When you're just starting to invest, index funds are often the most reliable way to grow wealth steadily. These funds are baskets of stocks or bonds that track a market index, like the S&P 500. Because they simply follow an index, they are low cost, transparent, and well diversified. In this guide, we'll highlight the best index funds of 2025 across several asset classes, and we'll explain what makes them stand out for long-term investors.
What Is an Index Fund?
An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to mirror the components of a financial market index. For example, a total stock market index fund holds the same stocks in about the same proportion as the CRSP US Total Market Index, giving you exposure to thousands of companies through one investment.
The benefits stem from two key traits: passive management and low costs. Because the fund doesn't require analysts to pick stocks, its operating expenses stay minimal. Studies such as the SPIVA report show that after fees, a large majority of active U.S. equity funds underperformed their respective index benchmarks over 5- and 10-year periods. That's why many financial advisors consider index funds the building block of a smart portfolio.
How to Choose the Best Index Fund
Not all funds that track the same index are identical. When comparing index funds, look for these details:
- Expense ratio: the annual fee charged as a percentage of assets. The lower, the better; many top funds charge less than 0.10%.
- Tracking error: how closely the fund matches its benchmark. Lower tracking error means the manager is doing a better job at replicating the index.
- Fund size: older, larger funds tend to have lower trading costs and tighter bid/ask spreads if they are ETFs.
- Minimum investment: for mutual funds, a $1,000 minimum might be required; Fidelity ZERO funds and most ETFs have no minimum.
- Tax efficiency: index funds generally have lower turnover than active funds, so they create fewer taxable capital gains.
After you decide on your target asset allocation, choose an index fund that provides those characteristics. It is also wise to stick with established companies such as Vanguard, Fidelity, iShares, and State Street.
The Best Index Funds in 2025
Here are the standout index funds that appear routinely in well-diversified, low-cost portfolios.
Vanguard S&P 500 ETF (VOO) — Tracks the S&P 500 of the 500 largest US companies. Expense ratio is 0.03%. This is one of the most popular index funds for large-cap US stock exposure. Since 2010, the S&P 500 has returned an average of over 13% per year, but past performance doesn't guarantee future results.
Fidelity ZERO Total Market Index Fund (FZROX) — Tracks Fidelity's broad domestic market index and charges a 0.00% expense ratio. This mutual fund has no minimum balance, but you can only buy it through a Fidelity brokerage account. It includes more than 2,500 US stocks, mirroring the entire market.
Vanguard Total Stock Market ETF (VTI) — Provides exposure to the whole US stock market, covering small-, mid-, and large-caps. VTI's expense ratio is 0.03%. Its mutual fund sibling, VTSAX, is equally popular. VTI is a true one-fund way to own American stocks.
Vanguard Total International Stock Index Fund (VTIAX or ETF: VXUS) — Tracks the FTSE Global All Cap ex-US Index, which holds stocks from developed and emerging markets outside the U.S. The expense ratio for the mutual fund is 0.11%, while the ETF version charges 0.07%. International equities can increase diversification and reduce volatility over cycles.
iShares Core S&P 500 ETF (IVV) — If you prefer a BlackRock fund, IVV tracks the S&P 500 with an expense ratio of only 0.03%. It is nearly identical to VOO. Some investors might find that one has a lower share price, enabling fractional purchase—they both are excellent.
Vanguard Total Bond Market ETF (BND) — For fixed-income allocation, BND tracks the U.S. investment-grade bond market. With an expense ratio of 0.03%, it is the cheapest way to gain broad exposure to Treasuries, corporate debt, and mortgage-backed securities. Bonds tend to cushion portfolio returns during stock bear markets.
These funds are not the only ones worth considering, but they share the virtues of low costs and broad diversification. The exact choice often comes down to your brokerage provider.
Index Mutual Funds vs. Index ETFs
Index funds are often conflated with index ETFs. An index mutual fund sets a net asset value at the end of each trading day, and you can buy or sell at that price. An index ETF trades on stock exchanges throughout the day, much like a stock. Both approaches result in the same indexed portfolio exposure.
ETFs may have a slight tax advantage in taxable accounts because they rarely distribute capital gains. Mutual funds can be more convenient for automatic monthly investing, with dollar amounts. Your decision depends on your account type and investing habits.
How to Start Investing in Index Funds
- Open a brokerage account, such as a Roth IRA, traditional IRA, or a taxable brokerage account.
- Decide on your portfolio's stock-to-bond ratio using your time horizon and risk tolerance.
- Select index funds that fit that allocation. Beginners may choose a target-date fund, which automatically creates a diversified index portfolio.
- Set up automatic contributions from your paycheck or bank account.
- Review your portfolio once a year and rebalance back to your target percentages.
Bottom Line
The best index funds of 2025 prioritize one thing above all: helping you capture the long-term return of the underlying market at minimal cost. Whether you choose VOO, VTI, FZROX, or a combination with an international fund and a bond index fund, the key is to start investing and remain disciplined. Indexing is a proven strategy that builds wealth over decades. Choose your funds, keep costs low, and let compounding do the heavy lifting.
