The index mutual fund industry has only grown in size and popularity since it began with Vanguard’s 500 Index Fund in 1976. Index funds track the components of a market index, such as the Standard & Poor’s 500 Index, and mutual funds are investment vehicles comprised of a pool of funds collected from many investors. Often, investors are attracted to index mutual funds for their low operating expenses, low portfolio turnover and broad market exposure, as well as the opportunity to invest passively. Here, we take a look at four top U.S. equity index mutual funds: the Vanguard 500 Index Fund (VFINX), the Vanguard Total Stock Market Index Fund (VTSMX), the Fidelity 500 Index Fund (FUSEX) and the Schwab Total Stock Market Index Fund (SWTSX). All information presented here was accurate as of Oct. 5, 2018.
Vanguard 500 Index Fund
The index fund that started it all remains one of the best for its overall long-term performance and low cost. The Vanguard 500 Index Fund has dutifully matched the returns of the S&P 500 index for more than four decades while charging management fees of just 0.14%. Its assets of more than $450 billion are invested in 510 different large-cap stocks weighted by market capitalization based on the actual S&P 500 index. The Vanguard 500 Index Fund has returned an average of 11.17% annually since its inception and has a very low expense ratio of 0.14%.
Vanguard Total Stock Market Index Fund
The Vanguard Total Stock Market Index Fund was among the first funds to invest in the total stock market by including mid- and small-cap stocks, which has enabled it to outperform the S&P 500 over the last several years. The $749.30 billion fund tracks the MSCI U.S. Broad Market Index, which comprises nearly 100% of the total market capitalization of U.S. stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The Vanguard Total Stock Market Index Fund has returned an average of 9.90% annually since its inception and, like the Vanguard 500 Index Fund, it also has a 0.14% expense ratio.
The Fidelity 500 Index Fund
Next to Vanguard, Fidelity offers the widest range of index funds available in the industry. Its flagship index fund is the Fidelity 500 Index Fund, which has more than $166 billion in assets invested in 650 stocks, with a high concentration in the information technology, financial, health care and consumer discretionary sectors. Because the fund can invest as much as 20% of its assets outside of the S&P 500 Index, it tends to be a little more volatile than the index, but it also offers the potential to outperform the index. The fund has returned an average of 10.46% annually since its inception, and 0.015% expense ratio is one of the lowest available.
Schwab Total Stock Market Index Fund
Vanguard and Fidelity may dominate the index fund industry in terms of size, but Schwab has come on strong with its own menu of low-cost funds, led by the Schwab S&P Total Stock Market Index Fund. This fund tracks the Dow Jones U.S. Total Stock Market Index, which consists of the entire U.S. stock market. The fund may invest in short-term derivatives and futures contracts to close the performance gap that typically exists between the fund and the index. It may also choose to focus investments in a particular sector or group of sectors based on their relative weighting in the index. Over the last 10 years, the Schwab Total Stock Market Index Fund has returned an annual average of 12.67%. For the last five years, it has returned an annual average of 13.06%. The fund has a very low expense ratio of 0.03%.
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