Looking to grow your wealth without the complexity of active investing? Low cost index funds remain one of the smartest investment strategies in 2025. These financial instruments offer diversification, minimal fees, and historically reliable returns that can help build your portfolio steadily over time.
Index funds automatically track popular market indexes like the S&P 500 or the Total Stock Market, giving investors broad market exposure with minimal effort. The key to maximizing your returns? Focus on expense ratios - the lower the cost, the more of your investment grows over time.
10 Best Low Cost Index Funds in 2025: Build Wealth Smartly
This guide examines the best low cost index funds of 2025, helping you understand why investing in these vehicles remains a cornerstone strategy recommended by financial experts like Warren Buffett. To learn more about index funds in general, check out our complete guide to index funds.
Why Low Cost Index Funds Matter
Before diving into specific recommendations, let's understand why expense ratios are so critical:
- A mere 0.5% difference in fees can cost you tens of thousands of dollars over decades
- Lower costs directly translate to higher returns over time
- Index funds naturally have lower costs than actively managed funds
- The power of compound interest makes fee differences increasingly significant
As John Bogle, founder of Vanguard, famously stated: "In investing, you get what you don't pay for."
1. Vanguard S&P 500 ETF (VOO)
With an industry-leading expense ratio of just 0.03%, VOO provides exposure to 500 of America's largest companies. This fund has delivered consistent long-term performance and requires only $1 to start investing through most brokerages. Since inception, it has closely tracked the S&P 500 index with minimal tracking error, making it an excellent core holding for any portfolio.
2. Fidelity ZERO Total Market Index Fund (FZROX)
Fidelity revolutionized the industry with this 0.00% expense ratio fund. Yes, completely free! FZROX tracks the entire U.S. stock market, offering exposure to large, mid, and small-cap stocks in a single investment. Available exclusively to Fidelity customers, this fund requires no minimum investment and provides broader diversification than an S&P 500 fund.
3. iShares Core S&P 500 ETF (IVV)
BlackRock's offering matches Vanguard's 0.03% expense ratio while providing identical S&P 500 exposure. IVV has gained popularity for its high liquidity and tight bid-ask spreads, making it ideal for frequent traders. With over $300 billion in assets, this fund offers excellent stability and efficiency for long-term investors.
4. Schwab U.S. Broad Market ETF (SCHB)
With a 0.03% expense ratio, SCHB tracks approximately 2,500 U.S. stocks, providing comprehensive market exposure at minimal cost. This Schwab offering is ideal for investors wanting to capture the entire U.S. market, including small and mid-cap growth opportunities that S&P 500 funds miss. Schwab customers enjoy commission-free trading of this ETF.
5. Vanguard Total Stock Market ETF (VTI)
With an expense ratio of 0.03%, VTI offers exposure to the entire U.S. equity market, including small and mid-cap stocks. This fund holds over 4,000 stocks and has demonstrated excellent long-term returns with minimal volatility compared to more concentrated funds. It's perfect for investors seeking "set and forget" broad market exposure.
6. iShares Core S&P Total U.S. Stock Market ETF (ITOT)
ITOT combines broad market coverage with BlackRock's reliability at a 0.03% expense ratio. This fund holds approximately 3,500 stocks across all market capitalizations, providing true total market exposure. With high trading volume and tight spreads, it's an excellent choice for both new and experienced investors.
7. iShares Core MSCI Total International Stock ETF (IXUS)
For international exposure, IXUS offers a competitive 0.07% expense ratio while tracking over 4,300 non-U.S. companies. This fund provides access to developed and emerging markets, making it an excellent complement to U.S.-focused index funds. International diversification can reduce portfolio volatility and potentially enhance returns.
8. Vanguard Total International Stock ETF (VXUS)
With a 0.08% expense ratio, VXUS tracks over 8,000 stocks from developed and emerging markets outside the U.S. This fund offers the broadest international exposure available, making it ideal for investors seeking global diversification. Its low correlation with U.S. markets can help smooth overall portfolio performance.
9. SPDR S&P Dividend ETF (SDY)
For income-focused investors, SDY tracks companies that have consistently increased dividends for at least 20 consecutive years. With a slightly higher 0.35% expense ratio, this fund offers both growth potential and income generation. If dividend investing interests you, explore our dividend investing guide for more strategies.
10. VanEck Semiconductor ETF (SMH)
For sector-specific exposure, SMH offers focused investment in semiconductor companies with a 0.35% expense ratio. While more volatile than broad market funds, this sector has shown tremendous growth potential driven by technological advancements in AI, cloud computing, and other emerging technologies.
How to Start Investing in Low Cost Index Funds
Ready to begin your investment journey? Here's a simple process:
- Choose a brokerage platform (Vanguard, Fidelity, Schwab, etc.)
