If you’re the type of investor that prefers to put your money behind something and then sit back and let it bring you returns over time, then index funds are your best bet for investing. Index funds follow a passive investment strategy with the goal to match, not beat, the market.
Not all index funds are suitable for long-term investing. For example, funds narrowly focused on just one sector, like utilities, biotechnology, or communications services, are usually better at bringing in returns in the short term.
The best index funds have diversified portfolios and low fees. Here are five of the best index funds to invest in the long term.
Fidelity ZERO Large Cap Index Fund (FNILX)
The Fidelity's ZERO Large Cap Index Fund (FNILX) is a good choice for beginner investors. Similar to an S&P 500 index fund, the Fidelity Fund tracks an index of over 500 large-cap U.S. stocks. Unlike an official S&P 500 index fund, which is subject to expensive licensing fees from the S&P's parent company, this Fidelity fund has zero investment fees. Also, it doesn’t have a minimum investment requirement.
Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF (VOO) invests in stocks in the S&P 500 Index. Its portfolio mainly focuses on sectors in information technology (26.7 percent), healthcare (13 percent), consumer discretionary (12.5 percent), and communication services (10.9 percent). The expense ratio is low at 0.03 percent.
Vanguard Growth Index Fund ETF (VUG)
The Vanguard Growth Index Fund ETF (VUG) tracks the performance of the CRSP US Large Cap Growth Index. Most of its portfolio is in technology sector businesses (46.10 percent), discretionary consumer sector businesses (23.5 percent), and industrials (13.4 percent). This fund has a low expense ratio of 0.04 percent and no minimum investment requirement. As of March 31, 2021, the average annual returns over five years before taxes was 20.62 percent.
Schwab S&P 500 Index Fund (SWPPX)
Described as a straightforward, low-cost fund with no investment minimum, the goal of the Schwab S&P 500 Index Fund (SWPPX) is to track the total return of the S&P 500 Index. Schwab's S&P 500 Index Fund's holdings include Apple, Microsoft, Amazon, Google, and Tesla. About 27.6 percent of the portfolio is in information technology sector businesses. Its low expense ratio of 0.020 percent means that you pay just $0.20 for every $1,000 you invest. The returns almost mimic those of the S&P 500 Index.
SPDR S&P Dividend ETF (SDY)
The SPDR® S&P® Dividend ETF (SDY) uses the S&P High Yield Dividend Aristocrats Index as a benchmark for its total return performance. The Aristocrats Index screens for companies that have consistently increased their dividend for at least 20 consecutive years. This index fund has an expense ratio of 0.35 percent. The fund’s top holdings include ExxonMobil Corporation, AT&T, Chevron Corporation, and IBM.