A 1% annual fund fee may not sound like much when you are starting with a few hundred dollars. Over 20 or 30 years, it becomes a permanent drag on money that should have stayed in your account. That is why finding the best low cost index funds matters. You are not trying to outsmart Wall Street. You are trying to own productive businesses and bonds at a fair price, then give compounding enough time to do its job.
The good news is that this is simpler than the finance industry wants you to believe. You do not need a portfolio packed with trendy funds, hot sectors, or a new trade every week. You need broad diversification, low ongoing costs, and the discipline to keep buying when markets feel uncomfortable.
What Makes an Index Fund Worth Buying?
An index fund is built to track a market index rather than pay a manager to pick stocks. A total U.S. stock market fund, for example, owns large, mid-sized, and small U.S. companies. An S&P 500 fund owns roughly 500 of the largest U.S. companies. Neither approach promises excitement. That is the point.
The first number to check is the expense ratio. This is the annual percentage of your investment used to operate the fund. A 0.03% expense ratio means you pay about $3 per year for every $10,000 invested. At 0.75%, you would pay $75 per year on the same balance. The gap gets much larger as your portfolio grows.
Low cost alone is not enough. A fund should also give you useful diversification, track a sensible index, and fit the account where you are investing. A low-fee fund that only owns one narrow industry is not a complete investing plan. The math does not lie: broad ownership and low costs are a far stronger foundation than guessing which theme will be popular next year.
Best Low Cost Index Funds for a Simple Portfolio
The funds below are widely used examples of low-cost building blocks. Expense ratios and fund policies can change, so verify the current details before buying. The best choice also depends on whether your brokerage offers the fund without transaction fees and whether you prefer ETFs or mutual funds.
Total U.S. stock market funds
A total market fund is often the cleanest core holding for a U.S. investor. It gives you ownership across the American stock market instead of placing all your bets on the biggest companies.
Vanguard Total Stock Market ETF (VTI) is a popular choice, with a very low expense ratio and broad U.S. market coverage. Its mutual fund counterpart, Vanguard Total Stock Market Index Fund (VTSAX), serves the same basic role but may require a higher initial investment depending on where you buy it.
Schwab U.S. Broad Market ETF (SCHB) and iShares Core S&P Total U.S. Stock Market ETF (ITOT) are similar alternatives. Do not waste time trying to find a meaningful performance edge between them. Their holdings overlap heavily, and their costs are already very low. Pick one that works cleanly in your brokerage account, automate contributions, and move on.
S&P 500 index funds
An S&P 500 fund is another solid option. It holds large U.S. companies such as Apple, Microsoft, and many other familiar names. It leaves out most small and mid-sized businesses, but it is still broadly diversified compared with owning individual stocks.
Vanguard S&P 500 ETF (VOO), iShares Core S&P 500 ETF (IVV), and SPDR Portfolio S&P 500 ETF (SPLG) are commonly used low-cost choices. Fidelity 500 Index Fund (FXAIX) is a practical mutual fund option for investors using Fidelity.
For most beginners, choosing between a total market fund and an S&P 500 fund is not a make-or-break decision. A total market fund is slightly more complete. An S&P 500 fund is still a sensible, low-cost core investment. What matters more is avoiding the mistake of buying both because you think you are getting two separate strategies. You are mostly buying the same large companies twice.
International stock market funds
The U.S. market is powerful, but it is not the whole world. International funds give your portfolio exposure to companies in developed markets and emerging economies outside the United States.
Vanguard Total International Stock ETF (VXUS) is a broad, low-cost option that covers thousands of non-U.S. stocks. iShares Core MSCI Total International Stock ETF (IXUS) fills a similar role. For investors who want a simpler split between developed and emerging markets, separate funds can work, but that adds complexity without necessarily improving results.
International investing will have long stretches where it looks inferior to U.S. stocks. That does not make it useless. Diversification is supposed to feel unnecessary when one part of your portfolio is winning. Its value becomes clearer when leadership changes. If holding international stocks helps you avoid placing every dollar on one country, it has done its job.
