The Best Index Funds

Index funds are passive investments. They track an index with the goal of replicating the performance of that index, minus expenses. Active funds, meanwhile, are led by managers who choose particular securities in an effort to outperform an index.

But some index funds are better than others. The best do a good job of closely tracking their indexes, minimizing costs, and following sensible rules-based indexes.

Why Are Index Funds Such a Popular Investing Option?

The first index fund, Vanguard 500, made its debut in 1976. Since then, index funds have exploded in popularity: Today, investors are putting money into U.S. stock index funds and pulling money out of their actively managed counterparts. And index funds that focus on international stocks and bonds are becoming more popular, too.

Why? Many argue that buying and holding the broad market (whatever that market may be) generates better results than trying to beat that same market through actively selecting securities. Indeed, Morningstar research has confirmed that in many investment categories, index funds have outperformed active funds over time.

The Benefits of Investing in Index Funds

Any historical performance advantage aside, there are several benefits to investing in index funds.

• Index funds are usually lower in cost than similar actively managed funds.
• Index funds perform like the market they’re tracking; as such, there aren’t many surprises in performance.
• Index funds don’t face what’s called key-person risk, which means that manager changes aren’t a big deal, since there’s no active security selection involved.
• Index funds are often more tax-friendly than similar active funds.

Best Index Funds to Buy in 2023

A good place to start your search for top index exchange-traded funds and mutual funds is with the Morningstar Analyst Rating. Funds that earn our highest rating—Gold—are those that we think are most likely to outperform over a full market cycle.

Here’s the list of best index mutual funds and ETFs in 2023 broken down by the three main asset classes that are represented in the portfolios of many investors: U.S. stocks, international stocks, and bonds. We’re also including a list of what we’re calling “specialized” index funds, which features top-rated funds from investment categories that appear less frequently in the portfolios of most investors.

Best U.S. Stock Index Funds

These mutual funds and ETFs all land in one of the broad U.S. stock Morningstar Categories and earn our top Analyst Rating of Gold as of February 2023.

1. DFA US Large Company DFUSX
2. Fidelity 500 Index FXAIX
3. Fidelity Total Market Index FSKAX
4. iShares Core S&P 500 ETF IVV
5. iShares Core S&P Total U.S. Stock Market ETF ITOT
6. iShares S&P 500 Index WFSPX
7. Schwab Total Stock Market Index SWTSX
8. Schwab U.S. Broad Market ETF SCHB
9. Schwab U.S. Large-Cap ETF SCHX
10. Schwab S&P 500 Index SWPPX
11. SPDR Portfolio S&P 1500 Composite Stock Market ETF SPTM
12. SPDR Portfolio S&P 500 ETF SPGL
13. Vanguard S&P 500 ETF/Vanguard 500 Index VOO VFIAX
14. Vanguard Dividend Appreciation ETF/Index VIG VDADX
15. Vanguard Extended Market ETF/Index VXF VEXAX
16. Vanguard Growth ETF/Index VUG VIGAX
17. Vanguard Large-Cap ETF/Index VV VLCAX
18. Vanguard Mid-Cap ETF/Index VO VIMAX
19. Vanguard Mid-Cap Growth ETF/Index VOT VMGMX
20. Vanguard Mid-Cap Value ETF/Index VOE VMVAX
21. Vanguard Small-Cap Growth ETF/Index VBK VSGAX
22. Vanguard Small-Cap Value ETF/Index VBR VSIAX
23. Vanguard Total Stock Market ETF/Index VTI VITSX
24. Vanguard Value ETF/Index VTV VVIAX

Although this is a list of the best broad-based index funds investing in U.S. stocks, there is some variety here. Several funds in the group track the S&P 500 and therefore provide access to large-cap stocks representing about 80% of the U.S. stock market. Other index funds on the list follow much broader market indexes that include more stocks, some of which are smaller-cap names. Meanwhile, other funds on the list are more narrowly focused, tracking indexes based on market capitalization (mid- or small-cap stocks) or investment style (growth stocks or value stocks).

To fully understand a fund’s strategy, be sure to read its Morningstar Fund Analyst Report.

Best International-Stock Index Funds

These mutual funds and ETFs all land in one of the broad international-stock categories and earn our top Analyst Rating of Gold as of February 2023.

1. iShares Core MSCI Total International Stock ETF IXUS
2. Vanguard FTSE All-World ex-US ETF/Index VEU VFWAX
3. Vanguard Total International Stock ETF/Index VXUS VTIAX
4. Vanguard Total World Stock ETF/Index VT VTWAX

Here, too, we have another list of the best broad-based index funds—in this case, focused on international stocks—where there is some variety. Some funds here track global indexes that include U.S. stocks; others follow global indexes that exclude U.S. stocks. Consult the investment’s Analyst Report to clarify.

Best Bond Index Funds

These mutual funds and ETFs all land in one of the broad bond categories and earn our top Analyst Rating of Gold as of February 2023.

1. Fidelity U.S. Bond Index FXNAX
2. iShares Core U.S. Aggregate Bond ETF AGG
3. iShares Core Total USD Bond Market ETF IUSB
4. SPDR Portfolio Aggregate Bond ETF SPAB
5. Vanguard Long-Term Bond ETF/Index BLV VBLLX
6. Vanguard Long-Term Corporate Bond ETF/Index VCLT VLTCX
7. Vanguard Short-Term Corporate Bond ETF/Index VCSH VSTBX
8. Vanguard Short-Term Treasury ETF/Index VGSH VSBSX
9. Vanguard Tax-Exempt Bond ETF/Index VTEB VTEAX
10. Vanguard Total Bond Market ETF/Index BND VBTIX

Several of the best broad-based index funds on this list land in one of the intermediate-term bond categories. As such, they’d make great choices to anchor the bond portion of an investor’s portfolio, assuming the goals for the money are six or more years away. Those saving for a shorter-term goal in the next three to five years might consider short-term bond funds instead. Those investors with longer time horizons might consider a longer-term bond fund—but they should also be prepared for the enhanced volatility that comes with investing in long-term bonds.

Best Specialized Index Funds

These mutual funds and ETFs all land in one of the specialized stock or bond categories and earn our top Analyst Rating of Gold as of February 2023.

1. Schwab U.S. TIPS ETF SCHP
2. Vanguard FTSE Europe ETF/Vanguard European Stock Index VGK VEUSX
3. Vanguard Real Estate ETF/Index VNQ VGSLX
4. Vanguard Short-Term Inflation-Protected Securities ETF/Index VTIP VTAPX

The top-rated mutual funds and ETFs on this list are good choices for investors looking to fill more niche roles in their portfolios. For instance, retirees often hold a fund that’s meant to blunt the impact of inflation on their portfolios; two funds on this list are designed to do just that.

How to Find the Best Index Funds

Of course, focusing on funds that earn a Gold rating may be too limiting for some investors. Those who’d like to consider funds beyond of our top rating can review a full list of U.S. stock index funds and ETFs and bond index funds and ETFs that earn ratings of Bronze, Silver, and Gold.

Investors can also review complete lists of all index mutual funds or all index ETFs. These lists include funds that don’t currently earn Analyst Ratings.

Should You Invest in an Index Mutual Fund or ETF?

Investors can access passive strategies through two different investment products: mutual funds or exchange-traded funds.

One product isn’t better than the other; choosing the right wrapper depends on personal preferences. Investors who value trading flexibility or who may have few dollars to invest might prefer an ETF, while those accessing index funds via a company-sponsored retirement plan are more than likely buying mutual funds.

Read “Traditional Index Fund vs. ETF Cage Match” to learn more about the differences between mutual funds and ETFs.