18 Dirt-Cheap Index Funds to Buy
Expense ratios for index funds have declined in recent years, making them an attractive low-cost investing strategy to consider.
Cheap index funds are attractive to investors for a host of reasons. To begin with, they offer a simple way to buy into a diversified investment strategy instead of managing a complex portfolio with multiple positions on your own.
Additionally, even in today's zero commission world, you can still rack up fees or tax penalties through very active trading in an expansive portfolio.
What's more, many of today's providers offer investors much cheaper index fund options, compared to just a few years ago.
According to ETF industry data, investing behemoth Vanguard averaged an asset-weighted expense ratio of 0.09% in 2020. Among other leading providers, BlackRock’s iShares family of funds was more than three times that at 0.19% – but still, 0.19% in annual fees only adds up to $190 a year on a $100,000 nest egg. That's hardly breaking the bank.
The following 18 index funds all offer cost-effective ways to diversify your portfolio and reduce complexity. And believe it or not, some of them are actually offered with zero fees to investors whatsoever.
Data is as of April 22.
S&P 500 Index Funds
- SPDR S&P 500 ETF Trust (SPY): 0.095% in annual fees, or $95 per year for each $10,000 invested; $357.7 billion in assets under management (AUM)
- iShares Core S&P 500 ETF (IVV): 0.03% in annual fees, $273.8 billion in AUM
- Vanguard S&P 500 ETF (VOO): 0.03% in annual fees, $217.7 billion in AUM
- SPDR Portfolio S&P 500 ETF (SPLG): 0.03% in annual fees, $9.7 billion in AUM
The S&P 500 Index is the starting point for many index fund investors looking for exposure to the U.S stock market. This benchmark is tied to a list of the 500 largest domestic stocks by market capitalization, with trillion-dollar tech giants Apple (AAPL), Microsoft (MSFT) and Amazon.com (AMZN) at the top of the list.
Perhaps unsurprisingly, there are a host of popular investment vehicles to gain exposure to this benchmark via cheap index funds. The most popular by far is the SPDR S&P 500 ETF Trust (SPY, $412.27), but as this liquid ETF has become the mainstay of institutional firms, it may not be ideal for small-time investors simply looking for a cheap vehicle to hold for the long-term.
Three other options – iShares Core S&P 500 ETF (IVV, $413.97), Vanguard S&P 500 ETF (VOO, $378.99) and SPDR Portfolio S&P 500 ETF (SPLG, $48.46) – all offer lower cost structures at just 0.03% in annual expenses, and each commands many billions of dollars in assets to make them stable bets that are almost sure to be around many years from now.
Learn more about SPY on the SPDR provider site.
Learn more about IVV on the iShares provider site.
Schwab U.S. Large-Cap ETF
- Assets under management: $29.2 billion
- Expenses: 0.03%
Don't confuse the Dow Jones U.S. Large-Cap Total Stock Market Index with the oft-quoted Dow Jones Industrial Average that has just 30 total components. While elegantly simple in some ways, the flagship Dow Jones index is sometimes criticized for not being as truly representative of the stock market as a broader fund like the S&P 500.
That's where this alternative benchmark and the related Schwab U.S. Large-Cap ETF (SCHX, $100.15) comes in. With about 750 total holdings, the Dow Jones U.S. Large-Cap Total Stock Market Index is in some ways even more inclusive than the S&P 500, adding a few more mid-sized U.S. stocks to the list.
For years, investment manager Charles Schwab has been trying to out-do its competitors with deep cuts to fees. In 2015, it reduced the already low 0.04% expense ratio on this fund to 0.03% – forcing others to follow suit. Similarly, in 2019 it kicked off a war in commission-free trading by offering zero-cost trades as a way to win new clients.
It appears the past few years have paid off for this cheap index fund, as it now boasts nearly $30 billion in assets and deep liquidity investors can depend on.
BNY Mellon U.S. Large Cap Core Equity ETF
- Assets under management: $283.9 million
- Expenses: N/A
While you may not have necessarily heard of the Morningstar Large Cap Index, you have undoubtedly heard of its components since they represent the top 200 U.S. stocks by market capitalization. In other words, it's the top part of the S&P 500.
