Best Index Funds for October 2024
Written by
John Csiszar
Edited by
Melanie Grafil
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An index fund is a type of mutual fund that buys all, or a representative sample of, securities in a specific index, such as the S&P 500. Instead of being actively managed by fund managers, index funds are passively managed. This style of management helps lower fees and expenses.
Like all mutual funds, index funds can add diversification to your portfolio because they invest in many different stocks, often across a wide range of industries.
What Are the Best Index Funds To Invest In?
Here are the best index funds for 2024:
- Vanguard 500 Index Fund Admiral Shares (VFIAX)
- Fidelity Nasdaq Composite Index Fund (FNCMX)
- Fidelity 500 Index Fund (FXAIX)
- Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
- Schwab S&P 500 Index Fund (SWPPX)
- Schwab Total Stock Market Index Fund (SWTSX)
- Schwab Fundamental US Large Company Index Fund (SFLNX)
- USAA Nasdaq-100 Index Fund (USNQX)
- Fidelity Total Bond Fund (FTBFX)
These top index funds are ranked based on minimum investment required, five-year trailing returns as of the end of the most recent quarter, and fees — both the net expense ratio and the management fee, which is part of the expense ratio. Remember that the best index fund is the one that matches your investment objectives and risk tolerance.
1. Vanguard 500 Index Fund Admiral Shares (VFIAX)
The goal of the Vanguard 500 Index Fund is to track the performance of the S&P 500, which includes stocks with large market capitalizations. As such, it invests most of its assets in stocks that appear in the index.
This fund is best for investors looking for an ultra low-cost way to track the return of one of the most widely followed stock market indexes in the world, the S&P 500. You can buy the fund at Vanguard or any number of brokers that offer access to no-load funds. If you work with a no-commission broker, you’ll likely be able to buy this fund there.
2. Fidelity Nasdaq Composite Index Fund (FNCMX)
This fund tracks the performance of the Nasdaq Composite Index and includes major positions in several technology stocks, including the three largest: Apple, Microsoft and Nvidia, which make up about one-third of its portfolio. It carries a higher-than-average risk but has delivered strong returns over the years. As the name suggests, it attempts to replicate the return of the Nasdaq Composite Index, which has historically done very well.
As both the fund and the index are market-cap weighted, there’s currently a high percentage of information technology stocks in FNCMX, comprising about 50.30% of the entire fund. You can buy Fidelity funds directly from the firm itself or through a number of other brokerage companies, such as Charles Schwab.
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3. Fidelity 500 Index Fund (FXAIX)
Fidelity may be an ideal choice for those looking for the best index funds for beginners, thanks to the resources it provides customers, including tools that offer investment advice and research. Founded in 1988, its 500 Index fund is a balanced fund that invests at least 80% of its assets in S&P 500 stocks.
As with the other Fidelity funds on this list, FXAIX can be bought directly from the firm or through various brokerages.
4. Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
The aim of Vanguard’s Total Stock Market Index Fund is to give investors exposure to all U.S. equities, including small-, mid- and large-cap growth and value stocks. This is an excellent fund if you want a diversified investment in a broad range of companies and markets.
VTSAX is a great option for investors looking for a “one-stop-shop” for equities, as rather than tracking a simple market index like the S&P 500 or the Dow Jones Industrial Average, it provides exposure to the entire stock market. You can buy the fund from nearly any brokerage that offers mutual funds, including Vanguard itself.
5. Schwab S&P 500 Index Fund (SWPPX)
Designed to compete directly with Vanguard and Fidelity index funds, the Schwab S&P 500 Index Fund is a low-cost fund with no investment minimum. It invests in 500 of the leading U.S. companies and has exposure to about 80% of U.S. market capitalization.
As S&P 500 index funds are more or less identical, the difference in fees and expenses can play a big role in the final return you earn. The Schwab S&P 500 Index Fund is one of the lowest-cost out there, and it’s available at any number of brokerage firms that sell mutual funds.
- Minimum investment: $0
- Expense ratio: 0.02%
- Five-year average return: 15.89%
6. Schwab Total Stock Market Index Fund (SWTSX)
The Schwab Total Stock Market Index fund tracks the total return of the U.S. stock market based on the Dow Jones U.S. Total Stock Market Index. It’s a balanced fund with shares of large-cap, mid-cap and small-cap U.S. securities.
The Schwab Total Stock Market Index fund competes directly with the Vanguard version of the fund, and both post nearly identical returns. As with the Vanguard fund, SWTSX may appeal to investors looking for a way to get exposure to all segments and sizes of the total U.S. stock market in a single purchase. You can buy shares directly from Schwab or from a host of other brokers offering mutual funds.
