The best index funds can help you build wealth by diversifying your portfolio while keeping fees low. Unlike investing in individual stocks or bonds, index funds spread your risk across hundreds of securities, meaning your returns aren't tied to the fate of any single company.
Top index funds to consider
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 minimum investment requirements.
Many of the funds listed below soared in 2025 despite substantial volatility earlier in the year. The early months of 2026 have also been marked by volatility, particularly due to rising oil prices sparked by the war in Iran. 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
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2. Schwab S&P 500 Index Fund
NASDAQMUTFUND: SWPPX
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3. Vanguard Growth ETF
NYSEMKT: VUG
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NYSEMKT: SDY
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Dividend Yield
NYSEMKT: VNQ
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6. Vanguard Russell 2000 ETF
NASDAQ: VTWO
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NYSEMKT: ROBO
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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 artificial intelligence (AI) stocks has surged since late 2022, when ChatGPT launched. However, the ETF has still underperformed the stock market since then, posting a three-year average annualized return of less than 15% through the end of 2025, compared to about 21% for the S&P 500 over the same period. The fund declined more than 2% in the first three months of 2026.
8. Schwab Emerging Markets Equity ETF
NYSEMKT: SCHE
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How to choose an index fund
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.
- Minimum required investment: Some mutual funds require an initial investment 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.
Benefits and risks of investing in index funds
Index funds are often the backbone of a retirement portfolio for good reason: They're an effortless, beginner-friendly way to invest. However, there are a few pros and cons to be aware of first.
Benefits of investing in index funds:
- Low fees: Perhaps the biggest benefit of investing in a passively managed index fund is the low cost because you're not paying fund managers to handpick investments. Many funds have expense ratios of 0.1% or less.
- Diversification: Because an index fund invests in many different companies, you get far more diversification than you can typically get by building a portfolio on your own, particularly if the fund tracks a major index like the S&P 500.
- Good tool for long-term investing: Shares of individual companies can rise and fall dramatically based on rumors, speculation, or a single earnings call. Though the overall stock market isn't immune to investor sentiment, its highs and lows are less pronounced than those of individual stocks.
Risks of investing in index funds:
- You can't beat the market: Some investors hesitate to invest in index funds because they don't beat the market -- index funds aim to replicate an index's performance, so at best, your results will be on par with the underlying index's results, minus fees.
- Not all indexes are the same: Funds that track the entire stock market or a large segment of it, like the S&P 500, have been solid winners over time, but some indexes are incredibly niche and far more vulnerable to market hype.
Index fund fees
Index fund fees are expressed as the expense ratio. If you invest $10,000 in an index fund with a 0.1% expense ratio, $10 of your investment goes toward fees, and the remaining $9,990 is invested. Expense ratio fees cover costs of management, administration, and marketing.
Because they're passively managed and have low overhead, most index funds have extremely low fees. The average index fund expense ratio is 0.06%, according to Morningstar research. By comparison, the average actively managed fund fee is 10 times higher at 0.6%.
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 historically been safe long-term investments, as the S&P 500 has delivered positive returns over long periods. The S&P 500's average annual returns are about 10%.
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About the Author
Robin Hartill, CFP has positions in Vanguard Real Estate ETF. The Motley Fool has positions in and recommends Chevron, Realty Income, S&P Global, Target, Vanguard Growth ETF, and Vanguard Real Estate ETF. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
