9 Best Index Funds for Long-Term Investors | The Motley Fool

The best index funds can help you build wealth by diversifying your portfolio while minimizing your fees. Investing in an index fund is less bad than investing in person stocks or bonds because index funds much hold hundreds of securities. exponent funds spread your investment risk across the stocks or bonds of many different individual companies .

How to pick an index fund

index funds hold baskets of investments to track a market index, such as the S&P 500 ( SNPINDEX : ^GSPC ). index funds are passively managed, meaning that the fund ‘s holdings are entirely determined by the index the fund tracks. The goal of an index fund is to match the performance of the fundamental exponent. They ‘re a good choice for long-run investors because you can lock in the returns of the overall store market or a specific segment of it .
The returns generated by an index fund broadly never exceed the performance of the index itself, if only because of index store expense ratios, which are the annual management fees collected by index store managers. Since index funds are passively managed, they are actually more likely over the long term to outperform funds with active managers .
An exponent fund can either be a reciprocal fund or an exchange-traded fund ( ETF ). Investors buy shares of common funds directly from asset management companies ; shares in ETFs are purchased and sold through stock exchanges.

Consider these key factors when picking an index fund :

  • Target market segment: Some index funds confer portfolio exposure to the entire U.S. stock market by tracking indexes such as the S&P 500, while other index funds track narrower indexes that focus on specific stock market sectors, industries, countries, or company sizes.
  • Your investment goals: Some stock market indexes, and, by extension, some index funds, track companies with specific characteristics such as high growth potential, a history of reliable dividend payments, or adherence to environmental, social, and governance (ESG) standards.
  • Expense ratio: An index fund’s expense ratio, which is the percentage of your investment that is annually paid as a management fee to the index fund’s manager, can vary significantly. A good expense ratio for a total stock market index fund is about 0.1% or less, and a small number of index funds have expense ratios of 0%. More specialized index funds tend to have higher expense ratios.
  • Minimum required investment: Some mutual funds have minimum investments of $1,000 or more. ETF index funds are accessible for the cost of a single share. Many brokers also offer ETFs as fractional shares, allowing you to invest for as little as $1.
  • Benchmark tracking performance: How closely an index fund tracks its underlying index can vary. The performances of the best index funds are very closely correlated with their benchmark indexes.

A hand drawing an upward-trending line with a red pen.

9 best index funds for 2022

Our picks for the nine best index funds for 2022 can help you accomplish a diverseness of investment goals. Plus, they have low expense ratios and low minimal investments .
Because 2022 has been a street fighter year for stocks, many of the funds listed below are down then far this class. But remember : index induct is about building wealth for the long haul. Do n’t let short-run volatility deter you from getting started .

1. Fidelity ZERO Large Cap Index Fund

Investing in S & P 500 index funds is possibly the closest thing to a guarantee manner to build wealth over time. The Fidelity ZERO Large Cap Index Fund ( NASDAQMUTFUND : FNILX ), which tracks an index of fair over 500 U.S. large-capitalization stocks, performs very similarly to an S & P 500 index fund. But because this fund is not an official S & P 500 index fund, it avoids paying expensive license fees to S&P Global ( NYSE : SPGI ), the index ‘s parent company. The fund tracks the Fidelity U.S. Large Cap Index as its benchmark .
The “ ZERO ” in the fund ‘s mention denotes that the expense ratio for this fund is 0 %. There ‘s besides no minimum investment sum, making the investment company a good option for beginning investors .
The fund moves in near-lockstep with the S & P 500. sum returns since its origin in September 2018 were 43.4 % as of mid-may 2022, just shy of the S & P 500 ‘s return of 44.2 % during the same period. In early 2022, the fund was down about 18 %, slightly more than the S & P 500 .