7. Schwab Fundamental US Large Company Index Fund (SFLNX)
Schwab’s Fundamental U.S. Large Company Index Fund aims to achieve results that track the RAFI Fundamental High Liquidity U.S. Large Index. This is a high-return fund with low expenses and a risk level that’s just slightly above average, earning top quartile ranks from Morningstar over the past 1-, 3-, 5- and 10-year periods.
This fund could appeal to those looking for focused exposure to large, domestic companies only, without small-, mid-cap or foreign equities. You can buy the fund, as with others on this list, from any broker that sells mutual funds, including Schwab itself.
- Minimum investment: $0
- Expense ratio: 0.25%
- Five-year average return: 15.50%
8. Victory Nasdaq-100 Index Fund (USNQX)
The Victory Nasdaq-100 Index fund tracks the Nasdaq-100 Index, investing at least 80% of its assets in companies included in the index. The Nasdaq-100 is composed of 100 of the largest nonfinancial domestic and international companies listed on the Nasdaq Stock Market.
The fund consistently outperforms the index. It has a five-star rating from Morningstar, low fees, high returns and slightly above-average risk. As the index has a technology weighting of more than 50%, this fund is suitable for those able to handle the risk in exchange for greater future appreciation potential.
9. Fidelity Total Bond Fund (FTBFX)
Fidelity’s Total Bond fund is a diversified fund that uses the Bloomberg U.S. Universal Bond Index as a guide. Its assets are invested across a variety of bonds, from government bonds to high-yield and emerging market classes, which increases both the risk and potential return.
Although the fund can invest up to 20% of its assets in lower-rated securities, government bonds currently comprise about 35% of the fund, with just 0.92% of assets rated CCC and below. With a current SEC yield of 4.68%, the fund can offer investors diversified exposure to bonds with a relatively high yield. Shares can be bought from a wide variety of brokerage firms.
- Minimum investment: $0
- Expense ratio: 0.45%
- Five-year average return: 1.57%
How To Choose an Index Fund
There are hundreds, if not thousands, of index funds from which you can choose. To pick the best option for you, consider these characteristics:
- Target market: Some funds look to track the S&P 500 index, while others might replicate the performance of small-cap stocks in emerging market nations. It’s essential to pick the index fund that covers the market segment you’re interested in.
- Investment objective: If you want to maximize your capital gains, you’ll want to pick a growth index. If you’re instead looking for income, you’ll want an index fund that tracks some type of bond or fixed-income index.
- Expense ratio: Even if a fund doesn’t charge you a commission, you can be sure it takes annual fees out of your return, except in very limited instances. All things being equal, the index fund with the lower expense ratio is the better option for investors.
- Performance: At the end of the day, this is the factor that investors generally prioritize. If the index you’re buying doesn’t give you a decent return, there’s no sense in owning it.
- Tracking success: The whole idea behind buying an index fund is to own an investment that gives you a return closely approximating the underlying index. The best index funds have a very low tracking error.
- Additional costs: Commissions and annual expenses are not the only costs attached to index funds. Tax efficiency is another important consideration. If a fund gains 8% per year but its after-tax return is closer to 5%, it’s better to buy a fund returning 7% that is tax-efficient.
Are Index Funds Really Worth It?
Index funds are among the lowest-cost investments available. Although you’ll never earn an above-average return, as you’ll by definition be getting a return approximating the “average” return of the underlying index, that’s more than enough for most investors. A financial advisor can help you define your financial goals and decide whether index funds are right for you.
FAQ
Want to know more? Here's some additional information about index funds.- What is the safest index fund?
- Strictly in terms of the risk of capital loss, the "safest" index funds are those tracking short-term government securities. However, these types of index funds still carry other types of risk, such as inflation risk and interest-rate risk.
- What is better than index funds?
- If you seek an above-average return, you'll want to pick an actively managed fund, invest in individual stocks or hire a professional manager to invest for you. That way, you stand the chance to outperform an index. However, the opposite is also true, as you risk underperforming the index as well.
- Is the Vanguard S&P 500 index fund a safe investment?
- You can expect the Vanguard S&P 500 index fund to track both the returns -- both the ups and downs -- of the S&P 500 index. Whether or not that is "safe" to you depends on your personal risk tolerance.
- Can I invest $100 in index funds?
- Yes, many index funds have minimums as low as $0.
Cynthia Measom, Barbara Friedberg and Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Oct. 2, 2024, and is subject to change. Five-year trailing returns are accurate as of the end of the most recent quarter.
This article has been updated with additional reporting since its original publication.
Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.
