The top index funds in 2021 are those that have three key facets:
- Low expense ratios
- Highly diversified
- Lasting through the “tests of time”
However, not all index funds are diversified enough to be top-notch.
Others may not be ideal for investing in the long term.
As there is a wide variety of funds from which to choose, it is crucial for potential investors to gain an understanding into which index funds can best meet their needs.
This is especially true as we move into the uncertainty that 2021 brings.
Recently, many ETFs (exchange-traded funds) and index funds have been brought to the market.
But, don’t be fooled by the idea that all ETFs and index funds are great long-term investments.
Many of these funds focus on a narrow sector of industries, including such options as online media, MLPs or biotechnologies.
These funds are very narrowly-focused.
They can provide large-scale return potential in shorter terms.
However, they can also experience massive declines if the industry is affected.
Additionally, these funds will tend to have higher expense ratios compared to more broad index funds.
The best index funds in 2021 are those that are inexpensive and widely diversified.
For this reason, we have cultivated some of the best index funds for 2021 to purchase for long-term holding and investing purposes.
Strongest S&P 500-based Index Funds for 2021
The S&P 500 Index is the gold standard of funding focuses. They are an index of 500 stocks of some of the largest companies in the United States by market capitalization, and are a wonderful indicator of overall market performance. The three best S&P 500 based index funds are VFINX, FXAIX, and SWPPX.
VFINX is the godfather. VFINX was the first index fund that was made available to the public. It brought forth the concept of Jack Bogle, founder of Vanguard Investments. Bogle had studies markets, and noticed that many investors and managers of portfolios were unable to beat averages for markets in the long run. This was especially true when factoring in expenses for fund management.
VFIAX has now taken over VFINX and has the same minimum investment size as VFINX, except at a fraction of the price
Through simply purchasing low-cost mutual funds (handfuls of stocks found in an index), it was found that investors could instead attain reasonable returns. This, the Vanguard 500 Index was born.
Expense Ratio: 0.04% | Minimum investment: $3,000 ; Expense Ratio: 0.10% | Minimum investment: $10,000
FXAIX: The Fidelity Spartan 500 Index Fund
The experience level, size of market, and competitiveness of Fidelity with Vanguard play in favor of this index fund. In our opinion, the FXAIX is the second-best index fund for 2021. Often, index funds between large rivals are not distinguishable regarding performance and expenses.
Basically, the competitive nature of FXAIX compared to VFINX creates the development of far higher quality funding for investors. FXAIX and VFINX hold the exact same stocks. However, these stocks come with a lower expense ratio and lower minimum initial investment (entry point).
Expense Ratio: 0.02% | Minimum investment: $0
SWPPX: The Schwab S&P 500 Index Fund
Charles Schwab has long made a strong effort to provide its users with far more than standardized, discounted brokerage service to their investors. Instead, they have recently dived into the index fund markets of the S&P 500, willing to go toe-to-toe with the likes of Fidelity and Vanguard.
Recently, they have lowered their expenses to slightly beat out those of Fidelity, and with a far lower minimum initial investment, this fund is available for most anyone looking to enter the S&P 500 based index fund market in 2021.
Expense Ratio: 0.02% | Minimum investment: $0
Strongest Total Market-based Index Funds for 2021
Sometimes exposure to over five hundred large-cap American stocks is not as high of a level of diversity for some. In those cases, total stock market funds are available. These funds invest in thousands of stocks, including a solid mix of large-cap, small-cap and mid-cap. Vanguard and Schwab have the market cornered for Total Stock Market index funds for 2021.
VTSAX: The Vanguard Total Stock Market Index Fund
The Vanguard Total Stock Market Index is the largest mutual fund on earth. It has reached this level for a good reason. Vanguard basically invented the concept of an index fund, and VTSAX is amongst the initial index funds that captured the entire stock market.
With expenses low enough to drop the typically-high expense ratios of Vanguard to 0.04 percent, the Vanguard Total Stock Market Index makes for a wonderful index fund in 2021 for those looking for a safe bet, and a wonderful core fund to any diverse portfolio of mutual funds.
Expense Ratio: 0.04% | Minimum investment: $3,000
SWTSX: The Schwab Total Stock Market Index Fund
The Schwab Total Stock Market Index, or SWTSX, has a very low expense ratio of 0.03 percent. It is a wonderful index fund based on the total market, and is difficult to be beaten, at least at the $0 minimum investment level.
