index fund funds 500 mutual expense

5 Best Index Funds In April 2021Index funds are popular with investors because they promise ownership of awide variety of stocks, immediate diversification and lower risk – usually allat a low price. That’s why many investors, especially beginners, find indexfunds to be superior investments to individual stocks.Among the best are index funds based on the Standard & Poor’s 500 Index (S&P500). The index includes hundreds of the largest, globally diversifiedAmerican companies across every industry, making it as low-risk as stockinvesting gets. Of course, as 2020 showed, even the whole market can fluctuatedramatically, especially if something momentous happens.This index is the very definition of the market, and by owning a fund based onthe index, you’ll get the market’s return, historically about 10 percent peryear. It’s among the most popular indexes.Here’s everything you need to know about index funds, including five of thetop index funds to consider adding to your portfolio this year.## Why are index funds so popular?The S&P 500 index fund continues to be among the most popular index funds. S&P500 funds offer a good return over time, they’re diversified and about as lowrisk as stock investing gets. * Attractive returns – Like all stocks, the S&P 500 will fluctuate. But over time the index has returned about 10 percent annually. That doesn’t mean index funds make money every year, but over long periods of time that’s been the average return. * Diversification – Investors like index funds because they offer immediate diversification. With one purchase, investors can own a wide swath of companies. One share of an index fund based on the S&P 500 provides ownership in hundreds of companies. * Lower risk – Because they’re diversified, investing in an index fund is lower risk than owning a few individual stocks. That doesn’t mean you can’t lose money or that they’re as safe as a CD, for example, but the index will fluctuate a lot less than individual stocks. * Low cost – Index funds can charge very little for these benefits, with a low expense ratio. For larger funds you may pay $3 to $10 per year for every $10,000 you have invested. In fact, one fund (listed below) charges you no expense ratio at all. When it comes to index funds, cost is one of the most important factors in your total return.While some funds such as S&P 500 index funds allow you to own companies acrossindustries, others own only a specific industry, country or even investingstyle (say, dividend stocks).## Best index funds for April 2021The list below includes S&P 500 index funds from a variety of companies, andit includes some of the lowest-cost funds trading on the public markets. Whenit comes to an index fund like this, one of the most important factors in yourtotal return is cost. Included are two mutual funds and three ETFs: 1. Fidelity ZERO Large Cap Index 2. Vanguard S&P 500 ETF 3. SPDR S&P 500 ETF Trust 4. iShares Core S&P 500 ETF 5. Schwab S&P 500 Index Fund## 1. Fidelity ZERO Large Cap Index (FNILX)The Fidelity ZERO Large Cap Index mutual fund is part of the investmentcompany’s foray into mutual funds with no expense ratio, thus its ZEROmoniker. The fund doesn’t officially track the S&P 500 – technically itfollows the Fidelity U.S. Large Cap Index – but the difference is academic.The real difference is that investor-friendly Fidelity doesn’t have to coughup a licensing fee to use the S&P name, keeping costs lower for investors.Expense ratio: 0 percent. That means every $10,000 invested would cost $0annually.## 2. Vanguard S&P 500 ETF (VOO)As its name suggests, the Vanguard S&P 500 tracks the S&P 500 index, and it’sone of the largest funds on the market with hundreds of billions in the fund.This ETF began trading in 2010, and it’s backed by Vanguard, one of thepowerhouses of the fund industry.Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3annually.## 3. SPDR S&P 500 ETF Trust (SPY)The SPDR S&P 500 ETF is the granddaddy of ETFs, having been founded all theway back in 1993. It helped kick off the wave of ETF investing that has becomeso popular today. With hundreds of billions in the fund, it’s among the mostpopular ETFs. The fund is sponsored by State Street Global Advisors — anotherheavyweight in the industry — and it tracks the S&P 500.Expense ratio: 0.09 percent. That means every $10,000 invested would cost $9annually.## 4. iShares Core S&P 500 ETF (IVV)The iShares Core S&P 500 ETF is a fund sponsored by one of the largest fundcompanies, BlackRock. This iShares fund is one of the largest ETFs and likethese other large funds, it tracks the S&P 500. With an inception date of2000, this fund is another long-tenured player that’s tracked the indexclosely over time.Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3annually.## 5. Schwab S&P 500 Index Fund (SWPPX)With tens of billions in assets, the Schwab S&P 500 Index Fund is on thesmaller side of the heavyweights on this list, but that’s not really a concernfor investors. This mutual fund has a strong record dating back to 1997, andit’s sponsored by Charles Schwab, one of the most respected names in theindustry. Schwab is especially noted for its focus on making investor-friendlyproducts, as evidenced by this fund’s razor-thin expense ratio.Expense ratio: 0.02 percent. That means every $10,000 invested would cost $2annually.## How to invest in an index fund in 3 easy stepsIt’s surprisingly easy to invest in an index fund, but you’ll want to knowwhat you’re investing in, not simply buy random funds that you know littleabout.