The best index funds can help you build wealth by diversifying your portfolio while minimizing your fees. Investing in an index fund is less risky than investing in individual stocks or bonds because index funds often hold hundreds of financial securities. Index funds spread your investment risk across the stocks or bonds of many different individual companies.
How to choose an index fund
Index funds hold baskets of investments that track a market index, such as the S&P 500 (SNPINDEX:^GSPC). They are passively managed, meaning the fund's holdings are entirely determined by the index the fund tracks.
The goal of an index fund is to match the performance of the underlying index. They're a good choice for long-term investors because you can lock in the returns of the overall stock market or a specific segment of it.
The returns generated by an index fund generally never exceed the performance of the index itself, if only because of index fund expense ratios, which are the annual management fees collected by index fund managers. Since index funds are passively managed, they are actually more likely to outperform funds with active managers over the long term.
An index fund can be either a mutual fund or an exchange-traded fund (ETF), both of which are managed by investment advisers who have to register with the U.S. Securities and Exchange Commission (SEC). Investors buy shares of mutual funds directly from asset management companies, while shares in ETFs are purchased and sold through stock exchanges.
Exchange-Traded Fund (ETF)
Consider these key factors when picking an index fund to invest in:
- Target market segment: Some index funds confer portfolio exposure to the entire U.S. stock market by tracking indexes such as the S&P 500. Others track narrower indexes focused on specific stock market sectors, industries, countries, or company sizes.
- Your investment goals: Some stock market indexes and, by extension, some index funds track companies with specific characteristics, such as high growth potential, a history of reliable dividend payments, or adherence to environmental, social, and governance (ESG) standards.
- Expense ratio: An index fund's expense ratio -- the percentage of your investment paid annually as a management fee to the fund's manager -- can vary significantly. A good expense ratio for a total stock market index fund is about 0.1% or less; a small number of index funds have 0% expense ratios. More specialized index funds tend to have higher expense ratios.
Expense Ratio
- Minimum required investment: Some mutual funds have minimum investments of $1,000 or more. ETF index funds are accessible for the cost of a single share. Many brokers also offer ETFs as fractional shares, allowing you to invest for as little as $1.
- Benchmark tracking performance: The degree to which an index fund tracks its underlying index can vary. The performances of the best index funds are very closely correlated with their benchmark indexes.
Best index funds to invest in for 2025
Our picks for the eight best index funds for this year can help you accomplish a variety of investment goals. Plus, they have low expense ratios and low minimum investments.
Many of the funds listed below are up significantly year to date as of September 2025 after experiencing substantial volatility in March and April. The rocky performance earlier in the year was largely due to fears of a trade war, due to President Trump's tariffs. But remember: Index investing is about building wealth for the long haul, so try not to focus on short-term ups and downs.
1. Fidelity ZERO Large Cap Index Fund
NASDAQMUTFUND: FNILX
Key Data Points
Investing in S&P 500 index funds is, perhaps, the closest thing to a guaranteed way to build wealth over time. The Fidelity ZERO Large Cap Index Fund (NASDAQMUTFUND:FNIL.X) tracks an index of more than 500 U.S. large-cap stocks and performs very similarly to an S&P 500 index fund.
However, because this fund is not an official S&P 500 index fund, it avoids paying expensive licensing fees to S&P Global (SPGI +0.62%), the index's parent company. The fund tracks the Fidelity U.S. Large Cap Index as its benchmark.
The "ZERO" in the fund's name denotes that its expense ratio is 0%. There's also no minimum investment, making the fund a good choice for beginning investors.
The fund's performance closely mirrors that of the S&P 500. The fund was up about 13% as of mid-September 2025, slightly higher than the S&P 500 index's year-to-date increase.
2. Schwab S&P 500 Index Fund
NASDAQMUTFUND: SWPPX
Key Data Points
If you want to invest in an official S&P 500 index fund, the Schwab S&P 500 Index Fund (NASDAQMUTFUND:SWPP.X) is about the cheapest you'll find. Its expense ratio is 0.02%, meaning you'll pay just $0.20 annually for every $1,000 you invest.
Because the investment fee is so low, your returns are virtually identical to the performance of the S&P 500. There's no minimum investment amount, so you can start investing with as little as $1.
Like its benchmark index, the fund had gains of about 25% in 2024 and is up by roughly 13% year to date as of September 2025.
3. Vanguard Growth ETF
NYSEMKT: VUG
Key Data Points
If you want to assume more investment risk in the pursuit of higher rewards, the Vanguard Growth ETF (VUG +0.83%) is a solid choice. The fund tracks the CRSP US Large Cap Growth Index, which performs similarly to the S&P 500 Growth Index. The ETF invests in 165 U.S. large-cap growth stocks. The fund is most heavily concentrated in the following sectors:
- Tech stocks (61%)
- Consumer discretionary stocks (18%)
- Industrial stocks (8%)
Consumer staples and utility stocks each make up less than 1% of the fund's value. The ETF has a minuscule 0.04% expense ratio.
As of Aug. 31, 2025, the fund's average annual return over five years (before taxes) was almost 14.5%, similar to the S&P 500's returns for the same period.
4. SPDR S&P Dividend ETF
NYSEMKT: SDY
Key Data Points
The SPDR S&P Dividend ETF (SDY -0.22%) is a top-performing index fund for income-oriented investors. The dividend-weighted fund's benchmark is the S&P High Yield Dividend Aristocrats® Index, which tracks about 150 stocks with the highest dividend yields in the S&P Composite 1500 Index. (Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC.)
Dividend Yield
6. Vanguard Russell 2000 ETF
Artificial Intelligence
The ETF offers investors a way to capture the growth of several booming trends. Robotics offers huge cost savings to companies; the industry is forecast to have a compound annual growth rate of 14% through 2030. Interest in AI stocks has surged since late 2022, when ChatGPT launched. However, the ETF has still underperformed the stock market since then, posting three-year average annualized returns of less than 11%, compared to about 19% for the S&P 500 over the same period.
8. Schwab Emerging Markets Equity ETF
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The bottom line on index funds for long-term investors
There are two ways to make money from index funds: sell the investment for a gain or earn dividends. A growth-focused index fund, like the Vanguard Growth ETF, has the potential for big gains.
However, higher rewards come with greater risk, and dividend payments will likely be minimal. If you want investment income, a dividend fund like the SPDR S&P Dividend ETF is a good choice. There's less potential for big gains, but you can earn reliable dividend income.
Although there's no single best index fund to invest in, a couple of good options are an S&P 500 index fund, which tracks about 80% of the U.S. stock market, or a total stock market fund, which tracks the entire U.S. stock market. These tend to be good choices because they're well diversified and allow you to lock in the historical growth of the domestic stock market.
All investments carry some risk, but S&P 500 index funds have been historically safe investments for the long term since the S&P 500 has always delivered positive returns over long periods. The S&P 500's average annual returns are about 10%.
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