AndreyPopov /

AndreyPopov /

When it comes to investing your money in the stock market, there are various philosophies out there.

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Some investors are focused on dividend-paying stocks, others are more risk-averse as they invest in growth stocks with high potential, and some just want to create a simple portfolio with funds that will grow over time.

What are the best index funds to invest in? We spoke with two financial advisors to create this list of the only five index funds you need to create a simple portfolio that matches actively managed portfolios.

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Vanguard 500 Index Fund (VFINX)

“It tracks the S&P 500, representing 500 of the largest U.S. companies, offering a diversified portfolio with a single investment,” said Taylor Kovar, CFP and CEO of Kovar Wealth Management. When you invest in this fund, you gain exposure to the largest American companies.

What kind of returns can you expect?

“The S&P 500 has historically returned about 10% annually, but since that’s a cumulative average, the actual returns each year can vary significantly.” It’s worth mentioning that this index fund had an annual total return of 26.11% in 2023.

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Vanguard Total Stock Market Index Fund (VTSAX)

“It provides exposure to the entire U.S. equity market, which is huge,” Kovar said. “It includes small-, mid-, and large-cap stocks, offering broader diversification than an S&P 500 fund.” If you’re looking for diversification, you’ll want to look into this fund since it holds over 4,000 publicly traded companies in America.

What kind of returns can you expect?

“Returns are similar to S&P 500 funds over the long term but can offer more exposure to the growth potential of smaller companies with less perceived risk,” Kovar said. This fund had an annual return of 26.01% in 2023.

Vanguard Total International Stock Index Fund (VGTSX)

“The United States isn’t the only country in the world with a stock market, so this allows us to easily invest in those emerging markets,” said Kovar. This fund aims to track the performance of the FTSE Global All Cap ex US Index. This index measures equity market performance in developed and emerging markets globally, excluding the United States.

What kind of returns can you expect?

“This index fund can be more volatile, so we don’t recommend this being a huge part of your portfolio,” Kovar said. This index fund had a total annual return of 15.38% in 2023.

  • 5-year return: 7.26%

  • 10-year return: 4.03%

  • Expense ratio: 0.17%

Vanguard 500 Index Fund Admiral Shares (VFIAX)

“This fund mirrors the performance of the S&P 500, making it a solid choice for investors seeking exposure to a broad range of large-cap U.S. stocks,” said Jeff Rose, CFP and founder of Known for its low expense ratio of 0.03%, VFIAX requires a minimum investment of $3,000.

What kind of returns can you expect?

This index fund had an annual return of 26.24% in 2023.

Schwab S&P 500 Index Fund (SWPPX)

“This fund stands out due to its exceptionally low minimum investment requirement of $1,000 and an expense ratio that matches FXAIX at 0.02%,” said Rose. “SWPPX is an excellent choice for investors looking for an accessible entry into S&P 500 index investing.”

What kind of returns can you expect?

This index fund had an annual return of 26.25% in 2023.

What To Know About Investing in Index Funds

“When evaluating the best index funds, I tend to focus on funds that offer a blend of low expense ratios and reasonable minimum investment requirements,” said Rose. It’s essential that you look at the expense ratio to know how much you’re spending on investment fees. The expense ratio is what it costs to manage the fund, and it’s calculated annually. This fee includes management fees, administrative fees, and any marketing fees.

The goal is to review and compare the fees to historical returns to learn more about the index fund. You’ll also want to think about the minimum investment required. The good news is that index funds are available for various asset classes. While individual stocks can go up and down, an index tends to increase in time. You don’t have to worry about losing your funds with a single investment.

How Should You Invest Your Money?

“If you’re new to investing and looking for a good index fund to start with in 2024, consider the Schwab S&P 500 Index Fund (SWPPX),” said Rose. “It’s a great pick because of two main reasons: its low cost and low minimum investment. With an expense ratio of just 0.02% and a minimum investment of $1,000, it’s both affordable and accessible, especially if you’re just starting out and don’t have a lot of money to invest right away.”

How you split your portfolio will depend on your financial goals and personal risk tolerance. It’s impossible to provide a one-size-fits-all solution because we all have different philosophies.

Closing Thoughts

If you want to create a super simplistic portfolio, these are the best index funds that could match any actively managed portfolio. You can create your own portfolio if you take the time to do some research on investment history and expectations with these index funds. You should also consider consulting with a financial advisor if you’re still uncertain about how to invest your money or how to distribute your savings.

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This article originally appeared on I’m a Financial Advisor: These 5 Index Funds Are All You Really Need


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