Index funds remain one of the simplest, lowest‑cost, and most effective ways for beginners to build long-term wealth. With low expense ratios (often 0.015%–0.04%), broad diversification, and historically strong performance, these funds are consistently recommended by financial experts, including research from Bankrate and Morningstar.
Below is a comprehensive look at the best index funds for beginners in 2025—including S&P 500, total market, and international leaders—plus guidance on portfolio construction and why these funds outperform active management over time.
Why Index Funds Are Ideal for Beginners
Index funds track an underlying benchmark, such as the S&P 500 or total stock market, using a passive investment approach. This leads to:
Lower fees: Many top funds cost just 0.015%–0.04% annually.
Broad diversification: A single fund can hold hundreds or even thousands of stocks.
Strong long-term returns: S&P 500 returns average ~10% annually over decades.
Tax efficiency: ETFs, in particular, often avoid capital gains distributions.
Outperformance vs. active funds: Most active managers fail to beat benchmarks long term, as confirmed by research from Morningstar.
For beginners, this means a simple, low-stress way to grow wealth without guessing which stocks will win.
Best S&P 500 Index Funds (Large-Cap U.S. Stocks)
These funds track the S&P 500—500 of the largest and most influential U.S. companies. They serve as foundational building blocks in most beginner portfolios.
Vanguard S&P 500 ETF (VOO)
Expense ratio: 0.03%
Structure: ETF
Performance: Up 0.55% today; strong 5‑year returns around 17%
Minimum investment: $0
Why it’s great: Low fees, high liquidity, long-term consistency.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
Expense ratio: 0.04%
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Structure: Mutual fund
Minimum: $3,000
Why it’s great: Simple, low-cost S&P 500 exposure for mutual fund investors.
Fidelity 500 Index Fund (FXAIX)
Expense ratio: 0.015%
Minimum: $0
Why it’s great: One of the lowest-cost S&P 500 options on the market; widely available in Fidelity 401(k)s.
These S&P 500 funds are consistently recommended by Bankrate and Morningstar due to cost efficiency and tracking accuracy.
Best Total Stock Market Index Funds (Entire U.S. Market)
Total market funds cover large‑, mid‑, and small-cap stocks, offering broader diversification than the S&P 500.
Vanguard Total Stock Market ETF (VTI)
Expense ratio: 0.03%
Performance: Up 0.56% today; ~16–17% 5‑year annualized return
Minimum: $0
Why it’s great: Covers the entire U.S. market in one ETF.
Vanguard Total Stock Market Index Fund (VTSAX)
Expense ratio: 0.04%
Minimum: $3,000
Why it’s great: Longtime favorite among long-term Vanguard investors.
Fidelity Total Market Index Fund (FSKAX)
Expense ratio: 0.015%
Minimum: $0
Why it’s great: Lowest-cost total market mutual fund; ideal for Fidelity users.
Total market funds like VTI and FSKAX are highlighted by Morningstar as core holdings for long-term portfolios due to their diversification and low fees.
Best International Index Funds (Global Diversification)
International exposure reduces reliance on U.S. stocks and helps diversify economic and currency risks.
Vanguard Total International Stock ETF (VXUS)
Expense ratio: 0.07%
Performance: Up 0.46% today
Holdings: 8,000+ stocks across developed and emerging markets
Why it’s great: Extremely diversified global exposure; complements VTI or VOO.
VXUS receives strong ratings from Morningstar and is frequently recommended by U.S. News and Bankrate as a core global diversification ETF.
*Approximate, based on market index trends and historical ETF performance.
Pros and Cons of Index Funds
Pros
Extremely low fees
Broad diversification
Easy to understand
Top long-term performance vs. active funds
Tax-efficient (especially ETFs)
Suitable for nearly all investors
Cons
Can’t “beat” the market—only match it
Market downturns still affect index funds
International funds can lag U.S. markets
How Beginners Should Build Their First Portfolio
Two simple, time‑tested approaches:
1. The 3‑Fund Portfolio
A favorite among Bogleheads and financial planners:
U.S. Total Market (VTI or FSKAX)
International (VXUS)
U.S. Bonds (e.g., BND or FXNAX)
This provides global equity coverage and stability from fixed income.
2. 80/20 Beginner Portfolio
Recommended for long-term investors (20s–40s):
80% stocks
60% U.S. (VOO or VTI)
20% international (VXUS)
20% bonds
BND, FXNAX, or a target-date fund
This mix balances growth with manageable volatility.
Why Index Funds Outperform Active Funds Long-Term
Research from Morningstar and the SPIVA scorecard shows:
Most active managers underperform their benchmarks over 10–20 years.
High fees significantly reduce returns.
Stock picking is inconsistent and hard to repeat.
Index funds allow investors to capture the market’s full long-term growth.
In short: simplicity wins.
Final Thoughts
For beginners in 2025, low-cost index funds from Vanguard, Fidelity, Schwab, and iShares remain the strongest foundation for long-term investing. Whether you choose an S&P 500 fund like VOO or FXAIX, a total market fund like VTI or FSKAX, or global exposure through VXUS, these funds offer diversification, low fees, and historically reliable performance.
They are the easiest way to start investing—and one of the most effective ways to build wealth.