I’ve spoken a lot about how much of a fan I am of index funds and investing this way. So I thought it would be a good idea to run through three top index funds that make it into my list of favourites.
Index fund investing is a simple and cheap way for people to get started with investing. It’s also great for people who just want a complete passive approach. You can invest a set amount each week or month with little work required and let the power of compound interest to work its magic.
Once you’ve understood the basics of investing this way and why index funds are a great starting point, your next question is probably ‘okay so what are some top index funds?’.
Funds are a pretty broad category and even if you’ve decided index fund investing is for you, that still leaves absolutely tonnes of options which may seem overwhelming.
Here are three of my favourite index funds.
1. Vanguard S&P 500 (VUSA)
This is one of the most popular index funds out there. It’s considered one of the best ETFs out there because it contains 500 of the best companies operating in America.
An ETF just means this fund can be bought and sold on exchanges so you don’t have to invest directly through Vanguard, you can use most top brokers and share dealing platforms.
The reason this is so popular is because it contains companies from across many different industries so you get some natural diversification. Historically, the S&P 500 has also returned a very tidy average return of around 9% per year.
It’s important to remember that past results don’t necessarily mean great future returns but this has proven to be a robust index for investors for decades. One downside to this index fund is that it is all American companies so you don’t get much global diversification. Also it’s weighted, which just means that the bigger companies receive more of your investment which can be a good or a bad thing.
2. Vanguard Total Stock Market Index (VTSAX)
Again, this covers the whole American market which includes around 4,000 stocks. Often touted as a top index fund, this benefits from even more diversity than the S&P 500.
This fund also includes companies of different sizes and market capitalisations. So if there’s a small US company that blows up and ends up becoming massive, it’s more likely that you’ll see some of those gains than if you just invested in the biggest companies that have already seen their share prices explode.
Returns for the whole US stock market have historically been very good but it’s worth remembering this may not continue and obviously this gives you heavy exposure just to America. Many companies in the US do operate internationally but it’s still not completely globally diverse. In the UK, this index fund is actually called “U.S. Equity Index Fund” on Vanguard’s website.
3. Vanguard ESG Developed World All Cap Equity Index Fund
Whereas the first two options are heavy US focused, this top index fund is more globally diverse.
Although a big portion of this fund is made up of US stocks, it contains over 4,000 stocks from around the world. What’s great is that along with this diversification, being an ESG fund, it attempts to invest in more ethical and sustainable businesses.
This also means omitting non-renewable energy companies and things like weapon manufacturers. So it’s a great option if you want your investments to align with your morals. Even better, the returns for this fund have been great over the last few years so you don’t have to sacrifice much in the way of investment profit.
Index funds aren’t the only way to invest, but they’re definitely a great place to start.
Also, Vanguard is not the only company out there and there are other places to invest in stocks and shares. But the low fees and great choice of funds make them a solid pick for investors.
This isn’t an exhaustive list and there are so many index funds out on the market but I think it can be helpful to at least have an idea of some of the top index funds.
Hopefully this will give you some direction or allow you to compare funds you’ve been looking at against these.
Remember you’re not guaranteed to make money with investing but with abysmal interest rates out there right now, it’s a favourable way to try and make sure your cash doesn’t get eaten up by inflation.