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Top 10 Best Index Funds To Buy & Hold In 2022

Written by Paul Esajian
| Reviewed by Nick Hartegan

Index funds are among the safest and most affordable ways to invest in the stock market. Unlike the old days, where investors needed to individually pick and choose the businesses they wanted to invest in, a proposition that took a lot of time and could easily go wrong if investors misread the markets or failed to build enough diversity into their portfolios, index funds allow you to invest without having to pick and choose.

Instead of a more traditional investment into a single company, investing in an index fund is more like investing in the market as a whole.

Famously, Warren Buffet touted index funds and recommended investing in the S&P 500 as the best investment option for regular people as recently as May 2022. But, while index funds are generally a safe and practical way to invest, that doesn’t mean that all index funds are created equal. Just as importantly, the market in 2022 is in a very different place than it was before the pandemic struck in 2020 – which means that the best funds to invest in might have changed from previous years.

Let’s take a closer look at the top 10 best index funds for 2022, what makes them such good options, and what kind of funds they are.

10 Best Index Funds Of 2022

There are a lot of index funds out there, and knowing what kind of fund you’re investing in is essential if you want to make sure your portfolio is diverse and isn’t too tied to a specific part of the market.

Remember, there are plenty of index funds that specialize in certain types of businesses. In contrast, other indexes care more about the size of the business and how much impact they have on the economy as a whole rather than what they do or how they make their money.

Having a mix of different index funds can help you weather rough dips in the market while also minimizing the time you have to spend customizing your investment portfolio.

It’s also important to remember that index funds are generally more affordable than other investment options. However, looking for a low-cost fund is still important to ensure you aren’t losing your investment profits because of excessive fees on your account or transactions.

However, for all the advantages of an index fund, they generally work as a way to take the temperature of specific markets.


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low cost index funds

1. Fidelity ZERO Large Cap Index (FNILX)

The Fidelity ZERO Large Cap Index fund is one of the best and most affordable funds you can invest in anywhere. The ZERO in the name comes from the fact that it’s a 0-expense fund. For every $10,000 invested per year, there is $0 in expenses.

Primarily designed for people who already have accounts with the investment company, Fidelity’s Zero Cap Index is similar enough to the S&P 500 for the differences to be mostly academic. However, by not using the S&P 500 name, Fidelity avoids licensing fees for themselves and their investors. This fund, as the name would suggest, tracks Fidelity’s Large Cap Index; however, like many of Fidelity’s specific indexes for their customers, this index closely mirrors one of the other big-name indexes on the market, the S&P 500. That’s why we said the differences here are mostly academic. Are the indexes identical? No. Are they similar enough that they almost always perform similarly over time? Yes.

Some minor differences between the funds are expected, but overall, this is an incredibly beginner-friendly option with low barriers to entry and good opportunities to profit. Plus, there’s a good chance you’ve already got an account with Fidelity since they are one of the biggest retirement account companies in the United States.

2. Vanguard Total World Stock ETF (VT)

The Vanguard Total World Stock can’t meet Fidelity’s ZERO expense ratio, but that’s not a surprise considering more index funds have at least a modest expense ratio. Vanguard’s TWS is a little more expensive than some of the alternatives on this list, at .07%, but that’s still a reasonable expense ratio for most purposes.

The most significant advantage of the VT is that it’s a large fund that includes a diverse portfolio of different companies and requires no research into US markets vs. international markets since the fund consists of a combination of both.

With over 9k companies represented in the fund, there’s little chance of downturns in individual sectors bringing the whole fund down, unlike some smaller funds that are more industry-specific.

3. Schwab S&P 500 Index Fund (SWPPX)

The Schwab S&P 500 is one of the best-known index funds in the world and can trace its history back longer than many of the funds on this list. That’s important because if you’re looking for a proven fund with a lot of data backing its effectiveness and that performs predictably in different kinds of market conditions, this is a good option. Of course, while the Schwab S&P 500 has a lot of history behind it, you don’t need to do much research to know that it’s a solid option for investment.

