If you’re invested in the markets and haven’t given the late John Bogle a tip of the cap, you should do so.
That’s because his launch of the first index mutual fund (which still exists as the Vanguard 500 Index Fund today) back in 1976 kicked off a period of falling investment-fund prices that, half a century later, continues to this day.
Human fund managers are still incredibly worthwhile, especially when it comes to areas of the market—such as small-cap stocks and emerging-markets equities—where there are a lot of market inefficiencies to exploit. But index funds, where a fund’s selections are determined by a fixed set of rules, are naturally cheaper (no managers to pay!), giving them a performance edge right out of the gate. And in some areas, like large-cap stocks, indexes more often than not beat human managers.
While you’re most likely to see indexed products within the realm of exchange-traded funds (ETFs), they do exist (and in decent number) across the mutual fund world. Indexed mutual funds are similarly inexpensive, and while you can hold them in virtually any type of account, they’re extremely helpful to know if you invest in a 401(k) or other workplace account where mutual funds are often your only option.
If you’re looking for a few cost-efficient ways to invest your money, read on. Today, I’m going to shine a spotlight on a handful of the market’s best index mutual funds, with each of them covering a different slice of the market.
Disclaimer: This article does not constitute individualized investment advice. Securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
How I Selected These Funds
I start virtually every review of investment funds by booting up Morningstar Investor and running a quality screen I customize for each article.
If you’re newer to investing: There are plenty of great investment analysis sites out there, but nothing beats Morningstar for information about (and analysis of) mutual funds and ETFs. I use my Morningstar Investor subscription to screen for funds that meet certain quality, price and other criteria for my articles, though investors can also use it to track their portfolio, build watchlists, look at charts and more. (And if you’re curious about Morningstar Investor, read to the end.)
Here’s a look at the criteria I used to narrow my search:
1. Index funds with a Gold Morningstar Medalist rating. Morningstar has two ratings systems—the Star ratings and the Medalist ratings. The latter are a forward-looking analytical view of a fund. Per Morningstar:
“For actively managed funds, the top three ratings of Gold, Silver, and Bronze all indicate that our analysts expect the rated investment vehicle to produce positive alpha relative to its Morningstar Category index over the long term, meaning a period of at least five years. For passive strategies, the same ratings indicate that we expect the fund to deliver alpha relative to its Morningstar Category index that is above the lesser of the category median or zero over the long term.”
A Medalist rating doesn’t mean Morningstar is necessarily bullish on the underlying asset class or categorization. It’s merely an expression of confidence in the fund compared to its peers.
2. No loads. In addition to annual expenses, some funds charge additional fees, including “loads.” For instance, if you invested $10,000 in a mutual fund with a 5% front-end load, the mutual fund company would immediately take $500 out in fees. So, you’d already be starting behind the 8-ball, investing just $9,500 to start with. The funds here have no sales charges.
3. Reasonable investment minimums. The maximum investment minimum for inclusion is $3,000, which is the common investment minimum for Vanguard funds. But most of the remaining funds on this list have either no minimum requirement, or a minimum of just $1. Also, some fund providers explicitly lay out lower investment minimums for specific retirement plans, such as individual retirement accounts (IRAs).
4. Broad availability: Mutual funds commonly have several share classes, many of which are limited to certain types of accounts, like, say, only for 401(k)s or only for wealth management clients. All of the index funds listed here are Investor-class or similar shares that are generally considered to be widely available to retail investors.
3 of My Favorite Index Funds for the Coming Year
From the much more manageable resulting list, I’ve selected a group of index funds that provide a wide array of core and tactical strategies, ensuring there’s at least one fund, if not many funds, for just about everyone.
Let’s take a look at the list!
(Editor’s note: This list is exclusively index mutual funds—but you can find a plethora of great index ETFs in our best ETFs list.)
1. Fidelity 500 Index Fund
- Style: U.S. large-cap stock
- Assets under management: ~$740 billion
- Dividend yield: 1.1%
- Expense ratio: 0.015%, or 15¢ per year for every $1,000 invested
- Minimum initial investment: None
The Fidelity 500 Index Fund (FXAIX) isn’t just one of the best index funds you can buy—it’s one of the best mutual funds of any type period.