2. Schwab S&P 500 Index Fund

If you want to invest in an official S & P 500 index fund, then the Schwab S&P 500 Index Fund ( NASDAQMUTFUND : SWPPX ) is about the cheapest you ‘ll find. Its expense proportion is 0.02 %, mean you ‘d annually pay barely $ 0.20 for every $ 1,000 you invest. Because this investment fee is so low, your returns are about identical to the performance of the S & P 500 .
In 2021, the fund ‘s year-to-date sum returns of 31.43 % were about identical to the S & P 500 ‘s. By May 2022, both the store and the S & P 500 were down about 16 % for the class to date. There ‘s no minimum investment sum, so you can start investing with a little as $ 1 .

3. Vanguard Growth ETF

If you want to assume more investment risk in the pursuit of higher rewards, then the Vanguard Growth ETF ( NYSEMKT : VUG ) is a solid choice. The investment company tracks the CRSP US Large Cap Growth Index, which performs similarly to the S&P 500 Growth Index. This ETF invests in 266 U.S. large-capitalization emergence stocks .
technical school stocks are heavily represented, accounting for 49.7 % of the fund ‘s holdings, followed by consumer discretionary stocks ( 24 % ) and industrial stocks ( 10.3 % ). Energy stocks and utility stocks combined make up only 0.9 % of the fund ‘s prize .
This ETF has a little 0.04 % expense ratio. As of Dec. 31, 2021, the fund ‘s median annual return over five years ( before taxes ) was 24.78 %, easily beating the S & P 500 over that menstruation .
however, as technical school stocks continue to nosedive in 2022, the fund was down through May by around 28 % — significantly more than the S & P 500. however, investing in Vanguard ‘s Growth ETF could present an opportunity to buy the dip .

4. SPDR S&P Dividend ETF

A top index fund for income-oriented investors is the SPDR S&P Dividend ETF  ( NYSEMKT : SDY ). The dividend-weighted fund ‘s benchmark is the S&P High Yield Dividend Aristocrats Index, which tracks 119 of the stocks in the S&P Composite 1500 Index with the highest dividend yields. All of the companies owned by this ETF have increased their dividend payments per annum for at least 25 back-to-back years .
Dividend-paying stocks tend to be less explosive compared to the overall neckcloth grocery store. So it is n’t surprising that the SPDR S & P 500 Dividend ETF was down equitable over 3 % for the year through May, significantly less than the S & P 500.

The fund ‘s 12-month dividend return as of May 2022, was 2.71 % — well above the S & P 500 ‘s 1.46 %. The expense proportion is besides reasonably higher at 0.35 % .
The store ‘s top five holdings are manufacturing pot Leggett & Platt Inc. ( NYSE : stage ), IBM ( NYSE : IBM ), global promotion party Amcor PLC ( NYSE : AMCR ), ExxonMobil ( NYSE : XOM ), and National Retail Properties ( NYSE : NNN ), a real estate investment reliance ( REIT ). several REITs, which typically pay high dividends because they ‘re required to disburse at least 90 % of their taxable incomes, are included in the fund. The ETF is underweighted in technical school stocks, which do n’t tend to pay generous dividends .

5. Vanguard Real Estate ETF

If you want to invest across the actual estate of the realm market, the Vanguard Real Estate ETF ( NYSEMKT : VNQ ) is a solid, low-cost option. With an expense ratio of 0.12 %, it ‘s besides by far the largest real estate index fund, with about $ 86.3 % billion of assets under management .
Its benchmark exponent is the MSCI US Investable Market Real Estate 25/50 Index, which broadly tracks the U.S. real estate market. Although the index includes a few veridical estate management and development companies, it consists by and large of equity REITs, which own and manoeuver income-producing veridical estate .
Because it invests primarily in REITs, the ETF is besides attractive to dividend investors. The fund ‘s 12-month dividend succumb as of May 2022 was 2.45 %. The Vanguard ETF may besides appeal to investors concerned about inflation since actual estate is traditionally seen as an inflation hedge .

