If you want to start building wealth through investments, you may be aware of the complexities associated with traditional stock prices. But thankfully, not all investments need to be complicated or expensive. Low-cost index funds will help you increase your investments at a great price, so keep reading and find out more about index funds, making them cost-effective and around 16 common low-cost index funds.
What is an index fund?
An index fund is a type of investment fund, usually a mutual fund or exchange trading fund (ETF), designed to replicate the performance of a particular market index. These funds aim to reflect returns on indexes such as the S&P 500, Dow Jones Industrial Average, or Nasdaq Composite by holding a portfolio of securities similar to the composition of their index.
Why do index funds create low cost?
The cheapest index funds usually have a very low cost ratio, typically under 0.65%. These cost ratios are the amount used to operate expenses for the fund’s assets.
In other words, if you buy a fund for $100 and have an expense ratio of 1%, that means that one dollar of your money will be spent on the payment of your operations each year.
Unlike aggressively managed mutual funds, index funds operate on a passive strategy, in which a team of financial experts decide which stocks to buy and sell. They aim to perform similarly to certain market indexes, such as the S&P 500 and Nasdaq.
Because active management is not involved, the costs associated with research, analysis and certain transactions are significantly reduced. Low-cost index funds rarely buy and sell securities, resulting in lower transaction costs. This will make them tax-efficient and save even more money.
Things to consider when choosing an index fund
Low cost is one factor to consider, but there are things to consider when investing in index funds.
Investment goals
Think about your goals and determine your investment goals.
For example, are you looking for a long-term growth, income, or a balance between both? Why do you want to invest in index funds? Knowing your financial goals can help you understand which low-cost index funds make the most sense to you.
Risk tolerance
We will assess how much risk you take and how much risk you avoid. Different index funds may track different markets with different levels of risk, but all investments are risky.
If you don’t have the chance to lose most of your money due to potentially high returns, it’s possible that a particular index fund makes more sense. However, if you don’t want to take risks, a more conservative investment fund could be the best solution.
Overall Portfolio Strategy
Before you buy some of the cheapest index funds, consider how they fit into your broader investment portfolio. Your strategy is a kind of roadmap that will help you achieve your financial goals. Keep your goals in mind, especially if the market is unstable.
Don’t forget that diversification is key to spreading investment risk.
For example, another type of strategy is to consider investing in short-term investments, passive investments, or a mix of low-risk and high-risk investments.
Think about it in the long term
Long-term investment is the target of index funds. Make sure your investment period matches this strategy.
For example, if you are looking for a short-term investment for less than six months, another investment option may make more sense to you.
16 low-cost index funds that are popular
Index funds are one great way to start investing in the stock market, especially if you’re in the stock market fears. Want to start investing in low-cost index funds, but don’t know where to start? Here are 16 cheapest index funds you can research.
1. Zero Fidelity Total Market Index Fund
symbol: fzrox
Cost Ratio: 0.0%
One of the most unique things about FZROX is its expense ratio at 0%. Additionally, no commissions are charged and the minimum structure is zero. This makes it one of the cheapest index funds.
It was launched by Fidelity in 2018, and won the entire stock market and includes stocks such as Apple and Microsoft. However, like other market index funds, they are also exposed to wider market volatility.
2. Schwab stock in MarchKET Index Fund
symbol: switchx
Cost Ratio: 0.03%
The fund Charles Schwab, a fund by this fund broker, has been around since 1999 and tracks the entire market as measured by the Dow Jones US Stock Market Index. This is a simple, low-cost investment fund that gives investors access to the entire US stock market with stocks such as Meta and Exxon Mobil.
This is a fund designed to be exposed to investors to all small, middle and large businesses across the country.
3. SPDRS&P 500 ETF Trust
symbol: spy
Expense rate:0.09%
Created by State Street Global Advisors in 1993, this index fund correlates with the performance of the S&P 500.
In other words, if you invest in all S&P 500 companies, such as Berkshire and United Health Group, you could get similar results. This has exposed investors to the largest companies in the United States.
4. VanguardTotal Stock Market Index Fund
symbol: vtsax
Cost Ratio: 0.04%
The fund, launched in 1992, by Broker Vanguard, provides exposure to the entire US stock market. This includes both small, medium and large-scale growth and value stocks.
In other words, it gives investors the opportunity to track all public US companies, such as Apple, Tesla, Facebook, and more. As such, the fund is more volatile as it is exposed to the overall dip of the broader stock market.
5. ISHARESCORE S&P 500 ETF
sumbrella: IVV
Cost Ratio: 0.03%
IVV is another index fund created by BlackRock’s BlackRock in 2000, investing in large US companies. This is low-cost funding, exposing investors to the largest US companies of 500 by market capitalization.
That’s usually because investors want long-term exposure to large companies, and if you’re wondering, “Is this a good time to invest?”, it can be great.
6. Fidelity500 index fund
symbol: fxaix
Cost Ratio: 0.015%
Fidelity created the fund in 1988. It also aims to track the returns of your S&P 500. Track the performance of the largest companies that make up the S&P 500.
7. FidelityUS Bond Index Fund
symbol: fxnax
Cost Ratio: 0.025%
If you want to invest in bonds instead of stocks, FXNAX does just that. Another fund by Fidelity began in 1990 and follows the price of debt securities in the Bloomberg US Aggregated Bond Index.
