n95) Vanguard Index Funds for Beginners in 2023

 Vanguard Index Funds for Beginners in 2023

An index fund is an investment fund – either a mutual fund or an exchange-traded fund (ETF) – that is based on a preset basket of stocks, or index. This index may be created by the fund manager itself or by another company such as an investment bank or a brokerage.

These fund managers then mimic the index, creating a fund that looks as much as possible like the index, without actively managing the fund. Over time the index changes, as companies are added and removed, and the fund manager mechanically replicates those changes in the fund.

Some of the most watched indexes fill up the financial news every night and are often used as shorthand for the performance of the market, with investors tracking them to get a read on how stocks as a whole are faring.

Why are index funds a popular investment?

Index funds are popular with investors because they promise ownership of a wide variety of stocks, greater diversification and lower risk – usually all at a low cost. That’s why many investors, especially beginners, find index funds to be superior investments to individual stocks.

Attractive returns: Like all stocks, major indexes will fluctuate. But over time indexes have made solid returns, such as the S&P 500’s long-term record of about 10 percent annually. That doesn’t mean index funds make money every year, but over long periods of time that’s been the average return.

Diversification: Investors like index funds because they offer immediate diversification. With one purchase, investors can own a wide swath of companies. One share of an index fund based on the S&P 500 provides ownership in hundreds of companies, while a share of Nasdaq-100 fund offers exposure to about 100 companies.

Lower risk: Because they’re diversified, investing in an index fund is lower risk than owning a few individual stocks. That doesn’t mean you can’t lose money or that they’re as safe as a CD, for example, but the index will usually fluctuate a lot less than an individual stock.

Low cost: Index funds can charge very little for these benefits, with a low expense ratio. For larger funds you may pay $3 to $10 per year for every $10,000 you have invested. In fact, one fund (listed below) charges you no expense ratio at all. When it comes to index funds, cost is one of the most important factors in your total return.

While some funds such as S&P 500 or Nasdaq-100 index funds allow you to own companies across industries, other funds own only a specific industry, country or even investing style (say, dividend stocks).

Best index funds to invest in for June 2023

The list below includes index funds from a variety of companies tracking a broadly diversified index, and it includes some of the lowest-cost funds you can buy and sell on the public markets. When it comes to index funds like these, one of the most important factors in your total return is cost. 

Best S&P 500 index funds

The S&P 500 is one of the most widely-followed stock market indices in the world and there are many funds that invest based on the index. These five stand out.

Fidelity ZERO Large Cap Index (FNILX)

Overview: The Fidelity ZERO Large Cap Index mutual fund is part of the investment company’s foray into mutual funds with no expense ratio, thus its ZERO moniker.

The fund doesn’t officially track the S&P 500 – technically it follows the Fidelity U.S. Large Cap Index – but the difference is academic.

The real difference is that investor-friendly Fidelity doesn’t have to cough up a licensing fee to use the S&P name, keeping costs lower for investors.

Expense ratio: 0 percent. That means every $10,000 invested would cost $0 annually.

Who is it good for?: Great for investors looking for a broadly diversified index fund at a low cost to serve as a core holding in their portfolio.

Where to get it: The fund can be purchased directly from the fund company or through most online brokers.

Vanguard S&P 500 ETF (VOO)

Overview: As its name suggests, the Vanguard S&P 500 tracks the S&P 500 index, and it’s one of the largest funds on the market with hundreds of billions in the fund.

This ETF began trading in 2010, and it’s backed by Vanguard, one of the powerhouses of the fund industry.

Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually.

Who is it good for?: Great for investors looking for a broadly diversified index fund at a low cost to serve as a core holding in their portfolio.

Where to get it: The fund can be purchased directly from the fund company or through most online brokers.

SPDR S&P 500 ETF Trust (SPY)

Overview: The SPDR S&P 500 ETF is the granddaddy of ETFs, having been founded all the way back in 1993. It helped kick off the wave of ETF investing that has become so popular today.

With hundreds of billions in the fund, it’s among the most popular ETFs. The fund is sponsored by State Street Global Advisors — another heavyweight in the industry — and it tracks the S&P 500.

Expense ratio: 0.095 percent. That means every $10,000 invested would cost $9.50 annually.

Who is it good for?: Great for investors looking for a broadly diversified index fund at a low cost to serve as a core holding in their portfolio.

Where to get it: The fund can be purchased directly from the fund company or through most online brokers.

iShares Core S&P 500 ETF (IVV)

Overview: The iShares Core S&P 500 ETF is a fund sponsored by one of the largest fund companies, BlackRock. This iShares fund is one of the largest ETFs and it tracks the S&P 500.

With an inception date of 2000, this fund is another long-tenured player that’s tracked the index closely over time.

Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually.

Who is it good for?: Great for investors looking for a broadly diversified index fund at a low cost to serve as a core holding in their portfolio.

Where to get it: The fund can be purchased directly from the fund company or through most online brokers.

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