Top Low-Cost Index Funds for New Investors

Investing in index funds is one of the easiest and most cost-effective ways to grow your wealth. For new investors, low-cost index funds provide diversification, stability, and the potential for long-term returns. Here are the top low-cost index funds to consider in 2025.

What Are Index Funds?

Index funds are mutual funds or exchange-traded funds (ETFs) designed to replicate the performance of a specific market index, such as the S&P 500. These funds are passively managed, which keeps fees low and makes them an attractive option for beginner investors.

Why Choose Low-Cost Index Funds?

• Low Fees: Index funds often have expense ratios under 0.20%, allowing more of your money to grow.
• Diversification: These funds spread your investment across a wide range of assets, reducing risk.
• Ease of Access: Available through most brokerage platforms with minimal investment requirements.

Top Low-Cost Index Funds for 2025

1. Vanguard S&P 500 ETF (VOO)

• Expense Ratio: 0.03%
• Overview: This ETF tracks the S&P 500, providing exposure to 500 of the largest U.S. companies.
• Why It’s Great for Beginners: Low costs and broad market exposure make VOO a favorite among new and seasoned investors.

2. Fidelity ZERO Total Market Index Fund (FZROX)

• Expense Ratio: 0.00%
• Overview: This fund offers exposure to the entire U.S. stock market at no expense ratio.
• Why It’s Great for Beginners: With no fees and broad diversification, it’s an excellent choice for those starting out.

3. Schwab U.S. Broad Market ETF (SCHB)

• Expense Ratio: 0.03%
• Overview: Tracks the Dow Jones U.S. Broad Stock Market Index, covering a wide range of companies.
• Why It’s Great for Beginners: A low-cost option that’s easy to manage and widely diversified.

4. iShares Core MSCI Total International Stock ETF (IXUS)

• Expense Ratio: 0.07%
• Overview: Provides exposure to international markets, including developed and emerging economies.
• Why It’s Great for Beginners: Diversifies your portfolio beyond U.S. stocks, reducing risk.

5. Vanguard Total Bond Market ETF (BND)

• Expense Ratio: 0.03%
• Overview: Offers exposure to a broad selection of U.S. investment-grade bonds.
• Why It’s Great for Beginners: Ideal for balancing risk in a stock-heavy portfolio.

How to Choose the Right Index Fund

When selecting an index fund, consider the following factors:

• Investment Goals: Determine whether you’re saving for retirement, a down payment, or other goals.
• Risk Tolerance: Stocks are riskier than bonds but offer higher potential returns.
• Expense Ratios: Lower fees mean more of your money stays invested.
• Diversification Needs: Balance U.S., international, and bond funds to reduce risk.

Steps to Invest in Index Funds

1. Open a Brokerage Account: Choose a platform like Vanguard, Fidelity, or Schwab.
2. Fund Your Account: Deposit money via bank transfer or other methods.
3. Research and Select Funds: Use the list above to identify funds that match your goals.
4. Start Investing: Purchase shares of your chosen index fund and set up recurring investments if possible.

Final Thoughts

Low-cost index funds are a smart choice for new investors looking to build wealth over time. With low fees, broad diversification, and ease of management, these funds provide a solid foundation for your investment portfolio. Start small, stay consistent, and let the power of compounding work in your favor.

FAQs

1. What is the minimum investment for index funds? Many index funds have low or no minimum investment requirements, making them accessible to beginners.

2. How do index funds differ from mutual funds? Index funds are passively managed and often have lower fees, while mutual funds are actively managed with higher costs.

3. Are index funds safe for beginners? Yes, index funds are considered one of the safest and simplest investment options for new investors due to their diversification and low costs.