Index funds are passive investments. They track an index with the goal of replicating the performance of that index, minus expenses. Active funds, meanwhile, are led by managers who choose particular securities in an effort to outperform an index.
But some index funds are better than others. The best index funds do a good job of closely tracking their indexes, minimizing costs, and following sensible rules-based indexes.
Why Are Index Funds Such a Popular Investing Option?
The first index fund, Vanguard 500, made its debut in 1976. Since then, index funds have exploded in popularity: Today, investors are putting money into U.S. stock index funds and pulling money out of their actively managed counterparts. And index funds that focus on international stocks and bonds are becoming more popular, too.
Why? Many argue that buying and holding the broad market (whatever that market may be) generates better results than trying to beat that same market through actively selecting securities. Indeed, Morningstar research has confirmed that in many investment categories, index funds have outperformed active funds over time.
Best Index Funds to Buy in 2023
A good place to start your search for top index exchange-traded funds and mutual funds is with the Morningstar Medalist Rating. Funds that earn our highest rating—Gold—are those that we think are most likely to outperform over a full market cycle.
Here’s the list of best low-cost index mutual funds and ETFs in 2023 broken down by the three main asset classes that are represented in the portfolios of many investors: U.S. stocks, international stocks, and bonds. We’re also including a list of what we’re calling “specialized” index funds, which features top-rated low-cost index funds from investment categories that appear less frequently in the portfolios of most investors.
Best Index Funds: U.S. Stocks
These mutual funds and ETFs all land in one of the broad U.S. stock Morningstar Categories, earn the top Morningstar Medalist Rating of Gold, and have Analyst Assigned % equaling at least 80% as of Sept. 26, 2023.
- DFA US Large Company DFUSX
- Fidelity 500 Index FXAIX
- Fidelity Mid Cap Index FSMDX
- Fidelity Total Market Index FSKAX
- iShares Core S&P 500 ETF IVV
- iShares Core S&P Total U.S. Stock Market ETF ITOT
- iShares S&P 500 Index WFSPX
- Mutual of America Mid-Cap Equity Index MAMEX
- Schwab Total Stock Market Index SWTSX
- Schwab U.S. Broad Market ETF SCHB
- Schwab U.S. Dividend Equity ETF SCHD
- Schwab U.S. Large-Cap ETF SCHX
- Schwab U.S. Mid-Cap Index SWMCX
- Schwab S&P 500 Index SWPPX
- SPDR Portfolio S&P 1500 Composite Stock Market ETF SPTM
- SPDR Portfolio S&P 500 ETF SPLG
- State Street Equity 500 Index SSSYX
- T. Rowe Price Equity Index 500 PRUIX
- TIAA-CREF S&P 500 Index TISWX
- Vanguard S&P 500 ETF/Vanguard 500 Index VOO VFIAX
- Vanguard Dividend Appreciation ETF/Index VIG VDADX
- Vanguard Extended Market ETF/Index VXF VEXAX
- Vanguard Growth ETF/Index VUG VIGAX
- Vanguard High Dividend Yield ETF/Index VYM VHYAX
- Vanguard Large-Cap ETF/Index VV VLCAX
- Vanguard Mid-Cap ETF/Index VO VIMAX
- Vanguard Mid-Cap Growth ETF/Index VOT VMGMX
- Vanguard Mid-Cap Value ETF/Index VOE VMVAX
- Vanguard Russell 1000 Growth ETF/Index VONG VRGWX
- Vanguard Russell 1000 Index VRNIX
- Vanguard Russell 1000 Value Index VRVIX
- Vanguard S&P 500 Growth ETF/Index VOOG VSPGX
- Vanguard S&P Mid-Cap 400 Growth Index VMFGX
- Vanguard S&P Mid-Cap 400 ETF/Index IVOO VSPMX
- Vanguard S&P Mid-Cap 400 Value Index VMFVX
- Vanguard S&P Small-Cap 600 Value Index VSMVX
- Vanguard Small-Cap Growth ETF/Index VBK VSGAX
- Vanguard Small-Cap ETF/Index VB VSCIX
- Vanguard Small-Cap Value ETF/Index VBR VSIAX
- Vanguard Total Stock Market ETF/Index VTI VITSX
- Vanguard Value ETF/Index VTV VVIAX
Although this is a list of the best broad-based low-cost index funds investing in U.S. stocks, there is some variety here. Several funds in the group track the S&P 500 and therefore provide access to large-cap stocks representing about 80% of the U.S. stock market. Other index funds on the list follow much broader market indexes that include more stocks, some of which are smaller-cap names. Meanwhile, other funds on the list are more narrowly focused, tracking indexes based on market capitalization (mid- or small-cap stocks) or investment style (growth stocks or value stocks).
