
International Stock Index Funds with the Lowest Fees
International stock index funds frequently track the MSCI EAFE Index or the MSCI ACWI Index, which includes stocks from companies outside the United States.The expense ratio for Vanguard Total International Stock Index Admiral Shares (VGTSX) is 0.11 percent or $11 for every $10,000 invested. A $3,000 minimum investment is required.The Schwab International Index Fund (SWISX) expense ratio is 0.06 percent or $6 for every $10,000 invested. There is no requirement for a minimum initial investment.International stock index funds are a smart and simple way to invest in the entire market outside of the United States. Some of these stocks are usually included in a diversified portfolio.
Bond Index Funds with the Lowest Fees
Bond index funds come in a variety of shapes and sizes, but the best and most popular are those that cover the entire bond market in the United States. These are based on the Bloomberg Capital Aggregate US Bond Index, including taxable corporate bonds, Treasury bonds, and municipal bonds.The expense ratio for Vanguard Total Bond Index Admiral Shares (VBTLX) is 0.05 percent or $5 per $10,000 invested. The smallest initial investment is $3,000, which is the most affordable option. With a 0.035 percent expense ratio, Vanguard Total Bond Market ETF (BND) is the equivalent ETF. A minimum investment is not required.The Northern Bond Index (NOBOX) expense ratio is 0.15 percent or $15 per $10,000 invested. There is a $2,500 minimum investment.With just one low-cost total bond market index in their mutual fund portfolio, most investors can get by.
What is the Best Way to Get the Cheapest of the Cheap?
If you make a larger initial investment, some of the best no-load mutual fund companies, such as Vanguard Investments, offer index fund share classes with lower expense ratios.If you can meet the initial requirement of $3,000 for the Vanguard 500 Index Fund "Admiral" share class, you'll get the cheapest S& P 500 index fund with an expense ratio of 0.04 percent (VFIAX). The Vanguard S&P 500 ETF (VOO) has a 0.03 percent expense ratio with no minimum investment.
Most Commonly Asked Questions (FAQs)
How many index funds should I have in my portfolio?
The number of index funds in a diversified portfolio will be determined by how focused those indexes are. If you're looking for diversification, an S&P 500 fund and a total bond market fund may be all you need. However, if you want to buy a small-cap fund, you should consider balancing it with a large-cap fund. If you want to invest in an international stock fund, you should consider balancing it with a domestic stock fund. The more specific you get to replicate a diverse portfolio, the more funds you'll need to buy.
What are the best places to buy index funds?
Index funds, such as the ones mentioned here, can be purchased through a broker. To buy these funds, you'll need a brokerage account or a retirement account. The procedure for opening one of these accounts is similar to that of opening a bank account. After you've created an account, look for the fund you want to invest in and place a buy order. Please remember that not all brokerages can provide the same funds, so if you have one in mind, make sure to ask be sure to open an account with one that does.
When it comes to index funds, how are they taxed?
When you purchase indexed mutual funds, you will pay taxes three times. First, any dividends from holdings (or interest payments in the case of bonds) will be passed on to you, and you will be responsible for paying taxes on those dividends. Mutual funds also pass along any capital gains from fund sales, and you'll be taxed on those gains depending on whether they were short-term or long-term. Finally, if the value of your mutual fund shares has increased, you will be subject to capital gains taxes (long-term or short-term) when you sell them.We do not provide tax, investment, or financial services and advice. The information is being provided without taking into account any specific investor's investment objectives, risk tolerance, or financial circumstances and may not be suitable for all investors. Past performance does not guarantee future outcomes. Investing entails risk, which includes the potential for financial loss.