There are some drawbacks there, but this is an investor-trusted fund for the most part. For one thing, the Schwab S&P 500 is a little smaller than many index funds, but the fund’s overall performance isn’t significantly more volatile than other index funds.

That’s important to note because one of the problems with small indexes is that they can often suffer from economic downturns more significantly than larger funds because there are fewer companies to help protect the fund.

4. Shelton NASDAQ-100 Index Direct (NASDX)

Looking for a smaller index fund that’s still relatively representative of the market, the Shelton NASDAQ-100 is a reasonable option.

This fund eliminates financial companies from the index, which means that you aren’t going to see compounded downturn from a financial company’s fortunes changing when the market goes through a correction. However, it’s limited to the 100 top companies in the market, which is largely a group of tech companies at this point.

That’s important to note because the Shelton NASDAQ-100 is slightly less diversified than some other companies. Normally that would be a weakness in an index fund. Still, tech companies tend to be somewhat sheltered against market corrections unless tech as a sector has problems.

Like other NASDAQ-based indexes, the Shelton NASDAQ-100 Index Direct is a good and relatively reliable index fund with reasonable expenses for its profitability. And, unlike other indexes, this index is less subject to the whims of the entire market, instead focusing on the top performers.

5. Vanguard Total Stock Market ETF (VTI)

If you’re looking to invest in an index fund that’s literally the entire market and tracks the ups and downs in market trends, there aren’t many funds that are going to work better than the Vanguard Total World Stock. As the name would imply, the Vanguard Total World Stock index fund tracks almost every traded company. It started trading actively in 2001 and has performed as you would expect since the fund launched.

This index fund also has a low expense ratio of just .03%. So, for every $10,000 traded annually, this fund would have a cost of $3 total. Overall, that’s one of the more generous offerings aside from Fidelity’s line of ZERO index funds, one of which we’ve already discussed.

6. Vanguard Growth ETF (VUG)

Another index fund with a low expense ratio of just .04%, the Vanguard Growth ETF is a fund that’s specifically targeted toward companies that tend to do a bit better than the market average, and companies that weather market shocks better than their competition most of the time.

That said, historical trends are no guarantee of future performance. Additionally, like the NASDAQ, the Vanguard Growth ETF tends to be a very tech-heavy fund. That’s not a bad thing most of the time, but it’s a good idea to invest in other index funds alongside a tech-heavy selection to help protect your portfolio from tech-bubble-style shocks.

7. SPDR S&P Dividend ETF (SDY)

The SPDR S&P Dividend is one of the most popular index funds on Wall Street and one of the most active. It’s a large fund with millions in assets, and usually, the fund itself makes trades on 100 million shares per day.

If you’re looking for a more active fund that has some of the advantages of a managed fund with the security and lower costs of an index fund, this is a good option.

Better yet, the SPDR tends to be a fairly diverse fund with holdings across a wide range of sectors and company structures.
However, because this is a more active and more managed fund, it’s also got a slightly higher expense ratio than your typical index fund.

8. Invesco QQQ Trust ETF (QQQ)

The Invesco QQQ Trust ETF, like a couple of the other index funds on this list, tracks the NASDAQ-100, which means that it’s a great way to track some of the top-performing companies in the market and also an excellent index to use to follow the performance of companies that tend to out-perform the general market.

However, it’s worth noting that with several similar indexes on this list, it’s important to make sure you’re choosing from indexes that track a wide variety of companies and have a little more diversity packed in. It’s okay to invest in more than one index that tracks the NASDAQ-100, but only so long as at least some of the other indexes you’ve invested in are invested in other parts of the market.

We’ve also placed this fund a little lower on our list because, compared to the offerings we’ve mentioned previously, it has a higher expense ratio. That said, .20% is still pretty reasonable for an expense ratio, and even if you were to trade $10,000 in a year there would still only be $20 in expenses.