However, as you can probably expect, that shorter list of components has slightly more behind the top S&P 500 stocks as a result. Specifically, in the BNY Mellon U.S. Large Cap Core Equity ETF (BKLC, $77.83), the top three holdings at present are trillion-dollar tech stocks Apple, Microsoft and Amazon.com – which tally roughly 19% of the entire index vs. about 15% weighting for these three stocks in the S&P 500.
One big appeal for those who don't mind this slight differentiation is BKLC's cost basis, which is zero. That's right, BKLC has no management fees baked in – making it the cheapest index fund on our list.
The hope from BNY Mellon is that you'll build a relationship with them and buy into other products. Whatever the motivation, it's worth considering this low-cost index fund on its rock-bottom pricing alone.
iShares Morningstar U.S. Equity ETF
- Assets under management: $884.9 million
- Expenses: 0.03%
Different from the Morningstar Large Cap Index that tracks only 200 of the biggest stocks, the Morningstar U.S. Equity Index follows 700 names that include mega caps, as well as less-dominant large caps and even some of the bigger mid caps on Wall Street. In other words, instead of being a more focused version of the S&P 500, this index casts a slightly wider net.
As you might guess, that means greater diversification. However, it's also worth noting that even with 700 components, the index is very reliant on mega-cap tech stocks, considering it's weighted by market capitalization.
In addition to the usual suspects of Apple, Microsoft and Amazon, a decent footprint for Google parent Alphabet (GOOGL) and social media giant Facebook (FB) puts about 18% of total assets in these top five positions. Still, that's not as top-heavy as the previous funds. And with a very cheap index fund, the iShares Morningstar U.S. Equity ETF (ILCB, $58.44), tracking this Morningstar index, the added diversification won't cost you much.
JPMorgan BetaBuilders U.S. Equity ETF
- Assets under management: $484.7 million
- Expenses: 0.02%
Morningstar U.S. Target Market Exposure Index is another lesser-followed index from Morningstar. This batch of stocks is yet another turn on the traditional indexes in that it targets the top 85% of the domestic equity market.
Some might presume this means the bench is deeper than prior funds, but it's important to note this is the top 85% of market value – not 85% of companies. And, as you've no doubt noticed, the reality is that a small number of U.S. corporations represent the lion's share of the market value, so a few big tech titans go a long way here.
At present, the lineup of stocks in this index is about 600 positions. Technology makes up about 28% of the portfolio, followed by healthcare and consumer discretionary stocks at 13% and 12%, respectively.
This is very similar to other large-cap indexes, but the biggest ETF benchmarked to this index is a JPMorgan fund that is slightly cheaper than the field of billion-dollar S&P funds. If you really want to pinch pennies, then that may make JPMorgan BetaBuilders U.S. Equity ETF (BBUS, $75.75) a cheap index fund worth a look.
Vanguard Growth ETF
- Assets under management: $73.6 billion
- Expenses: 0.04%
You may not be familiar with index provider CRSP, but the acronym stands for the Center for Research in Security Prices, and it's an affiliate of the University of Chicago Booth School of Business. In other words, CRSP has academic roots, and provides nearly 500 institutions in 35 countries with data for research, as well as to support classroom instruction.
These populist roots targeting students instead of hedge funds are part of the reason that fees on related index funds like the Vanguard Growth ETF (VUG, $272.02) are as low as they are.
The CRSP U.S. Large Cap Growth Index is built using factors including future long-term and short-term growth in earnings per share, historical growth in earnings and sales and other familiar metrics. Right now, about 280 stocks make up this fund, with the tech sector representing a whopping 46%. For investors who don't want a complicated approach to growth investing, this cheap index fund covers your bases with all the big names.
Vanguard Value ETF
- Assets under management: $75.1 billion
- Expenses: 0.04%
The flip side of growth is, of course, value. And while the makeup of the CRSP U.S. Large Cap Value Index and the related Vanguard Value ETF (VTV, $134.27) is decidedly different in its picks thanks to screening for value metrics, it is quite similar with an ultra-low fee structure and more than $75 billion in assets under management to provide a mature and liquid ETF option.
In contrast to the Vanguard Growth ETF, financial services and healthcare are the top two sectors here at 22% and 19% of the portfolio, respectively.