In other words, they invest in US debt, such as government and corporate debt and mortgage-backed securities.
8. VanguardReal Estate Index Fund
symbol: vgslx
Cost Ratio: 0.12%
The index fund by Broker Vanguard in 2001 invests in real estate investment trusts (called REITs) such as public custody and American Tower Corporation.
Real estate can be expensive, but real estate funds are one way to get exposed to the housing market without having to buy your own property, and are especially useful when learning to invest in real estate for beginners.
9. FidelityReal Estate Index Fund
symbol: fsrnx
Cost Ratio: 0.07%
The FSRNX index fund by Broker Fidelity aims to acquire returns corresponding to REIT gross revenues and other similar real estate investments.
Created in 2011, it includes exposure to businesses such as Crown Castle and Public Storage. Like VGSLX, the index fund is aimed at investors looking for exposure to the real estate market.
10. Fidelity Total International Index Fund
symbol: fthx
Cost Ratio: 0.06%
Another Fidelity Fund, FTIHX Index Fund, is exposed to the international market by investors. This includes established markets like Europe and other developing markets like India.
Launched in 2016, it is designed for investors who want to diversify their investments outside the US
11. BNY Melon Core Bond ETF
symbol: bkag
Cost Ratio: 0.0%
Because there is no cost ratio, BKAG is one of the cheapest index funds. Once Investment Manager BNY Mellon begins, its goal is to track the performance of Bloomberg US Agregati’s total return index.
12. Schwab S&P 500 Index
symbol: swppx
Cost Ratio: 0.02%
Like many other funds on this list, the SWPPX index fund by broker Charles Schwab tracks the S&P 500 as well. The fund, which began in 1997, has earned approximately 80% of its current market capitalization nationwide. In other words, your investment is exposed to the good parts of the US economy.
13. VanguardGrowth Index Fund
symbol: Vigax
Cost Ratio: 0.05%
This index fund by Broker Vanguard focuses on US companies that tend to grow faster than the broader market. Created in 2000, it focuses on large growth stocks. This means that it is a little more volatile than other broader indexes and does not always follow the broader market movements.
14. SOFISELECT 500 ETF
symbol: sfy
Cost Ratio: 0.19%
SFY Index Funds have a higher expense ratio than some of the other funds on this list, but are currently exempt from expenses. This means that for the time being, you can invest in this low-cost index fund at no additional cost.
The SFY fund was created in 2019 by broker Sofi and consists of 500 large US companies, but the amount invested in each will vary depending on the company’s growth rate.
15. Vanguard S&P 500 ETF
symbol: flight
Cost Ratio: 0.03%
The ETF by Broker Vanguard began in 2010 and invests in stocks found in the S&P 500. Like other index funds focusing on the S&P 500, it aims to track index returns.
In other words, VOO index funds are trying to make the same returns as the top 500 US companies.
16. VanguardTotal Bond Market Index Fund
symbol: VBTLX
Cost Ratio: 0.05%
The index fund by Broker Vanguard covers the US bond market. Created in 2001, it invests in many investment grade bonds, including the US Department of Treasury and mortgage-backed securities.
You can invest in a variety of bonds to represent the fixed income market and think of them as core bond index funds.
Expert Tips: Find a consistent and proven investment
When investing in index funds, focus on consistency and reliability, especially when learning how to invest with most money. Keep track of each index closely and look for funds with a long history of decent returns.
Additionally, consider a variety of factors such as index fund dividend yields, expense ratios, fund size, and more to ensure that they match your individual investment goals.
What is a low-cost index fund?
Low-cost index funds are a way to provide broad exposure to specific segments of the financial market without the high fees associated with traditional investments.
Low-cost index funds are passive investment vehicles created to replicate the performance of specific market indexes while minimizing costs. Index funds are known for their low cost ratios.
Furthermore, index funds do not rely on active stock selection, market timing strategies, or individual stock purchases. Instead, they hold a diverse portfolio of securities that reflect the composition of the selected index.
Is a low-cost index fund worth it?
Low-cost index funds are often seen as a wise choice for investors looking for broad market exposure with minimal fees. In the long term, low costs can have a significant impact on returns, making it a valuable investment.
Therefore, including them in your portfolio will help you diversify and keep it cheap.
Is the S&P 500 a low-cost index fund?
No, the S&P 500 is an index rather than a fund, so you cannot trade directly. This is the stock market index representing a group of 500 people from the largest publicly traded US companies. It serves as a benchmark for the overall performance of the US stock market.
However, you can invest in the companies that make up the S&P 500 by investing in low-cost funds or ETFs that track your index.
Can I buy an index fund that costs just $100?
Yes, you can buy an index fund for $100. Many index funds have lower minimum investment requirements of less than $100.
This accessibility makes it a good choice for a wide range of investors to learn how to invest with most money.
Also, some financial institutions offer fractional shares of investments that allow investors to purchase a portion of the stock for less than $100.
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Find the best and cheapest index funds for you!
If you want to start investing but don’t know the best way to do it, this may be a good way to start investing in low-cost index funds.
Additionally, some of the cheapest index funds give investors the opportunity to diversify their holdings. Investing in an ETF or index fund is a simple and easy way to learn how to start investing.
Don’t forget that investments come with risks. Work towards your long-term financial goals, check out examples of financial goals, and keep in mind your risk tolerance before starting to invest in low-cost index funds.