8 Index Funds That Can Make You Rich
Index investing has become a default wealth-building tool.
When building a portfolio, a passive approach that features index funds could work in investors' favor. "Index funds are a low-cost and passive way to gain exposure to a variety of investment benchmarks like the S&P 500," says David Stryzewski, CEO of Sound Planning Group in Kirkland, Washington. "Investors usually like them because they are a hands-off way to gain diversification through a pooled investment versus buying individual stocks which take more time and skill." The critical part of the equation is selecting the right mix of funds. These are the best index funds to invest in to grow wealth for years to come.
Invesco S&P 500 Low Volatility ETF (ticker: SPLV)
SPLV tracks the S&P 500 Low Volatility Index and is a good choice for conservative investors who are seeking low volatility and great performance, says David Reyes, chief financial architect at San Diego-based Reyes Financial Architecture. "Low volatility as an asset class has the best risk-adjusted return," Reyes says. The exchange-traded fund has a total expense ratio of 0.25% and performance-wise, it's been fairly spot on with tracking its underlying index. The current five-year return sits at 11.57%, just shy of the 11.87% return charted by the S&P 500 Low Volatility Index.
SPDR Dow Jones Industrial Average ETF (DIA)
DIA tracks the Dow Jones Industrial Average, which is composed of 30 blue-chip stocks. At 0.17%, its expense ratio is on the lower side which could make it optimal for bargain-seeking index investors. Since its inception in January 1998, DIA has returned 8.24% to investors, although the five-year return notched higher at 12.13%. It's worth noting that the fund is weighted by the market value of its underlying stocks. Anthony Denier, CEO of online trading platform Webull Financial, points out that if a stock included in the DJIA has a bad earnings report, the fund may be more risk average to that company's bad news than the actual index it's meant to track.
ProShares S&P 500 Dividend Aristocrats (NOBL)
The dividend aristocrats have earned a reputation for delivering increasing dividend yields consistently year over year. NOBL may be one of the best index mutual funds for investors who want exposure to top-performing companies with less volatility. The fund has a moderately higher expense ratio of 0.35% and a 10.74% five-year return since inception in 2013. NOBL posted a negative annual return for 2018, but the fund is up 16.36% in 2019. It's a promising index option for forward-looking individuals interested in steady dividend growth.
Vanguard Dividend Appreciation ETF (VIG)
Vanguard index funds continue to be a popular option for passive investing, largely thanks to their strong performance and low costs. VIG offers both, with an expense ratio of 0.06% and a five-year return of 10.42%. The fund focuses on large-cap domestic stocks, tracking the Nasdaq US Dividend Achievers Select Index. Janet Brown, president and CEO of FundX Investment Group, says low-volatility ETFs such as VIG are a good bet when broad indexes approach all-time highs as they have lately. "Funds that have done well recently tend to do continue to do well in the coming months or even years," Brown says.
iShares Russell 3000 ETF (IWV)
IWV offers exposure to 3,000 domestic stocks in a single fund, potentially making it one of the best stock index funds for broad diversification and long-term growth. Tim Chubb, chief investment officer at Girard, says funds like IWV offer a low-cost core for building a portfolio since it focuses on approximately 90% of the investable U.S. equity market. "These funds have tremendous utility for investors of all sizes," Chubb says. Aside from that, IWV is affordable, with an expense ratio of 0.2%. In terms of performance, the fund's five-year return is 10.02%.
Vanguard LifeStrategy Growth Fund (VASGX)
VASGX takes an all-index approach, with a roughly 80/20 split between U.S. and foreign stocks and bonds. The fund's expense ratio is 0.14% and five-year returns are currently at 6.54%. Marc Pfeffer, a chief investment strategist at CLS Investments, says the chief advantages of VASGX are its low expense ratio, investment mix and fixed allocation strategy. "In one fell swoop, investors are getting exposure from the domestic and international stock and bond markets," Pfeffer says. That's an advantage over other index funds that focus solely on large-cap companies or domestic stocks.
Schwab Total Stock Market Index Fund (SWTSX)
SWTSX is a low-cost index fund with a domestic stock concentration. Holdings include industry leaders such as Microsoft Corp. (MSFT), Apple (AAPL) and Amazon.com (AMZN), with the largest fund allocation in the information technology sector. This fund has a net expense ratio of 0.03% and no minimum investment requirement, making it highly accessible for someone who's just starting their portfolio. Since inception, SWTXS has returned 6.63%, with a five-year return of 10.10%.
Schwab U.S. Broad Market ETF (SCHB)
While SWTSX seeks to match the performance of the entire stock market, SCHB focuses on large- to small-cap stocks by tracking the Dow Jones U.S. Broad Stock Market Index. Both follow a passive strategy and both have the same 0.03% expense ratio. A key difference is the SCHB has fewer total holdings but a higher turnover rate. Although this a relatively newer fund, with an inception date of November 2009, the fund has generated a healthy five-year return of 10.16%.
Consider these high-performing index funds.
-- Invesco S&P 500 Low Volatility ETF (SPLV)
-- SPDR Dow Jones Industrial Average ETF (DIA)
-- ProShares S&P 500 Dividend Aristocrats (NOBL)
-- Vanguard Dividend Appreciation ETF (VIG)
-- iShares Russell 3000 ETF (IWV)
-- Vanguard LifeStrategy Growth Fund (VASGX)
-- Schwab Total Stock Market Index Fund (SWTSX)
-- Schwab U.S. Broad Market ETF (SCHB)
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