Much like many other Schwab funds, their minimum buy-in is extremely low, and one of the most affordable funds on our list, with a $0 minimum investment.
Expense Ratio: 0.03% | Minimum investment: $0
Strongest Aggressive Level Index Funds for 2021
If you find yourself a longer-term investor, you might not be concerned with occasional fluctuations in the market. In the short term, this means your balances will increase and decrease. If you don’t mind this, and are fine with looking at the long term, some of these aggressive index funds might be more up your alley. These are typically higher-risk, higher-reward index funds.
VIGAX: The Vanguard Growth Index Fund
The Vanguard Growth Index Fund invests in larger market capitalization (large-cap) stocks that show strong growth potential. This makes it a little bit riskier to invest in compared to the above index funds. However, this can also be far more rewarding in the long term compared to funds that are based on the S&P 500.
VIGAX has a mid-range expense ratio when compared with the other aggressive funds we are reviewing.
Expense Ratio: 0.05% | Minimum investment: $3,000
FNCMX: The Fidelity NASDAQ Composite Index Fund
This index fund by Fidelity is comprised mainly of large-cap stocks. However, many of these stocks are based in the health and technology sectors. These stocks tend to have stronger growth potential in the long term when compared to broader market strokes.
For this reason, if you aren’t turned off by the idea of some added risk in return for the additional potential of returns, in the long run, the Fidelity NASDAQ Composite fund is a great index fund to invest in 2021. Their expense ratio is on the higher end, at 0.29 percent, but the minimum investment is lower than Vanguard alternatives, at $2,500.
Expense Ratio: 0.3% | Minimum investment: $0
VIMAX: The Vanguard Mid-Cap Index Fund
Mid-cap stocks are a wonderful alternative to their large-cap counterparts. They are a great option to potentially beat the powerful S&P 500. These historically perform better than larger market capitalization stock, yet do not run the significant risk that small-cap stocks do. These make VIMAX a great mid-range index fund to purchase. They are in the sweet spot that occurs when the returns are solid but the risk is not too extreme.
Their expense ratio is also lower than the two aggressive funds above. However, like the other Vanguard funds in our list, they have a higher minimum buy-in.
Expense Ratio: 0.05% | Minimum investment: $3,000
Strongest Bond-Focused Index Funds for 2021
Bond based indexed funds are far more appropriate for the everyday investor. Many with well-diversified portfolios of index funds and mutual funds utilize these fund options. They are a great vehicle to capture large portions of the bond market in one low-fee, low-stress investment.
Total bond market indexes typically are a reference to index-based mutual funds or ETFs (exchange-traded funds). These funds invest in the BarCap Aggregate, or Barclay’s Aggregate Bond Index. This is a broader bond index that covers most bonds traded on American indexes, as well as some foreign bonds that are traded within the United States.
There are many bond based index funds in 2021 that will exceed the need for simplicity and diversity. Two of the strongest are the VBMFX and FTBFX.
VBMFX: The Vanguard Total Bond Market Index
The Vanguard Total Bond Market Index is the largest bond-focused index fund in existence (regarding assets that are under management). This means is it one of the all-time favorite options for self-investing buyers and fee-only advisory services. When buying into the VBMFX index, purchasers receive exposure to the full US bond market. This includes thousands of bonds in many types, including:
- United States Treasury Bonds
- Corporate bonds
- Short-term, intermediate and long-term bonds
Expense Ratio: 0.15% | Minimum investment: Closed to new investors
FTBFX: The Fidelity Total Bond Index
The Fidelity Total Bond Index is a great index fund to buy right now, and is very much like the Vanguard option above. Alternatively, the FTBFX has strong flexibility, and can balance reward and risk well. It can hold many more high yield bonds, and can potentially capture far higher returns in the long term because of this, when compared to VBMFX.
However, this comes at a far higher expense ratio compared to almost all funds on our list, at 0.45 percent. However, the added expenses for an index fund can be more than worth it.
Expense Ratio: 0.45% | Minimum investment: $0
Wrapping it all together: The best index funds for 2021
Some of the most powerful and highest-yielding index funds have been outlined as our top picks for 2021. These best index funds to buy and hold have lower expense ratios that alternatives, are highly diversified, and have been proven as lasting through the tumultuous markets.
Further reading: Learning to invest for beginners
John Bourscheid is an experienced website owner, content writer, and client-side SEO provider, in the internet marketing game since 2007. His multifaceted agency Zesumme is based in Jacksonville, Florida, and provides dozens of services to local entities and global brands.