Low-cost index funds are among the most advantageous investment vehicles for those focused on the long term. It's critically important to focus on costs when choosing investments since exorbitant fees can significantly reduce your after-tax returns -- especially over long time periods. This makes it important to know a fund's expense ratio, which denotes how much money in management fees you'll pay, before investing your hard-earned dollars.

Until the late 1900s, funds with high expense ratios were considered unavoidable if you wanted to access mutual funds as a non-professional investor. Index funds, which are a type of exchange-traded fund (ETF), have made investing drastically cheaper for investors ever since Jack Bogle and the Vanguard Group introduced the first publicly available index fund in the mid-1970s. Since then, index-tracking ETFs have been a game changer in the fund world. Index-tracking ETFs typically have low expense ratios, in part because operating expenses (which determine management fees) are low. These funds use passive investing strategies that don't require any in-house stock analysis or active trading.

Best low-cost index funds

Index Fund

Expense Ratio

Assets Under Management

Vanguard S&P 500 ETF


$630.7 billion

Vanguard Large-Cap ETF

0.04% $32.7 billion

Schwab U.S. Large-Cap ETF


$27.3 billion

Vanguard Mid-Cap ETF


$132.0 billion

Schwab U.S. Mid-Cap ETF


$8.89 billion

Vanguard Small-Cap ETF 0.05% $118.4 billion
iShares Core S&P Small-Cap ETF 0.06% $65.9 billion

Schwab U.S. Broad Market 


$19.2 billion

iShares Core S&P Total US Stock Market


$34.9 billion

Vanguard Total Stock Market 


$1.1 trillion*

Data source: Fund providers, ETFdb.com. *Includes both ETF and mutual fund classes.

The low-cost index funds listed above fit into a few different categories, as described below.

S&P 500 index funds offer one of the simplest ways to gain diversified exposure to America's largest companies. The S&P 500 is a market-capitalization-weighted index that contains many of the household names that you read about every day, such as Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Google (NASDAQ:GOOG). One of the best ETFs that tracks the index is the Vanguard S&P 500 ETF (NYSEMKT:VOO).

Investing in ETFs by market segment is another way to structure your index fund ETF portfolio. For example, considering that large-cap companies are those with market capitalizations of more than $10 billion, mid-cap companies have market caps of between $2 and $10 billion, and small-cap companies have market caps of less than $2 billion, you can create an index fund ETF portfolio with segregated exposure to each market segment.

Some of the best low-cost, large-cap index funds include the Vanguard Large Cap ETF (NYSEMKT:VV) and the Schwab Large Cap ETF (NYSEMKT:SCHX). Top mid-cap picks include the Vanguard Mid-Cap ETF (NYSEMKT:VO) and Schwab Mid-Cap ETF (NYSEMKT:SCHM). For a small-cap focus, Blackrock's (NYSE:BLK) iShares Core S&P Small Cap ETF (NYSEMKT:IJR) and the Vanguard Small-Cap ETF (NYSEMKT:VB) are both worthy choices. Since different ETFs track entirely different indexes, investing in several of these funds at the same time provides the highest degree of portfolio diversification.

Investing in total U.S. stock market funds might be a good choice if you're an ultra-minimalist who wants full exposure to the U.S. stock market. The Schwab U.S. Broad Market (NYSEMKT:SCHB) index fund, the iShares Core S&P Total U.S. Stock Market (NYSEMKT:ITOT) fund, and Vanguard Total Stock Market (NYSEMKT:VTI) index fund are some of your best and cheapest choices in the total U.S. stock market fund universe. Your investment performance in the long run can benefit from holding even just one of these ETFs.

Most of the discount brokers offer low-cost, accessible, and popular index funds. Why pay extra for an actively managed fund if you can assemble a great portfolio of low-fee ETFs? If you want more exposure to one particular market segment within your portfolio, then you can choose one fund from each market-cap category and allocate money to each fund based on your investment preferences.

Below we take a deeper dive into four of these low-cost index fund ETFs:

Vanguard S&P 500 ETF (VOO)

The Vanguard S&P 500 ETF does exactly as you might imagine: It tracks the S&P 500, the benchmark index that is weighted to include America's 500 largest companies. The S&P 500 is "self-cleansing," meaning that when a particular company no longer qualifies for inclusion in the index, it is removed and replaced by a growing company that does merit inclusion. The S&P 500 is broadly diversified and adapts to changing business environments over time, but its most relevant characteristic for fee-conscious investors is that it can be accessed at extremely low cost. The SPDR S&P 500 ETF Trust (SPY) -- commonly known as a "spider" -- is essentially the same fund offered by a different provider.

Schwab U.S. Mid-Cap ETF (SCHM)

If your brokerage account is hosted by Schwab, and you're looking for a mid-cap, low-cost index fund, then look no further than the Schwab U.S. Mid-Cap ETF. The purpose of a mid-cap fund is to gain exposure to companies with mid-sized market capitalizations, typically in the $2 billion to $10 billion range. This market segment includes companies with established businesses and reliable revenue streams, many of which have yet to unlock their full potential. Generally, mid-cap companies have room to grow but exhibit less volatility than small-cap companies, some of which might be highly leveraged or exposed to unique risks. Vanguard, through a mid-cap fund of its own, provides a similar offering.

iShares Core S&P Small-Cap ETF (IJR)

Blackrock's iShares brand offers low-cost index fund ETFs that are similar to many of its competitors. The iShares Small-Cap ETF is a diversified index fund that contains only companies with market capitalizations of between $300 million and $2 billion. The objective of small-cap investing is to buy into companies with significant growth potentials while being aware that risk is often borne through short-term stock price volatility. Small-cap funds often invest in companies that have "next big idea" themes -- some will go on to compete with the world's largest names, and some may never be heard from again. Investing in a low-cost, small-cap index fund ETF alongside other holdings can serve to boost your returns and provide attractive diversification, but too concentrated a position in small-cap stocks usually leads to outsized portfolio volatility.

Vanguard Total Stock Market Index Fund ETF (VTI)

If you want to hold a single index fund ETF that invests in the total U.S. stock market in the right proportions, then VTI is your best option. Holding VTI makes other index fund ETF holdings redundant unless you want to concentrate your portfolio's exposure in a particular segment of the market. For instance, there is some research supporting the idea that increasing the small-cap portion of your portfolio can boost your total return. By holding VTI, you'll hold large-, mid-, and small-cap companies proportional to the broader market — and at a bargain basement expense ratio. This strategy, for the set-it-and-forget-it investor, is very difficult to match from a time and cost efficiency perspective. Many fund management companies offer total market funds at similarly low costs. 

ETF mosaic.

Image source: Getty Images.

Think cheap

With the availability of index funds, there's little reason to pay more than the bare minimum in fees. These index fund ETFs have cost advantages over their peers, and choosing one of them keeps more of your hard-earned money in your own pocket.