The 5 Best Index Funds To Buy In 2025 (Own For Life)

For anyone seeking long-term wealth or looking to make their savings work harder, index fund investing remains one of the simplest and most effective ways to grow wealth over time. Index funds allow you to own hundreds or even thousands of companies with a single purchase — offering diversification, low costs, and consistent performance. As Warren Buffett once said, “By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.”

Understanding Index Funds, ETFs, and Mutual Funds

Before investing, it’s crucial to understand how index funds work and the difference between ETFs (Exchange-Traded Funds) and mutual funds. Both are designed to track a market index, but they operate differently:

ETFs (Exchange-Traded Funds)

• No account minimums and high liquidity — you can trade them during market hours like individual stocks.
• Usually have 3–4 letter ticker symbols (e.g., VOO).
• Can be purchased on nearly any investment platform.
• Typically more tax-efficient for taxable accounts.

Mutual Funds

• May have higher minimum investment requirements (often several thousand dollars).
• Trades execute only once per day at the market close.
• Usually have 5-letter tickers (e.g., VFIAX).
• Best suited for tax-advantaged accounts like 401(k)s or IRAs.

Both ETFs and mutual funds that track indexes are passively managed, keeping costs low while offering instant diversification. However, avoid actively managed mutual funds with high turnover rates in taxable accounts, as they can generate unwanted tax bills.

1. S&P 500 Index Funds

The S&P 500 is often considered the cornerstone of an investor’s portfolio. It tracks 500 of the largest U.S. companies and is market-cap weighted, meaning larger companies like Apple, Microsoft, and Nvidia have greater influence on performance.

• Top Holdings: Apple, Nvidia, Microsoft (Top 10 = ~35% of fund)
• Expense Ratio: 0.03%
• 10-Year Average Annual Return: ~13.06%

Popular S&P 500 Options

• Vanguard S&P 500 ETF – VOO
• Vanguard 500 Index Fund Admiral Shares – VFIAX
• Fidelity 500 Index Fund – FXAIX or FNILX (Zero Fee)
• Charles Schwab S&P 500 Index Fund – SWPPX

Because these funds track the same index, their results are nearly identical — your choice depends on platform and account type.

2. Total U.S. Stock Market Index Funds

If you want exposure to the entire U.S. stock market — large, mid, and small-cap companies — a total market fund is ideal. The Vanguard Total Stock Market ETF (VTI) tracks over 3,600 U.S. stocks across all sectors and capitalization levels.

• Expense Ratio: 0.03%
• Holdings: ~3,624 stocks
• 10-Year Average Return: ~12.5%
• Overlap with S&P 500: ~87%

VTI provides broader exposure than the S&P 500, though the performance difference is minimal. It’s a one-stop solution for U.S. market exposure.

3. Large-Cap Growth Index Funds

For investors seeking higher growth potential, large-cap growth funds focus on companies with strong earnings and innovation potential. A top choice is the Charles Schwab U.S. Large-Cap Growth ETF (SCHG).

• Tracks: Dow Jones U.S. Large-Cap Growth Index
• Expense Ratio: 0.04%
• Holdings: 229
• 10-Year Average Return: ~16.65%
• Top Holdings: Apple, Nvidia, Microsoft

Nearly half the fund is in the information technology sector. Growth ETFs like SCHG can be more volatile but often outperform during strong market periods.

Similar Growth ETFs and Mutual Funds

• ETFs: QQQ, QQQM, VUG
• Mutual Funds: VIGAX, FSPGX, SWLGX

4. Dividend-Focused Index Funds

Dividend index funds provide consistent income and defensive exposure, making them ideal for stability and long-term investors. The Charles Schwab U.S. Dividend Equity ETF (SCHD) is a standout in this category.

• Tracks: Dow Jones U.S. Dividend 100 Index
• Expense Ratio: 0.06%
• Dividend Yield: ~3.3%
• Top Holdings: Pfizer, Coca-Cola, Chevron, Verizon
• Overlap with VTI: 6%
• Overlap with SCHG: 0%

Over the past decade, SCHD has averaged an annual return of 11.03%. While that’s slightly lower than the S&P 500, it offers less volatility and greater diversification away from big tech stocks.

Other Dividend ETF Options

• FDVV, DIVB, DGRO, VIG, VYM

5. International Stock Market Index Funds

Although U.S. markets have outperformed for the past decade, holding some international exposure can boost diversification. The Vanguard Total International Stock ETF (VXUS) is a strong choice for global diversification outside the U.S.

• Tracks: FTSE Global All Cap ex U.S. Index
• Expense Ratio: 0.08%
• Holdings: 8,591
• 10-Year Average Return: ~5.1%
• Regional Breakdown: 38% Europe, 27% Emerging Markets, 26% Pacific
• Largest Holding: Taiwan Semiconductor (2.3%)

Alternative International Options

• ETFs: IXUS, VEU
• Mutual Funds: VTIAX, FTIHX, FZILX, SWISX

Final Thoughts

Building a strong, diversified portfolio doesn’t require dozens of funds. These five index funds — covering the S&P 500, total U.S. market, large-cap growth, dividend stocks, and international markets — provide broad exposure to the global economy at minimal cost. By consistently investing in these low-cost index funds and holding them long term, you can position yourself for stable growth, reduced risk, and financial independence over time.