When you want to start building wealth through investments, you might be wary of the complexities associated with traditional stock picking. However, thankfully, not all investments have to be complicated or costly. With low cost index funds, you can grow your investments for a great price, so keep reading to find out more about index funds, what makes them cost-efficient, and learb about 16 popular low cost index funds.
What is an index fund?
An index fund is a sort of investment fund, typically a mutual fund or an exchange-traded fund (ETF), designed to replicate the performance of a specific market index. These funds aim to mirror the returns of an index like the S&P 500, Dow Jones Industrial Average, or the Nasdaq Composite by holding a portfolio of securities that resembles the composition of that index.
What makes an index fund low cost?
The cheapest index funds generally have very low expense ratios, usually below 0.65%. These expense ratios are how much of the fund’s assets are used for operating expenses.
In other words, if you buy a fund for $100 and it has an expense ratio of 1%, that means $1 of your money will go towards paying for operations every year.
Unlike actively managed mutual funds, which involve teams of financial experts making decisions about which stocks to buy and sell, index funds operate on a passive strategy. They aim to have a similar performance to a specific market index, for example, the S&P 500 or the Nasdaq.
Because there is no active management involved, the costs associated with research, analysis, and constant trading are significantly reduced. Because low cost index funds rarely buy or sell securities, they incur fewer transaction costs. This also makes them more tax-efficient, potentially saving you even more money.
Things to think about when selecting an index fund
While low cost is one factor to consider, there are other things to consider when investing with index funds to ensure they align with your financial goals and risk tolerance:
Investment goals
Think about your goals and determine your investment objectives.
For instance, are you looking for long-term growth, income, or a balance of both? Why do you want to invest in index funds? Knowing your financial goals can help you figure out which low cost index funds make the most sense for you.
Risk tolerance
Assess how much risk you’re willing to take and how risk averse you are. Different index funds may track different markets with varying levels of risk, but all investing is risky.
If you’re okay with the possibility of losing a good portion of your money for a potentially high return, then certain index funds might make more sense. However, if you don’t want to take any risk, then a more conservative investment fund could be the best solution.
Overall portfolio strategy
Before you purchase some of the least expensive index funds, consider how they fit into your broader investment portfolio. Your strategy is a type of roadmap to help you achieve your financial goals. Keep your objectives in mind, especially when the market is volatile.
Remember that diversification is key to spreading investment risk.
For example, other types of strategies might be looking at short-term investments, passive investments, or investing in a mix of low and high-risk investments.
Think long term
Long-term investing is the goal for index funds. Make sure your investment horizon matches this strategy.
If you are looking for a short-term investment of, say, less than six months, then another investment vehicle might make more sense for you.
16 Popular low cost index funds
Index funds are one great way to begin investing in the stock market, particularly if you have stock market fear. Want to start investing in a low cost index fund but aren’t sure where to start? Here are 16 cheapest index funds that you can research.
1. Fidelity ZERO Total Market Index Fund
Symbol: FZROX
Expense ratio: 0.0%
One of the most unique things about the FZROX is that the expense ratio is 0%. It also charges no commissions and has a zero minimum structure. This makes it among the least expensive index funds.
It was launched by Fidelity in 2018 to capture the entire stock market and includes stocks like Apple and Microsoft. However, like other total market index funds, it is also exposed to the volatility of the broader market.
2. Schwab Total Stock Market Index Fund
Symbol: SWTSX
Expense ratio: 0.03%
This fund by brokerage firm Charles Schwab has been around since 1999 and tracks the entire market, as measured by the Dow Jones U.S. Total Stock Market Index. It’s a straightforward, low-cost investment fund that gives investors access to the entire U.S. stock market with stocks like Meta and Exxon Mobil.
It’s a fund designed to give investors exposure to all small, mid, and large-cap companies across the country.
3. SPDR S&P 500 ETF Trust
Symbol: SPY
Expense ratio: 0.09%
This index fund created by State Street Global Advisors in 1993 correlates with the performance of the S&P 500.
In other words, if you were to invest in all companies from the S&P 500, like Berkshire and UnitedHealth Group, you would likely get similar results. It gives investors exposure to the biggest U.S. companies.
4. Vanguard Total Stock Market Index Fund
Symbol: VTSAX
Expense ratio: 0.04%
Started in 1992, this fund by broker Vanguard provides exposure to the entire U.S. equity market. That includes both small, mid, and large-cap growth and value stocks.
In other words, it gives investors the opportunity to track all U.S. public companies, including Apple, Tesla, and Facebook. Because of that, it is also more volatile, as the fund is exposed to the overall dips in the broader stock market.
5. iShares Core S&P 500 ETF
Symbol: IVV
Expense ratio: 0.03%
The IVV is another index fund created by brokerage company BlackRock in 2000 that invests in large U.S. companies. It is a low cost fund giving investors exposure to 500 of the largest U.S. companies by market cap.
It’s usually for investors wanting long-term exposure to larger companies, and can be great if you’re wondering, “is now a good time to invest?”
6. Fidelity 500 Index Fund
Symbol: FXAIX
Expense ratio: 0.015%
Fidelity created this fund in 1988, and it also aims to track the returns of the S&P 500. It keeps track of the performance of the largest companies which make up the S&P 500, which is great if you prefer a straightforward approach to investing.
7. Fidelity U.S. Bond Index Fund
Symbol: FXNAX
Expense ratio: 0.025%
If you want to invest in bonds instead of stocks, the FXNAX does just that. Another fund by Fidelity started in 1990, it follows the price of debt securities in the Bloomberg U.S. Aggregate Bond Index.
In other words, it invests in U.S. debt, including government and corporate debt and mortgage-backed securities.
8. Vanguard Real Estate Index Fund
Symbol: VGSLX
Expense ratio: 0.12%
This index fund by broker Vanguard from 2001 invests in real estate investment trusts (called REITs) like Public Storage and American Tower Corp.
While real estate can be expensive, a real estate fund is one way to get exposure to the housing market without needing to buy your own property and it can be especially helpful when learning real estate investing for beginners.
9. Fidelity Real Estate Index Fund
Symbol: FSRNX
Expense ratio: 0.07%
The FSRNX index fund by broker Fidelity aims to get returns that correspond to the total return of REITs and other similar real estate investments.
Created in 2011, it includes exposure to companies like Crown Castle and Public Storage. Like the VGSLX, this index fund is geared towards investors who want exposure to the real estate market.
10. Fidelity Total International Index Fund
Symbol: FTIHX
Expense ratio: 0.06%
Another Fidelity fund, the FTIHX index fund, gives investors exposure to international markets. That includes established markets like Europe and other developing markets like India.
Started in 2016, it’s designed for investors who want to diversify their investments outside of the U.S.
11. BNY Mellon Core Bond ETF
Symbol: BKAG
Expense ratio: 0.0%
With no expense ratio, the BKAG is among the cheapest index funds. Started by investment manager BNY Mellon, its goal is to track the performance of the Bloomberg U.S. Aggregate Total Return Index.
12. Schwab S&P 500 Index
Symbol: SWPPX
Expense ratio: 0.02%
Like a lot of other funds on this list, the SWPPX index fund by broker Charles Schwab also tracks the S&P 500. This fund started in 1997, captures about 80% of the current market capitalization across the country, meaning your investments are exposed to a good chunk of the U.S. economy.
13. Vanguard Growth Index Fund
Symbol: VIGAX
Expense ratio: 0.05%
This index fund by broker Vanguard focuses on U.S. companies that tend to grow quicker than the broader market. Created in 2000, it focuses on large-cap growth stocks, which means it can be a bit more volatile than other broader indexes and doesn’t always follow broader market movements.
14. SoFi Select 500 ETF
Symbol: SFY
Expense ratio: 0.19%
While the SFY index fund does have a higher expense ratio than some other funds on this list, at the moment, the expenses are waived. That means you can invest in this low cost index fund at no extra cost for the time being.
The SFY fund was created by broker SoFi in 2019 and is made up of the 500 largest U.S. companies, but the amount invested in each one varies based on the growth rate of the company.
15. Vanguard S&P 500 ETF
Symbol: VOO
Expense ratio: 0.03%
This ETF by broker Vanguard began in 2010 and invests in stocks that are in the S&P 500. Like other index funds focused on the S&P 500, it aims to track the index’s return.
In other words, the VOO index fund tries to have the same return as the top 500 U.S. companies.
16. Vanguard Total Bond Market Index Fund
Symbol: VBTLX
Expense ratio: 0.05%
This index fund by broker Vanguard covers the U.S. bond market. Created in 2001, it invests in a number of investment-grade bonds, such as U.S. Treasuries and mortgage-backed securities.
It invests in a variety of bonds to represent the fixed-income market and can be thought of as a core bond index fund.
Expert tip: Look for investments with consistent track records
When investing in index funds, focus on consistency and reliability, especially when learning how to invest with little money. Look for funds that have a long track record of closely tracking their respective indices and have a history of decent returns.
In addition, carefully consider different factors like the index funds dividend yield, expense ratio, and fund size and make sure it matches up with your individual investing goals.
What is a low cost index fund?
Low cost index funds are a way to provide broad exposure to a particular segment of the financial markets without the high fees associated with more traditional investments.
A low cost index fund is a passive investment vehicle created to replicate the performance of a specific market index while keeping expenses minimal. Index funds are known for having low expense ratios.
Additionally, index funds do not rely on active stock selection, market-timing strategies, or buying individual stocks. Instead, they hold a diversified portfolio of securities that mirror the composition of the chosen index.
Are low cost index funds worth it?
Low cost index funds are often considered a smart choice for investors seeking broad market exposure with minimal fees. Over the long term, the lower costs can significantly impact returns, making them a worthwhile investment.
For this reason, including them in your portfolio can help to keep it diversified and inexpensive.
Is the S&P 500 a low cost index fund?
No, the S&P 500 is an index, not a fund, so it can’t be traded in directly. It’s a stock market index that represents a group of 500 of the biggest publicly traded U.S. companies. It serves as a benchmark for the overall performance of the U.S. stock market.
However, it’s possible to invest in the companies that comprise of the S&P 500 by investing in low-cost funds or ETFs that track the index.
Can I purchase index funds with only $100?
Yes, it is possible to buy index funds with $100. Many index funds have low minimum investment requirements, for $100 or even less.
This accessibility makes them suitable for a wide range of investors learning how to invest with little money.
Some financial institutions also offer fractional shares of investments, which allow investors to buy a part of a share for even less than $100.
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Find the best and cheapest index funds for you!
If you want to start investing but aren’t sure of the best way, investing in a low cost index fund could be a good way to start.
Additionally, some of the least expensive index funds allow investors the chance to diversify their holdings. Investing in an ETF or index fund is a simple and easy way to learn how to start investing.
Just remember that investing comes with risk. Keep working toward your long-term financial goals and even check out examples of financial goals to keep in mind and consider your risk tolerance before you start investing in low cost index funds.