### 1. Choose an index fund to invest inYour first step is finding what you want to invest in. While an S&P 500 indexfund is the most popular index fund, they also exist for different industries,countries and even investment styles. So you need to consider what exactly youwant to invest in and why it might hold opportunity: * Location: Consider the geographic location of the investments. A broad index such as the S&P 500 owns American companies, while other index funds might focus on a narrower location (France) or an equally broad one (Asia-Pacific). * Business: Which industry or industries is the index fund investing in? Is it invested in pharma companies making new drugs, or maybe tech companies? Some funds specialize in certain industries and avoid others. * Market opportunity: What opportunity does the index fund present? Is the fund buying pharma companies because they’re making the next blockbuster drug or because they’re cash cows paying dividends? Some funds invest in high-yield stocks while others want high-growth stocks.You’ll want to carefully examine what the fund is investing in, so you havesome idea of what you actually own. Sometimes the labels on an index fund canbe misleading. But you can check the index’s holdings to see exactly what’s inthe fund.### 2. Decide which index fund to buyAfter you’ve found a fund you like, you can look at other factors that maymake it a good fit for your portfolio. The fund’s expenses are huge factorsthat could make – or cost – you tens of thousands of dollars over time. * Expenses: Compare the expenses of each fund you’re considering. Sometimes a fund based on a similar index can charge 20 times as much as another. * Taxes: For certain legal reasons, mutual funds tend to be less tax-efficient than ETFs. At the end of the year many mutual funds pay a taxable capital gains distribution, while ETFs do not. * Investment minimums: Many mutual funds have a minimum investment amount for your first purchase, often several thousand dollars. In contrast, many ETFs have no such rule, and your broker may even allow you to buy fractional shares with just a few dollars.### 3. Purchase your index fundAfter you’ve decided which fund fits in your portfolio, it’s time for the easypart – actually buying the fund. You can either buy directly from the mutualfund company or through a broker. But it’s usually easier to buy a mutual fundthrough a broker. And if you’re buying an ETF, you’ll need to go through yourbroker. Consider the following factors as you’re deciding: * Trading costs: Some brokers offer very attractive prices when you’re buying mutual funds, even more so than the same mutual fund company itself. If you’re going with an ETF, virtually all major online brokers now allow you to trade without a commission. * Fund options: Not all brokers will offer all mutual funds, however. So you’ll need to see whether your broker offers a specific fund family. In contrast, ETFs are typically available at all brokers because they’re all traded on an exchange. * Convenience: It may be a lot easier to go with a mutual fund that your broker offers on its platform rather than open a new brokerage account. But going with an ETF instead of a mutual fund may also allow you to sidestep this issue.## Index fund FAQIf you’re looking to get into index funds, you may still have a few morequestions. Here are answers to some of the most frequently asked questionsthat investors have about them.### How do index funds work?An index fund is an investment fund – either a mutual fund or an exchange-traded fund (ETF) – that is based on a preset basket of stocks, or index. Thisindex may be created by the fund manager itself or by another company such asan investment bank or a brokerage.These fund managers then mimic the index, creating a fund that looks as muchas possible like the index, without actively managing the fund. Over time theindex changes, as companies are added and removed, and the fund managermechanically replicates those changes in the fund.Because of this approach, index funds are considered a type of passiveinvesting, rather than active investing where a fund manager analyzes stocksand tries to pick the best performers.This passive approach means that index funds tend to have low expense ratios,keeping them cheap for investors getting into the market.Some of the most well-known indexes include the S&P 500, the Dow JonesIndustrial Average and the Nasdaq 100. Indexing is a popular strategy for ETFsto use, and virtually all ETFs are based on indexes.### What sort of fees are associated with index funds?Index funds may have a couple different kinds of fees associated with them,depending on which type of index fund: * Mutual funds: Index funds sponsored by mutual fund companies may charge two kinds of fees: a sales load and an expense ratio. * A sales load is just a commission for buying the fund, and it may happen when you buy or when you sell or over time. Investors can usually avoid these by going with an investor-friendly fund company such as Vanguard, Schwab or Fidelity. * An expense ratio is an ongoing fee paid to the fund company based on the assets you have in the fund. Typically these are charged daily and come out of the account seamlessly. * ETFs: Index funds sponsored by ETF companies (many of which also run mutual funds) charge only one kind of fee, an expense ratio. It works the same way as it would with a mutual fund, with a tiny portion seamlessly deducted each day you hold the fund.ETFs have become more popular recently because they help investors avoid someof the higher fees associated with mutual funds. ETFs are also becomingpopular because they offer other key advantages over mutual funds.## Bottom lineThese are some of the best S&P 500 index funds on the market, offeringinvestors a way to own the stocks of the S&P 500 at low cost, while stillenjoying the benefits of diversification and lower risk. With those benefits,it’s no surprise that these are some of the largest funds on the market.### Learn more: