NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. They are not intended to provide investment advice. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. is an independent publisher and comparison service, not an investment advisor. Adding a low-cost index fund to your portfolio keeps more of your hard-earned money in your own pocket.NerdWallet, Inc. With the availability of so many low-cost index funds, there's little reason to pay more than the bare minimum in fees. While index funds are generally broad-based, you can gain additional portfolio exposure to particular market segments by allocating more money to specific stocks or funds in accordance with your investment preferences. Paying higher fees to invest in an actively managed fund erodes your ability to generate compound interest. Paying very little for such a strategy is not only possible, but it's the best way to ensure you keep the majority of your investment returns over the long haul. The beauty of an index-based investing style is that you only need to buy, hold, and be unwaveringly patient. If you held low-cost index funds since then, there's a good chance you've seen your net worth expand quite nicely.Ĭritically, if you instead picked individual stocks and bought and sold at the wrong times, you would not have captured such efficient performance. Since then, indices have recovered quite nicely, with the S&P 500 up nearly 80% since the pandemic lows. Performance during COVID-19Īt the beginning of the pandemic in March 2020, global stock indices were down anywhere from 30% to 50%, depending on the market segment. But, due to its small-cap focus, the performance of this ETF can be more volatile than other investments. Investing in a low-cost, small-cap index fund ETF such as the Vanguard Small-Cap ETF can boost your overall returns. companies in the bottom 15% to bottom 2% by market cap. The Vanguard Small-Cap ETF is an attractive option if you want to invest in companies that have the most growth potential. The fund's small expense ratio of 0.04% is competitive among mid-cap ETFs. Mid-Cap Index by aiming to hold the same stocks as the index and in the same proportion. The mid-cap market segment includes companies with established businesses and reliable revenue streams, many of which have yet to grow into their full potential. The Vanguard Mid-Cap ETF invests in companies with mid-range market values, typically between $2 billion and $10 billion. The formulaic nature of the inclusion process ensures that only high-quality companies are listed by the S&P and invested in by the Vanguard S&P 500 ETF. The S&P 500 is "self-cleansing," meaning that when a particular company no longer qualifies for inclusion in the index, it is removed and replaced by a growing company that does deserve to be included. The broad diversification of this fund is appealing to many investors. The Vanguard S&P 500 ETF tracks the S&P 500 (SNPINDEX: ^GSPC), the benchmark index weighted by market capitalization that includes 500 of the largest U.S.
These index funds have some of the lowest expense ratios: You can also choose to invest in several of these types of low-cost index funds to maximize your portfolio's diversification. Investing in index funds focused on large-cap, mid-cap, or small-cap companies can help you tailor your portfolio in accordance with your risk appetite.
stock market funds, which track indexes that include all publicly traded U.S. stock market funds: Investing in total U.S. Understanding these different types can help you choose the best low-cost index fund for you: Low-cost index funds fit into a few different categories. Passive investing strategies don't require any in-house stock analysis or active trading. Index-tracking ETFs typically have low expense ratios because they are passively managed, which keeps operating expenses low. Many investors prefer index funds - which are a type of exchange-traded fund (ETF) - over mutual funds because of their lower expense ratios and tax-efficient nature.
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