The biggest single positions among the 330 or so stocks are Warren Buffett's Berkshire Hathaway (BRK.B), megabank JPMorgan Chase (JPM) and healthcare giant Johnson & Johnson (JNJ).
There are other look-alike value ETFs out there, but this large and cheap index fund option should probably do the trick for most investors looking to lean toward less volatile stocks.
Vanguard Mid-Cap Index ETF
- Assets under management: $47.3 billion
- Expenses: 0.04%
For some investors, it's important to look beyond the usual suspects in large-cap index funds to tap into the growth potential of slightly smaller U.S. corporations. That's what the CRSP U.S. Mid Cap Index and its corresponding Vanguard Mid-Cap ETF (VO, $229.34) attempt to do, by focusing on the top 70% to 85% of investable market capitalization.
At present, that adds up to about 360 positions including burrito icon Chipotle Mexican Grill (CMG), cloud computing REIT Digital Realty Trust (DLR) and animal health products provider IDEXX Laboratories (IDXX). Not only are these under-the-radar stocks you may not consider investing in otherwise, but if you're looking to build out a more diverse portfolio you won't overlap with many of the standard large-cap index funds that are out there.
That makes it an easy and cheap way to diversify into mid-sized stocks with this cheap Vanguard index fund.
Schwab U.S. Small-Cap ETF
- Assets under management: $15.6 billion
- Expenses: 0.04%
If you really want to get smaller with your index-fund investments, then consider a benchmark like the Dow Jones U.S. Small-Cap Total Stock Market Index and the related Schwab U.S. Small-Cap ETF (SCHA, $100.90).
While this index includes a few mid-sized stocks like casino operator Caesars Entertainment (CZR) and fast-growing cancer drug researcher NovoCure (NVCR), you won't find many large or recognizable names. Furthermore, you will have an incredibly deep bench of stocks with about 1,850 total positions and no single stock worth more than about 0.5% of the entire portfolio.
Just as Schwab has put downward pressure on pricing in many areas of the retail investing marketplace, this tactical small-cap index fund is a great example of how more sophisticated tools don't have to cost an arm and a leg in 2021. Small-cap stocks can be more volatile, as they are less mature and aren't as well capitalized as mega-cap tech stocks, but these kinds of companies have the potential to grow significantly and join the elite names on Wall Street if things go their way. As such, SCHA is a cheap index fund that may be worth a look.
SPDR Portfolio S&P 1500 Composite Stock Market ETF
- Assets under management: $4.9 billion
- Expenses: 0.03%
While some investors may be interested in specific swaths of the market like small-cap stocks or value-flavored investments, other investors would rather be as broad as possible in their approach. That's where the S&P Composite 1500 Index and the related SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM, $51.15) comes in.
If you can't guess, the S&P 1500 includes 1,000 more stocks than the flagship S&P large-cap benchmark, reaching deep into the list of publicly traded U.S. companies.
The cheap index fund is still top-heavy as it is weighted by market value, with familiar tech giants representing the top positions. But it’s a bit more diversified by virtue of so many holdings. And best of all, you can access this longer list of U.S. stocks with no additional cost from the four S&P 500 Index funds mentioned at the beginning of this article.
Schwab U.S. Broad Market ETF
- Assets under management: $20.4 billion
- Expenses: 0.03%
While the S&P Composite 1500 Index admittedly looks beyond just the largest stocks in the U.S. stock market, this next fund digs even deeper.
The Schwab U.S. Broad Market ETF (SCHB, $100.44) is designed to provide a comprehensive measure of large-cap, mid-cap and small-cap U.S. equities. It achieves this by taking the Dow Jones U.S. Large-Cap Total Stock Market Index stocks mentioned previously and adding medium and small names to round out a total portfolio with about 2,500 components.
The total list of names in the Dow Jones U.S. Broad Stock Market Index may be longer, but, as always, you're still going to be reliant on a lot of familiar ones at the top of the portfolio.
As of this writing, tech titans Apple, Microsoft and Amazon.com collectively represent about 12% of the portfolio, even though there are many other stocks on the list. Still, it's competitive with the other cheap index funds out there, so it won't cost you any extra to pursue this broad-market ETF.