6. Vanguard Russell 2000 ETF

The Vanguard Russell 2000 ETF ( NASDAQ : VTWO ), which tracks the Russell 2000 ( RUSSELLINDICES : ^RUT ), is a estimable place to start for investors who want to take advantage of the likely top of investing in small-capitalization companies. The fund invests in 2,032 small- and mid-cap companies that have a median marketplace capitalization of $ 2.9 billion .
As of March 31, 2022, the exponent store ‘s largest concentration was in healthcare ( 16.1 % ), financials ( 15.9 % ), and industrials ( 15.4 % ). The fund ‘s expense proportion, at 0.1 %, is relatively humble, specially for one that offers photograph to the companies with the most growth likely .
Like its benchmark index, the Vanguard Russell 2000 ETF underperformed the S & P 500 during the first gear five months of 2022, declining about 20 % .

7. VanEck Semiconductor ETF

thematic investors who want to capitalize on a long-run layman vogue should check out the VanEck Semiconductor ETF ( NASDAQ : SMH ). The index fund tracks the MVIS U.S. Listed Semiconductor 25 Index, which tracks 25 domestic and international companies that produce semiconductors and related equipment. It has $ 7.8 billion in total net assets and an expense ratio of 0.35 % .
It has been a rocky 2022 for semiconductor device stocks amid ongoing check shortages, a broader technical school sell-off, and a deficit of skilled workers. But plenty of trends point to a bright future for the industry. These include the shift to electric vehicles and 5G mobile engineering and a retain surge in cloud-based solutions .
With provide chain woes expected to persist for some time, the VanEck Semiconductor ETF is only appropriate for investors with a long time horizon and a relatively senior high school risk tolerance. As of mid-may 2022, the fund was down about 25 %. But, with the semiconductor market projected to about double by 2030, buying this index fund in a bear market could be a smart dally for long-run investors .

8. Schwab Emerging Markets Equity ETF

If you ‘re seeking portfolio exposure to high-growth emerging markets but do n’t want your risk concentrated in a single economy or area, the Schwab Emerging Markets Equity ETF ( NYSEMKT : SCHE ) may be a good match. It tracks the FTSE Emerging Index, a collection of large- and mid-cap stocks in more than 20 developing countries. The fund has 1,843 holdings, with the largest concentrations in China, Taiwan, India, Brazil, and South Africa. Its expense proportion is only 0.11 % .
The stocks of companies in emerging markets have historically underperformed compared to U.S. stocks. between 2012 and 2021, the Schwab emerging market funds, on a combine basis, had entire returns of about 67 %. The S & P 500, meanwhile, racked up total returns of more than 350 %. see that about 85 % of the universe ‘s population lives in developing countries, investors with a long-run concentrate who are comfortable with excitability may want to badly consider investing in this fund .

9. Fidelity U.S. Sustainability Index Fund

Investors who are concern in sustainable invest should check out the Fidelity U.S. Sustainability Index Fund ( NASDAQMUTFUND : FITL.X ). The fund ‘s benchmark is the MSCI USA ESG Leaders Index, which tracks the performances of large- and mid-cap domestic stocks with above-average ESG ratings. The index fund has a low expense proportion of 0.11 % and no minimum investment sum .
The fund ‘s largest concentrations as of March 31, 2022, are in the engineering ( 28.6 % ), healthcare ( 13.5 % ), and consumer discretionary ( 12.8 % ) sectors. This sustainability ETF ‘s top holdings are Microsoft ( NASDAQ : MSFT ), Tesla ( NASDAQ : TSLA ), Google parent Alphabet ( NASDAQ : GOOG ) ( NASDAQ : GOOGL ), Nvidia ( NASDAQ : NVDA ), and Johnson & Johnson ( NYSE : JNJ ) .
Although ESG funds are appealing to those who want to invest with a conscience, a potent ESG focus is besides good for returns. Companies that pose little ESG-related hazard frequently rescue superscript fiscal performance, making ESG funds such as the Fidelity U.S. Sustainability Index Fund a good choice for long-run investors.

More on index funds:

source : https://www.peterswar.net
Category : Finance

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