Low-cost bond index funds
Bonds are not there to make your portfolio look impressive. They are there to reduce volatility, provide stability for near-term needs, and give you something to rebalance from when stocks fall hard.
Vanguard Total Bond Market ETF (BND), iShares Core U.S. Aggregate Bond ETF (AGG), and Schwab U.S. Aggregate Bond ETF (SCHZ) provide broad exposure to investment-grade U.S. bonds at low cost. These funds can make sense in retirement accounts or for investors who need a smoother ride.
Your bond allocation should depend on your timeline and your ability to handle losses without panic-selling. A 25-year-old investing for retirement may reasonably hold mostly stocks. Someone planning to use the money within five years should not put that money in a stock index fund and hope the market cooperates. Hope is not an asset allocation strategy.
Zero-fee mutual funds
Fidelity offers several ZERO index mutual funds with no expense ratio, including Fidelity ZERO Total Market Index Fund (FZROX) and Fidelity ZERO International Index Fund (FZILX). For a Fidelity customer investing small amounts automatically, these can be useful tools.
There is one trade-off: these funds are generally designed to stay at Fidelity. If you later move your account to another brokerage, you may need to sell them rather than transfer them directly. That can create a tax bill in a taxable brokerage account. For a retirement account, the issue is usually less significant because selling inside the account is not generally taxable.
Zero fees are attractive, but do not let a few basis points dictate your entire decision. A portable ETF with a tiny expense ratio may be the better long-term choice in a taxable account. Convenience, tax flexibility, and behavior matter too.
ETFs vs. Mutual Funds: Pick the One You Will Actually Use
ETFs trade during the market day like stocks and are usually easy to transfer between brokerages. Mutual funds trade once per day after the market closes and often make automatic investing easier. Both can be excellent.
If your brokerage allows fractional ETF purchases and recurring investments, ETFs are straightforward. If you receive a paycheck, invest a fixed amount every week or month, and do not want to think about market prices, a mutual fund may be more convenient. Do not turn this into a philosophy debate. The best account setup is the one that keeps your contributions consistent.
In taxable accounts, ETFs are often more tax-efficient because of how they handle portfolio transactions. That advantage is real, but it should not override the basics. First, build an emergency fund. Pay off high-interest credit card debt. Then invest money you will not need for years.
A Portfolio Does Not Need Ten Funds
Many investors start with a reasonable idea, then ruin it by adding fund after fund. They own an S&P 500 fund, a total market fund, a technology ETF, a dividend ETF, and several stocks they saw on social media. That is not sophistication. It is overlap with extra paperwork.
A basic long-term portfolio can be built with one, two, or three funds:
- One fund: a target-date index fund or a total-world stock fund for maximum simplicity.
- Two funds: a total U.S. stock market fund plus a total international stock market fund.
- Three funds: those two stock funds plus a broad U.S. bond fund.
The right stock-to-bond mix depends on your goals, time horizon, and temperament. If a 30% market drop would cause you to sell everything, do not build a 100% stock portfolio just because someone online said you are young enough to take the risk. A portfolio only works if you can hold it through a bad year.
The Rules That Matter More Than Fund Selection
After you choose among the best low cost index funds, your behavior will determine far more than another 0.01% reduction in fees. Invest regularly. Increase contributions when your income rises. Rebalance occasionally instead of chasing whichever fund performed best last year.
Use tax-advantaged accounts when available. A workplace 401(k), especially with an employer match, should get serious attention. An IRA can also be a strong place to hold index funds. If you have high-interest debt, attack that first. Paying 20% interest on a credit card while trying to earn 8% in stocks is backwards. Full stop.
Keep your fund choices boring enough that you can ignore financial noise. Your wealth is more likely to come from steady contributions, low costs, and patience than from finding a secret ticker symbol. Buy a diversified fund, keep adding to it, and let time do the heavy lifting.