Vanguard Total Stock Market ETF
- Assets under management: $236.2 billion
- Expenses: 0.03%
Obviously an index fund with 1,500 stocks or 2,500 stocks can give you a bigger slice of the U.S equity market than an ETF with a fraction of the components. But the CRSP U.S. Total Market Index and the corresponding Vanguard Total Stock Market ETF (VTI, $214.61) are not just slices, they're the whole pie. Right now there are more than 3,750 stocks in the benchmark index that represent – you guessed it – the totality of all publicly traded stocks available to investors.
Once again, it's important for investors to understand that cash is not equally distributed among those positions and that the larger companies like Apple and Amazon.com are at the front of the pack.
However, consider that the top 10 holdings of this ETF represent only about 22% of assets compared with 27% of assets in the top 10 of the smaller S&P 500 Index. So, it's undeniable that you are certainly spreading your cash around more than in other cheap index funds with fewer components.
iShares Core U.S. Aggregate Bond ETF
- Assets under management: $86.7 billion
- Expenses: 0.04%
While the Bloomberg Barclays US Aggregate Bond Index itself is full of a bunch of jargon and brands, the iShares Core U.S. Aggregate Bond ETF (AGG, $114.77) tied to it is pretty straightforward. It reflects a wide spectrum of the entire investment-grade bond market that includes government bonds, corporate bonds, mortgage-backed securities and international bonds so long as they are dollar-denominated. At present, the AGG is one of the largest bond funds out there thanks to this broad approach to the asset class.
If you want more details, the index is comprised of a whopping 9,500 individual bonds, with almost half of those backed by government entities in some form. In part because of this fact, about 70% of the entire portfolio is in the lowest-risk category according to Wall Street, with a rating of AAA.
These are mostly long-term bets, with no positions made in bonds that mature in under a year and about one-third not coming due until at least 20 years out, according to the current schedule. In short: these are low-risk, long-term bonds. While that means you don't get a big premium, with the current 12-month yield on the fund at about 2.1%, you do get a whole lot more stability here than you would in the stock market alone – making this a cheap index fund to certainly consider.
Vanguard Total Bond Market ETF
- Assets under management: $73.3 billion
- Expenses: 0.03%
You'll note the Bloomberg Barclays U.S. Aggregate Float Adjusted Index starts with all the same words as the prior fund until you get to the phrase "float adjusted."
So what the heck does this mean?
Well, in the stock market, the term "float" is used to refer to shares of a company that are actually available for trade on a daily basis. This can sometimes be significantly lower than the total number of shares out there, as insiders and big institutions aren't very active participants. Put another way, Elon Musk may own a ton of Tesla (TSLA) stock, but let's not pretend you could buy out his shares tomorrow even if you had the money.
Hopefully, this alternate benchmark and its related Vanguard Total Bond Market ETF (BND, $85.44) make sense to you now, as they represent the total bond market, but are then adjusted for the true "float" of that market.
As many investors know, the U.S. Federal Reserve has engaged in bond buying dating back to the financial crisis as a form of financial stimulus, and just like Elon Musk's TSLA shares, these bonds aren't really for sale.
Back in 2009, Vanguard claimed this was to "more accurately represent an investor’s opportunities." But the truth is, they are very similar and if you overlay the prior cheap index fund vs. this float-adjusted one you don't see a great deal of variance. You do, however, capture a bit more return on investment at present with a 12-month yield of 2.2%.
iShares 0-3 Month Treasury Bond ETF
- Assets under management: $755.2 million
- Expenses: 0.03%
Many investors focus on bonds as a way to provide a reliable stream of income and to reduce the overall risk profile of their portfolio. The ICE 0-3 Month US Treasury Securities Index and related iShares 0-3 Month Treasury Bond ETF (SGOV, $100.03) are prime examples of that by focusing only on the lowest-risk government debt.
Admittedly, it doesn't offer much in the way of yield, paying investors about 0.2% at present to lag behind even the CDs at your local bank. The flip side is that this cheap index fund is nearly as good as cash and as rock-solid an investment as you can find.
After all, the lender here is the U.S. government and the duration is incredibly short at three months or less. In other words, if the Treasury sees a surprise bankruptcy in the next 90 days… well, chances are every single asset on the planet will be in deep trouble, too!