The S&P 500 Index is often used as a performance benchmark for mutual funds that invest in U.S.-based large-cap stocks. But the majority of fund managers who run these funds typically struggle to beat their benchmark. Consider this: According to S&P Dow Jones Indices, in 2024, “65% of all active large-cap U.S. equity funds underperformed the S&P 500, worse than the 60% rate observed in 2023 and slightly above the 64% average annual rate reported over the 24-year history of our SPIVA Scorecards.” And 2025 isn’t shaping up to be much better for human managers.
I say to that: If you can’t beat it, join it.
What does it hold?
Fidelity 500 Index Fund “tracks” the S&P 500—a collection of some of the largest American companies, but to clarify, not the 500 largest American companies. Stocks must meet size and liquidity criteria, yes, but to join the list initially, they also need to meet certain earnings baselines. (Once in, a stock isn’t automatically kicked out if it later fails to meet the criteria, but a selection committee might boot it.)
The S&P 500 is considered a proxy for the U.S. economy, but it’s not a perfect representation, nor is the U.S. economy perfectly balanced. Some sectors and industries are bigger than others, and some have a more outsized weight on the stock market than they do the overall economy.
To wit, technology stocks account for more than a third of FXAIX’s assets. But energy? Less than 3%. Utilities? Less than 3%, too. Real estate? It’s responsible for a mere 2% of assets.
Young and the Invested Tip: Fidelity has built its name on active management, but don’t sleep on its index funds.
This is in large part because the S&P 500, like many other indexes, is “market capitalization-weighted.” This means the greater the size of the company as measured by market capitalization (which you get by multiplying a company’s shares outstanding by the stock price), the more “weight” it’s given in the index. $4.4 trillion Nvidia (NVDA) represents 8% of Fidelity 500’s assets all by its lonesome. Compare that to $8 billion Davita (DVA), which accounts for a mere 0.07%.
Turnover, which is how much the fund tends to buy and sell holdings, is always low, given that only a handful of stocks enter or leave the index in any given year. This tamps down (and often eliminates) capital-gains distributions, which are taxable, sometimes at unfavorable short-term capital gains tax rates depending on the nature of those distributions. This makes FXAIX an extremely tax-efficient option for taxable brokerage accounts.
Why Fidelity 500 over Vanguard’s first-to-market fund or other 500 funds? Well, 1.) it’s a widely accessible share class that, because its fees undercut virtually all other competitors, should continue to outperform other providers’ equivalent products, and 2.) Fidelity has no investment minimums, so you can get started for as little as $1.
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2. Vanguard High Dividend Yield Index Fund Admiral Shares
- Style: U.S. large-cap dividend stock
- Assets under management: ~$80 billion
- Dividend yield: 2.5%
- Expense ratio: 0.08%, or 80¢ per year for every $1,000 invested
- Minimum initial investment: $3,000
Investors who want a higher level of income than what the S&P 500 provides, but still want to enjoy stocks’ growth potential, can do so for a song by purchasing the Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX).
What does it hold?
The name says it all. This Vanguard index mutual fund is constructed to deliver a high dividend yield, which it does by tracking an index of stocks that pay higher-than-average dividends. The result is a fairly conservative, largely blue-chip portfolio of roughly 565 stocks weighted by market cap.
“Vanguard High Dividend Yield strikes a balance between higher yield and managing the associated risk,” says Morningstar Analyst Bryan Armour. “Market-cap-weighting steers the portfolio toward more stable large-cap stocks and away from those whose dividends may be distressed.”
VHYAX provides decent exposure to sectors defined by their defensive nature and higher-than-average dividends, such as health care (13%) and consumer staples (11%). However, its biggest sector allocation is to financials, which currently command more than 20% of assets.
Top holdings are a who’s who of mega-cap dividend payers, including JPMorgan Chase (JPM), Johnson & Johnson (JNJ), and Exxon Mobil (XOM). And while it’s difficult to call a sub-3% dividend “high,” it’s certainly much higher than you’d get from normal large-cap stock funds—and more than twice what the S&P 500 delivers right now.
Just understand that if you invest in Vanguard High Dividend Yield Index, you won’t be invested in the real estate sector. That’s because VHYAX’s underlying index explicitly excludes real estate investment trusts (REITs).
