Index Funds for Long-Term Investors

These low-cost index funds stand the test of time.

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The best index funds have low expenses and diversified portfolios that can stand the test of time. But not all index funds, particularly niche funds, are as well-diversified, and as a result they aren't always ideal for long-term investors to hold on their own. Instead, they can contribute to a well-diversified portfolio containing other index funds that do not overlap with that particular niche.

For instance, some index funds and exchange-traded funds (ETFs) may focus on just one narrow sector, such as biotechnology or social media. They can put up big returns in the short term, but they can also see big declines. A diversified portfolio should have exposure to several, uncorrelated sectors and asset classes.

The best all-in-one index funds for most investors are more broadly diversified, and they're increasingly low cost. Below, we cover some such funds you can buy for the long-term.

These niche funds also tend to have higher expense ratios than most other index funds.

S&P 500 Index Funds

One of the most popular types of index funds invests in the S&P 500, an index of stocks that represents about 500 of the largest companies in the U.S. as measured by market capitalization. Competition has created higher-quality funds. While not exactly a niche, an entire industry has grown around crafting competing S&P 500 funds.

The Fidelity 500 Index (FXAIX) has ramped up its competition with Vanguard. It allows you to get this fund at a low expense ratio of 0.015%, or $15 per $10,000 invested. The index funds of these two rivals are often mirrors in terms of expenses and performance. There is no minimum start-up investment for FXAIX.

Charles Schwab has made a conscious effort to provide more than just a discount brokerage service to investors. The company dipped deeply into the Vanguard and Fidelity index fund markets. This discount broker has lowered its expenses to compete head-to-head with Vanguard and Fidelity. The Schwab S&P 500 Index (SWPPX) expense ratio is a low 0.02%. There's no minimum investment.

Total Stock Market Index Funds

A total stock market fund that invests in thousands of stocks might be of more interest if getting exposure to over 500 U.S. large-cap stocks isn't enough for you. The Schwab Total Stock Market Index (SWTSX) includes large-cap, mid-cap, and small-cap stocks.

It's tough to beat SWTSX with its 0.03% expense ratio, unless you qualify to get a lower expense ratio with one of Vanguard's Admiral Shares funds. There's no minimum investment.

Aggressive Stock Index Funds

You might find aggressive stock index funds attractive if you're in this for the long term, and you don't mind your account balance going up and down in the short term.

Vanguard Growth Index Admiral Shares (VIGAX) invests only in large-cap stocks that have a prospect for growth. This makes the fund a bit riskier, but it could also be more rewarding in the long run than S&P 500 Index funds. The expense ratio for VIGAX is a low 0.05%. The initial investment is $3,000. It's also available as an ETF at VUG with a 0.04% expense ratio for the price of one share.

The NASDAQ Index consists of mostly large-cap stocks, but many are technology- and healthcare-related stocks that tend to have greater long-term growth than broad market indices.

You'll like Fidelity NASDAQ Composite Index (FNCMX) if you don't mind the added risk for a greater long-term return. The expense ratio is 0.29%, with no minimum start-up investment.

Perhaps the best way to give yourself a chance to beat the S&P 500 index is to buy an index fund that invests in mid-cap stocks. These often perform better than large-cap stocks. Mid-caps are also less risky than small-caps, making Vanguard Mid-Cap Index Admiral Shares (VIMAX) a rare exception that invests right in the "sweet spot" of higher returns but without extreme risk.

The expense ratio for VIMAX is 0.05%. The minimum initial investment is $3,000. The ETF trades at VO. It has no minimum investment.

Bond Index Funds

Bond funds are appropriate for nearly everyone who wants a diversified portfolio of mutual funds. Index funds are a way to capture a large portion of the bond market in one low-cost investment.

The total bond market index refers to index mutual funds—or Exchange Traded Funds (ETFs)—that invest in Barclay's Aggregate Bond Index (BarCap Aggregate). The index is a broad bond index that covers most U.S. traded bonds and some foreign bonds that are traded in the U.S.

One of the best bond index funds to meet this type of need is ​Vanguard Total Bond Market Index Admiral Shares (VBTLX). It's one of the biggest bond index funds in the world in terms of assets under management (AUM). It's a favorite of do-it-yourself investors. Most fee-only advisors like it as well.

You get exposure to the entire U.S. bond market when you buy shares of this index fund. Its thousands of bonds span many types, including corporate bonds, U.S. Treasury bonds, short-term bonds, intermediate-term bonds, and long-term bonds. The expense ratio is just 0.05%. The minimum initial investment is $3,000. The ETF trades as BND. It has no minimum investment and a 0.035% expense ratio.

Fidelity Total Bond (FTBFX) is a broadly diversified bond fund similar to Vanguard's VBTLX, but it has more flexibility in balancing risk and reward. FTBFX can hold more high-yield bonds. It can possibly capture greater long-term returns as a result, compared to VBTLX. The expenses are a bit higher at 0.45%, but an index fund's added expense can be worth it. There's no investment minimum.

Balanced Index Funds

Balanced index funds provide the best way to achieve a diverse mix of stocks and bonds in just one fund. Vanguard Balanced Index (VBIAX) is a strong fund with a balanced mix of stocks and bonds.

This fund keeps costs low, and it balances risk and reward over the long term. The asset allocation stays at approximately 60% stocks and 40% bonds, making it a good choice if you're looking for medium risk. Long-term returns have been attractive at nearly 10%, as measured by the 11-year annualized returns to 2021. The expense ratio is 0.07%. The minimum initial investment is $3,000.

NOTE: The Balance doesn't provide tax or investment services or advice. This information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor. It might not be right for all investors. Investing involves risk, including the loss of principal.