To fully understand a fund’s strategy, be sure to read its Morningstar Fund Analyst Report.
Best International-Stock Index Funds
These mutual funds and ETFs all land in one of the broad international-stock categories, earn the top Morningstar Medalist Rating of Gold, and have Analyst Assigned % equaling at least 80% as of Sept. 26, 2023.
- Fidelity Total International Index FTIHX
- iShares Core MSCI Total International Stock ETF IXUS
- State Street Global All Cap Equities ex-U.S. Index SSGVX
- Vanguard FTSE All-World ex-US ETF/Index VEU VFWAX
- Vanguard International Dividend Appreciation ETF/Index VIGI VIAAX
- Vanguard Total International Stock ETF/Index VXUS VTIAX
- Vanguard Total World Stock ETF/Index VT VTWAX
Here, too, we have another list of the best broad-based low-cost index funds—in this case, focused on international stocks—where there is some variety. Some funds here track global indexes that include U.S. stocks; others follow global indexes that exclude U.S. stocks. Consult the investment’s Analyst Report to clarify.
Best Bond Index Funds
These mutual funds and ETFs all land in one of the broad bond categories, earn the top Morningstar Medalist Rating of Gold, and have Analyst Assigned % equaling at least 80% as of Sept. 26, 2023.
- Fidelity U.S. Bond Index FXNAX
- iShares Core U.S. Aggregate Bond ETF AGG
- iShares Core Total USD Bond Market ETF IUSB
- Schwab Short-Term U.S. Treasury ETF SCHO
- State Street Aggregate Bond Index SSAFX
- Vanguard Intermediate-Term Corporate Bond ETF/Index VCIT VICSX
- Vanguard Long-Term Bond ETF/Index BLV VBLLX
- Vanguard Long-Term Corporate Bond ETF/Index VCLT VLTCX
- Vanguard Short-Term Corporate Bond ETF/Index VCSH VSTBX
- Vanguard Short-Term Treasury ETF/Index VGSH VSBSX
- Vanguard Tax-Exempt Bond ETF/Index VTEB VTEAX
- Vanguard Total Bond Market ETF/Index BND VBTIX
Several of the best broad-based index funds on this list land in one of the intermediate-term bond categories. As such, they’d make great choices to anchor the bond portion of an investor’s portfolio, assuming the goals for the money are six or more years away. Those saving for a shorter-term goal in the next three to five years might consider short-term bond funds instead. Those investors with longer time horizons might consider a longer-term bond fund—but they should also be prepared for the enhanced volatility that comes with investing in long-term bonds.
Top Low-Cost Index Funds: Specialized
These mutual funds and ETFs all land in one of the specialized stock or bond categories, earn the top Morningstar Medalist Rating of Gold, and have Analyst Assigned % equaling at least 80% as of Sept. 26, 2023.
- iShares Developed Real Estate BIRDX
- Schwab U.S. TIPS ETF SCHP
- Vanguard FTSE Europe ETF/Vanguard European Stock Index VGK VEUSX
- Vanguard Real Estate ETF/Index VNQ VGSLX
- Vanguard Short-Term Inflation-Protected Securities ETF/Index VTIP VTAPX
The top-rated mutual funds and ETFs on this list are good choices for investors looking to fill more niche roles in their portfolios. For instance, retirees often hold a fund that’s meant to blunt the impact of inflation on their portfolios; two funds on this list are designed to do just that.
How to Find the Best Index Funds
Of course, focusing on funds that earn a Gold rating may be too limiting for some investors. Those who’d like to consider funds beyond of our top rating can review a full list of U.S. stock index funds and ETFs and bond index funds and ETFs that earn ratings of Bronze, Silver, and Gold.
The Benefits of Investing in Index Funds
Any historical performance advantage aside, there are several benefits to investing in index funds.
- Index funds are usually lower in cost than similar actively managed funds.
- Index funds perform like the market they’re tracking; as such, there aren’t many surprises in performance.
- Index funds don’t face what’s called key-person risk, which means that manager changes aren’t a big deal, since there’s no active security selection involved.
- Index funds are often more tax-friendly than similar active funds.
Should You Invest in an Index Mutual Fund or ETF?
One product isn’t better than the other; choosing the right wrapper depends on personal preferences. Investors who value trading flexibility or who may have few dollars to invest might prefer an ETF, while those accessing index funds via a company-sponsored retirement plan are more than likely buying mutual funds.
Read “Traditional Index Fund vs. ETF Cage Match” to learn more about the differences between mutual funds and ETFs.
The author or authors own shares in one or more securities mentioned in this article. Find out about Morningstar’s editorial policies.