- Open an account (taxable or retirement account like IRA/401k)
- Make your initial deposit
- Select your index funds based on your investment goals
- Consider setting up automatic contributions
For those looking to start an online business while investing for the future, consider using Shopify to create a passive income stream. Plans start at just $39 per month, and this ecommerce platform can complement your investment strategy by generating additional income for your portfolio.
For beginners wanting to learn more about investing principles, check out these stock market courses for beginners that can help build your knowledge.
The Power of Dollar-Cost Averaging
One of the most effective strategies for index fund investing is dollar-cost averaging (DCA). This approach involves investing a fixed amount regularly, regardless of market conditions. Benefits include:
- Reduced impact of market volatility
- Lower average cost basis over time
- Removal of emotional decision-making
- Consistent portfolio growth through all market cycles
Most brokerages allow automatic investments on your preferred schedule, making this strategy easy to implement.
Considerations When Choosing Index Funds
While expense ratios are crucial, other factors to consider include:
- Tracking Error: How closely the fund follows its benchmark index
- Fund Size: Larger funds typically offer better liquidity and stability
- Tax Efficiency: ETFs generally offer better tax treatment than mutual funds
- Issuer Reputation: Established providers like Vanguard, Fidelity, and BlackRock offer reliability
- Trading Costs: Consider commission-free options available at most brokerages
Index Fund Comparison Table
| Fund Name | Ticker | Expense Ratio | Asset Class |
|---|---|---|---|
| Vanguard S&P 500 ETF | VOO | 0.03% | US Large Cap |
| Fidelity ZERO Total Market Index | FZROX | 0.00% | US All Cap |
| iShares Core S&P 500 ETF | IVV | 0.03% | US Large Cap |
| Schwab U.S. Broad Market ETF | SCHB | 0.03% | US All Cap |
| Vanguard Total Stock Market ETF | VTI | 0.03% | US All Cap |
| iShares Core S&P Total US Stock ETF | ITOT | 0.03% | US All Cap |
| iShares Core MSCI Total International | IXUS | 0.07% | International |
| Vanguard Total International Stock ETF | VXUS | 0.08% | International |
| SPDR S&P Dividend ETF | SDY | 0.35% | Dividend Focus |
| VanEck Semiconductor ETF | SMH | 0.35% | Sector |
Final Words
Low cost index funds continue to offer one of the most accessible and effective ways to build wealth in 2025. Their combination of diversification, minimal fees, and reliable performance makes them appropriate for investors at all experience levels. Remember Warren Buffett's wisdom: "By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals."
Whether you're just starting your investment journey or looking to optimize an existing portfolio, focusing on expense ratios can significantly impact your long-term results. Begin with small, regular contributions, maintain a long-term perspective, and let the power of compound growth work in your favor.
Related Articles
Frequently Asked Questions About Low Cost Index Funds
What is considered a 'low cost' index fund?
A low cost index fund typically has an expense ratio of 0.20% or less, with the best options now available for 0.10% or lower. The industry leaders like Vanguard, Fidelity, and BlackRock offer funds with expense ratios as low as 0.03% or even 0.00% in Fidelity's case. Even a difference of 0.10% in expense ratio can translate to thousands of dollars in savings over decades of investing.
Are ETFs or mutual funds better for low cost index investing?
Both ETFs (Exchange Traded Funds) and mutual funds can be excellent low cost index options. ETFs generally offer slightly lower expense ratios, better tax efficiency, and can be traded throughout the day. Mutual funds, on the other hand, only trade once per day but may offer advantages like automatic investment plans and the ability to purchase fractional shares. For most long-term investors, the slight differences are minimal, and the expense ratio should be the primary consideration.
How much money do I need to start investing in index funds?
Many ETF index funds require only the price of one share (which can range from $50-$400 depending on the fund). Most brokerages now offer fractional share investing, meaning you can start with as little as $1. For mutual funds, minimums vary by provider - Fidelity's ZERO funds have no minimum, while Vanguard's mutual funds typically require $1,000-$3,000 to start. The key is to begin investing early regardless of the amount, as time is the most powerful factor in building wealth.
Should I choose a total market index fund or an S&P 500 index fund?
Both options are excellent for long-term investors. S&P 500 index funds focus on the 500 largest U.S. companies, which represent about 80% of the U.S. market's value. Total market index funds include these companies plus thousands of mid and small-cap stocks. Historically, the performance difference has been minimal over long periods. Total market funds offer slightly more diversification, while S&P 500 funds focus on well-established companies. Many investors choose to make either option their core holding, then diversify with international or sector-specific funds.
Do low cost index funds perform better than actively managed funds?
Studies consistently show that approximately 80-90% of actively managed funds underperform their benchmark indexes over 10+ year periods. This underperformance is largely due to higher fees and difficulty in consistently timing the market. While some active funds do outperform in certain periods, identifying these winners in advance is extremely difficult. For most investors, low cost index funds provide a higher probability of long-term success with significantly less effort and cost.
