Updated: 09.19.2026
The Investment Almost Everyone Ends Up Recommending, and Why
If you’ve spent any time reading about investing, you’ve run into index funds. They come up constantly, and for good reason. For most people, most of the time, a simple index fund is the best investment they can make.
Short version: an index fund tracks a market index instead of trying to beat it, charges almost nothing to run, and has beaten the vast majority of professionally managed funds over any long stretch you look at. Pick a broad fund, VOO, VTI, or their equivalents, automate a monthly contribution, and leave it alone. That’s genuinely most of what matters here.
What an Index Fund Actually Is
An index fund tracks a specific market index rather than trying to beat it. Instead of someone picking winning stocks, you own a tiny piece of every stock in the market the fund follows.
The S&P 500 is the most well-known index, tracking the 500 largest publicly traded companies in the US. Buy an S&P 500 index fund and you own a small slice of Apple, Microsoft, Amazon, Alphabet, and 496 other companies in a single purchase. No manager is making active bets on which of those companies wins, the fund just mirrors the index automatically. That simplicity is the entire point, and it’s also why the fees are so low, there’s no team of analysts to pay.
Why Index Funds Beat Most Active Funds
This is the part that surprises most people, and the current data is even more lopsided than it used to be. S&P’s own SPIVA scorecard, the industry-standard measure of this, found that 89.93%, essentially 9 out of 10, of large-cap active funds underperformed the S&P 500 over the 15 years through the end of 2025. Even in a single recent year, 2025 alone, 79% of active large-cap funds failed to beat the index, the fourth-worst showing in the report’s 25-year history. The “experts” picking stocks lose to simply owning the index almost every time, and that’s been getting worse, not better.
The reason is mostly fees. An actively managed fund typically charges 0.5% to 1.5% a year to pay analysts, managers, and research teams. An index fund charges almost nothing, the Schwab S&P 500 Index Fund runs an expense ratio of 0.02%, meaning you pay $0.20 a year per $1,000 invested.
That gap compounds harder than it looks. Take someone contributing $200 a month for 30 years, comparing a 0.03% expense ratio against a 1% one, and assuming a 7% average annual return, reasonable, not optimistic. The fee difference alone costs roughly $42,000 by the end of that 30 years. That’s not $42,000 handed over in fees directly, it’s the compounding those fee dollars would have generated if they’d stayed invested instead of leaving the account every single year. A dollar taken in fees in year one doesn’t just cost you a dollar, it costs you 29 more years of that dollar growing.
The Most Popular Index Funds for Beginners
A handful of funds cover almost everyone’s needs here, and the differences between them are small enough that picking any one of them beats waiting to decide.
VOO (Vanguard) and IVV (iShares) both track the S&P 500 at a 0.03% expense ratio. VTI (Vanguard) tracks the total US market, thousands of companies instead of just the 500 largest, also at 0.03%. SWPPX (Schwab) tracks the S&P 500 at 0.02%. FZROX (Fidelity) tracks the total US market at a 0.00% expense ratio and no minimum investment, genuinely free to hold, making it one of the strongest options for a beginner specifically at Fidelity. Fidelity’s own FXAIX, tracking the S&P 500 at 0.015%, is worth knowing about too if you’re a Fidelity user weighing your options, since it’s not always mentioned alongside the more commonly cited names.
| Fund | Index Tracked | Expense Ratio |
|---|---|---|
| VOO (Vanguard) | S&P 500 | 0.03% |
| VTI (Vanguard) | Total US Market | 0.03% |
| SWPPX (Schwab) | S&P 500 | 0.02% |
| FZROX (Fidelity) | Total US Market | 0.00% |
| IVV (iShares) | S&P 500 | 0.03% |
FZROX has a 0% expense ratio and no minimum investment, making it a strong choice for beginning
For most beginners, the choice between these funds matters far less than the decision to actually start. They all track similar indexes at near-identical, genuinely negligible cost.
Index Funds vs. ETFs
The list above mixes ETFs (VOO, VTI, IVV) with traditional mutual funds (FZROX, SWPPX, FXAIX), and the line between the two is thinner than it sounds. An ETF trades on the stock exchange throughout the day like a stock, while a traditional index fund prices once daily after the market closes. Both track the same indexes at similar costs, and for a long-term, buy-and-hold investor, that difference rarely matters. ETFs vs. Mutual Funds covers the fuller comparison if you want to go deeper on it.
How to Actually Buy One
You need a brokerage account. Fidelity, Schwab, and Vanguard are the three most commonly recommended for beginners, Fidelity for its 0% expense ratio ZERO funds, Schwab for SWPPX and no account minimums, Vanguard as the original index fund company with famously low fees across the board. How to Choose a Brokerage Account covers picking between them in more depth.
Start small if that’s what you’ve got. Many brokers let you invest with as little as $1 through fractional shares, and even $50 to $100 is a real first step, not a token gesture. Once the account is open, search for your chosen fund’s ticker, decide how much to invest, and place the order. The whole process takes about 15 minutes.
The Most Important Step Is Automating It
Set up automatic deposits, what’s usually called dollar-cost averaging. You add money on a schedule regardless of what the market is doing that week, which removes emotion from the decision and keeps you consistent. What Is Dollar-Cost Averaging covers the mechanics in more detail.
You only need to check your index fund investments once or twice a year. Checking daily adds stress for no benefit, and investors who react frequently to short-term market moves tend to earn worse long-term returns than those who just stay the course. Set a monthly contribution matched to your payday, then leave it alone.
The One Decision That Actually Matters
Broad market or S&P 500, that’s genuinely the only real decision most beginners need to make. VTI covers the entire US market, including small and mid-cap companies. VOO covers only the 500 largest. Both have delivered similar long-term returns, and the gap between them is far smaller than the gap between starting today and waiting six more months to decide. The 3-Fund Portfolio covers how a fund like this fits alongside everything else once you’re ready to think about the bigger picture.
Frequently Asked Questions
Yes, consistently and by a wide margin. S&P’s SPIVA scorecard found that 89.93% of large-cap active funds underperformed the S&P 500 over the 15 years through the end of 2025, and even in 2025 alone, 79% of active large-cap funds failed to beat the index. Fees are the main driver, active funds typically charge 0.5% to 1.5% a year, while index funds charge a small fraction of that.
More than it looks like on paper. Someone contributing $200 a month for 30 years, comparing a 0.03% expense ratio against a 1% one at a 7% average annual return, loses roughly $42,000 to that fee gap alone. The fee isn’t just the dollar amount taken each year, it’s that dollar’s lost decades of compounding.
VOO tracks the S&P 500, the 500 largest US companies. VTI tracks the total US stock market, several thousand companies including small and mid-cap names. Both charge a 0.03% expense ratio and have delivered similar long-term returns. Either is a reasonable core holding, the choice matters far less than actually picking one and starting.
Not inherently, they’re different structures more than different qualities. ETFs trade throughout the day like a stock, mutual funds price once daily after market close. For a long-term, buy-and-hold investor, that distinction rarely changes the outcome, and funds tracking the same index cost about the same either way.
Often as little as $1, thanks to fractional shares at most major brokers, and funds like FZROX have no minimum investment at all. $50 to $100 a month is a solid, meaningful starting point. The amount matters far less than starting and staying consistent.
Sources
SPIVA U.S. Scorecard, 15-year and 2025 active fund underperformance rates: https://www.spglobal.com/spdji/en/research-insights/spiva/
Current expense ratios for VOO, VTI, SWPPX, FZROX, FXAIX, IVV: https://www.financewonk.com/references/index-fund-comparison