9. Vanguard S&P 500 ETF (VOO)

If you’re looking for a fund that tracks one of the best-known stocks and markets but comes with a low expense ratio and is easy to invest in, Vanguard has another good fund offering that does precisely that.

Like any fund with S&P 500 in the name, this fund tracks with the larger version of the S&P, which means it’s a little more diverse and varied than funds that track the S&P 100.

However, this is still a slightly more expensive option compared with Fidelity ZERO’s fund of essentially the same nature.

The Vanguard fund does have a .03% expense ratio. That said, that’s well below some of the other top offerings out there, and a great deal if you’re looking for inexpensive investing options that still offer reasonable returns.

10. Vanguard Real Estate ETF (VNQ)

For something a little different, this fund isn’t directly tied to a shares market, this index instead is tied to REITs. Since these companies buy property of a wide variety, performance is more tied to the housing market than the stock market.

That said, investing in real estate is getting a lot more common right now, and getting in now, vs. when real estate investing is more common could be a good thing. The expense ratio on this index is pretty reasonable, a little higher than some on this list, but far from the highest. At .12%, it’s a middle-of-the-road option when it comes to low-cost index funds.

There you have it! Ten of the best index funds to invest in in 2022. None of these options are guaranteed to make money, and investing always involves at least a small amount of risk. But these index funds tend to perform well overall, are beginner-friendly, and are a powerful part of even the most advanced professional portfolios.

Now let’s look at some of the most common questions about investing in index funds, why so many people do it, and how it works.


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index funds to invest in

Why Invest In Index Funds?

Index funds have a lot of advantages for investors of almost any strategy. They’re designed to be long-term investments and are relatively safe compared to most investing. Having at least a portion of your portfolio in index funds, even as an aggressive day trader, can help insulate you from market shocks and make sure you have some long-term profits.

The other significant advantage to index funds is their low cost associated with your investment. Compared with different kinds of investing, there aren’t many fees, which can help improve your long-term performance.

Index funds also work to your advantage if you don’t want to spend much time working on your investments. You don’t need to pick and choose the specific companies you want to invest in, and as long as you split your assets between a couple of funds of different types, you’re less likely to see poor long-term performance.

How To Choose Index Funds

Generally, index funds are as good as the index they track with. So a fund that tracks a large and well-respected market index is generally going to be a safer bet overall than a fund that has a smaller number of companies associated with it. That said, some smaller funds, like index funds that invest in the S&P 100, are still a good option because of the higher performance averages of the companies listed.

Ideally, you want a combination of broad and varied funds that are going to be more stable but offer less profit, with smaller funds that might perform better but which are also slightly riskier. Remember, as long as it’s an index fund, your risk is low, to begin with. This is investing that even the most cautious investor can feel good about.

You should also spend some time researching any fund you’re considering before you invest. Newer index funds tend to be a little more volatile than older ones, but even a brand new index fund might be a good option as long as reviews are good and the expense ratio is low. Some investors will be most comfortable investing in something like the Fidelity ZERO line of index funds that have no expense ratio, but it’s okay to pay a reasonable amount into the expense ratio in exchange for a more active or higher profit average fund.

Is Now A Good Time To Buy Index Funds?

Index funds are generally considered one of the safest investment options, which means that they’re almost always a good option so long as you have the spare funds to invest in the first place.

Remember, even the safest investments, like an index fund, can lose money in both the short and long term. The stock market doesn’t always go up, and even when the stock market, in general, is up, your fund might not be invested in the companies that are doing well. That said, given the volatility of the markets over the last few years, index funds are probably one of the best and safest places to invest your money in 2022.

Summary

Many financial experts concur that index funds can be excellent long-term investments. They are affordable solutions for getting a diverse portfolio that provides dependable growth by tracking an index. Like always, be sure to perform your due diligence and research different funds before determining the best index funds for you. Professional financial advisors can also be extremely helpful if you need help deciding where to invest.


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