Please ensure Javascript is enabled for purposes of website accessibility

3 Top Index Funds to Keep You in the Investing Game

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A few great places to park your cash when you'd rather not direct it toward a single stock.

Index funds tick two important boxes for investors. Since they aren't professionally managed, for one, they tend to have much lower fees than your average mutual fund. These investments also provide instant diversification by virtue of their wide portfolios.

With those attractive characteristics in mind, we asked Motley Fool investors to highlight a few of the most attractive index funds. Read on to find out why Vanguard Information Technology (VGT 1.53%), Vanguard Total Stock Market Index (VTI 0.36%), and Vanguard Health Care Fund (VGHCX) all made the list.

Betting on big tech

Dan Caplinger (Vanguard Information Technology): Technology stocks have been on fire lately, leading the overall market sharply higher. Yet investing in high-flying tech companies can seem like a dangerous move, especially if you're a risk-averse investor who can't afford to see a major decline in the value of your portfolio. Choose the wrong stock, and you could suffer a complete loss.

A room of servers.

Image source: Getty Images.

That's where the value of exchange-traded funds can come in. Vanguard Information Technology gives you exposure to the biggest names in the technology industry, but the ETF also has a great deal of diversity that includes hardware, software, internet, social media, cloud computing, data analytics, and other key specializations. You can get stakes in more than 350 different tech stocks through a single fund. Moreover, the fund goes beyond simply traditional tech companies, incorporating stocks in areas like financial technology. Recent moves to switch to a different index will invite even greater opportunities for expansion into areas like streaming video.

Best of all, it doesn't have to cost an arm and a leg to get the investment exposure you want. With an expense ratio of 0.10%, you'll pay just $10 annually on a $10,000 investment. That's a small price to pay for a diversified tech investment that will keep you in one of the most exciting sectors of the market.

Own the entire market

Demitri Kalogeropoulos (Vanguard Total Stock Market ETF): Why worry about beating the market when you can simply own it all? The Vanguard Total Stock Market ETF accomplishes this goal by delivering exposure to essentially all U.S. stocks traded on the NYSE and the Nasdaq. That's why it's the place where I park most of the portfolio cash that I haven't directed toward individual stocks. 

This fund has just about everything you might want from a stock index investment. It is broadly diversified, which means you'll always match the overall market's returns. Fees are minuscule at 0.04%. And there's very little turnover to worry about, as just about 3% of the portfolio is bought or sold in any given year. 

You'll need to pair this investment with other index funds if you want total diversification since it doesn't include bonds, real estate, or a stake in many of the biggest international companies. Another key risk to consider is that, because the fund is market weighted, its performance is sensitive to the results of a few massive U.S. companies such as Apple and If you own significant portions of these stocks already, just understand that this exposure is amplified by your owning an index fund like this.

Still, given that many investors, including Wall Street pros, trail the broader market, it's great to know that you can avoid that fate with a simple purchase of this stock market fund.

Investing in healthcare the smart way

George Budwell (Vanguard Health Care Fund Investor Shares): Healthcare is in the midst of unprecedented upswing, thanks to an aging global population, broader health insurance coverage, and an astonishing innovation boom across medical devices, pharmaceuticals, and even electronic medical records systems. As a result, healthcare as a whole has outperformed most other sectors by a wide margin since the start of 2010.

Two clinical researchers at work.

Image source: Getty Images.

Even so, it's not always easy picking individual companies in this extremely volatile space. Changes in the political landscape, regulatory delays, or clinical setbacks, after all, can cause individual stocks to plummet on a moment's notice.

Fortunately, there are several highly diversified funds like the Vanguard Health Care Fund Investor Shares out there that offer a simple way to invest in this high-growth sector with far less risk than choosing individual stocks.

The Vanguard Health Care Fund Investor Shares, for example, is an actively managed fund that comes with a bargain-basement expense ratio of only 0.38% at current levels. The fund's closest peers, by contrast, average a far higher expense ratio of 1.25%. 

Perhaps the best part, though, is that the fund's low-risk approach to capital appreciation has proven to be an excellent way to invest in healthcare. Since its inception, for example, the fund's total return on capital has absolutely trounced that of the broader markets.

VGHCX Total Return Price Chart

VGHCX total return price data by YCharts.

So, if you're looking for a top healthcare fund to keep you in the investing game, Vanguard Health Care Fund Investor Shares should definitely be on your list. 


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Vanguard Index Funds - Vanguard Total Stock Market ETF Stock Quote
Vanguard Index Funds - Vanguard Total Stock Market ETF
$191.29 (0.36%) $0.68
Vanguard World Fund - Vanguard Information Technology ETF Stock Quote
Vanguard World Fund - Vanguard Information Technology ETF
$332.54 (1.53%) $5.01
Vanguard World Fund - Vanguard Health Care ETF Stock Quote
Vanguard World Fund - Vanguard Health Care ETF
$238.15 (-0.15%) $0.35
Vanguard Specialized Funds - Vanguard Health Care Fund Stock Quote
Vanguard Specialized Funds - Vanguard Health Care Fund

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.