This might seem odd seeing as how real estate is typically one of the market’s highest-yielding sectors. One possible explanation is that most common stocks, such as those held in this Vanguard fund, pay qualified dividends, which enjoy favorable tax treatment at the long-term capital gains tax rate. Most REIT dividends, however, are non-qualified, which are taxed as ordinary income at federal income tax rates. By excluding REITs, VHYAX can pay out 100% qualified dividend income, helping shareholders avoid a potential tax headache.
Also, unlike many fund providers, Vanguard often has ETF shares of its mutual funds. That’s the case with VHYAX, which is also offered as the Vanguard High Dividend Yield ETF (VYM, 0.06% expense ratio).
3. Fidelity Short-Term Treasury Bond Index Fund
- Style: Short-term government bond
- Assets under management: ~$3 billion
- SEC yield: 3.6%
- Expense ratio: 0.03%, or 30¢ per year for every $1,000 invested
- Minimum initial investment: None
Most investors want some exposure to bonds—debt issued by governments, companies, and other entities that pay interest to bondholders. But how much exposure you want will largely depend on your age.
Bonds tend to be much less volatile than stocks, for better or worse; it limits downside, yes, but it also limits upside. Instead, most of the return from bonds comes from the steady stream of interest income they produce. They’re not great for generating wealth, which is your prime concern when you’re younger, but they’re outstanding for protecting wealth, which becomes increasingly pivotal as you age.
But purchasing individual bonds is more difficult than you might expect. Not only are data and research on individual issues pretty thin, but some bonds require minimum investments in the tens of thousands of dollars. Bond funds are simply the most economical way for most investors to purchase them.
You can find some of the safest plays in the bond world in Fidelity Short-Term Treasury Bond Index Fund (FUMBX).
What does it hold?
This Fidelity index fund focuses on bonds that are considered low-risk for a pair of reasons: their short maturities, and their issuer (the U.S. Treasury).
Maturity is a major factor in determining bond risk. As a general rule, the longer the bond, the greater the risk that the bond might not be repaid. Interest rates matter, too. When rates go higher, new bonds pay more, which tempt people to sell their old bonds for the new, higher-paying bonds. But the temptation is much greater when you’re dealing with longer-term bonds with lots of payments remaining—and not so great for short-term bonds with one or just a couple payments left.
Young and the Invested Tip: FUMBX is just the tip of the iceberg—there are numerous other types of bond funds, and most are a lot more aggressive.
And it’s tough to ask for a better issuer. U.S. Treasury bonds are backed by the full faith and credit of the U.S. government, and as a result, they’re among the highest-rated bonds on the planet. While there’s no 100% guarantee they’ll be repaid, there’s a far higher likelihood of repayment than the vast majority of issuers out there.
Fidelity Short-Term Treasury Bond Index Fund invests in a tight grouping of about 115 Treasury bond issues whose maturities span a few months to five years. That’s a bit longer-term than some other Treasury funds that limit their maturities to three years. But it still results in a portfolio average maturity of under three years, which is plenty short.
Duration, which is a measure of interest-rate risk, is just 2.5 years. I won’t go into the weeds because the math is complex, but in short, FUMBX’s duration implies that a 1-percentage-point increase in market interest rates would lead to a 2.5% short-term decline in the fund, and vice versa.
In other words, FUMBX isn’t going to move much in either direction—not great if you want growth, obviously, but outstanding if you just want to protect what you have. In the meantime, it will pay you a decent amount of interest despite its low risk profile.
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Learn More About These and Other Funds With Morningstar
As I mentioned before, Morningstar Investor is a vital tool in my research, but it’s primarily designed for investors. And because the folks at Morningstar appreciate my years of citing their tool in my research, they’re allowing us to offer their Investor service at a discounted rate.
If you sign up using my exclusive link, you’ll not only get a 20% discount ($199) off the normal annual rate ($249), but you’ll also get a free 7-day trial so you can give it a go first!
Editor’s Note: This is a shorter, updated, and modified version of our full exploration of the market’s top index funds. If you want to see all 10 selections for 2026, check out our article, The 10 Best Index Funds You Can Buy for 2026.
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