How do I pick an index fund?

Choosing an index fund comes down to four questions: What does it track? What does it cost? Is it available at your brokerage? And does it have any minimums or loads you’d prefer to avoid? Get those four right and the decision is largely made.

Step 1: Choose the index

The index a fund tracks determines which part of the market you own. The major categories:

For a long-term portfolio being built from scratch, a total US market or S&P 500 index fund is the most common starting point. Adding an international fund provides exposure to economies outside the US, which historically account for roughly half of global stock market value.

Narrower indexes — single sectors like technology, energy, or healthcare — concentrate risk. They can outperform broadly diversified funds in good years and dramatically underperform in bad ones. Most investment educators recommend starting with broad market coverage before considering narrower exposures.

Step 2: Check the expense ratio

The expense ratio is the annual fee charged as a percentage of your assets. For index funds, you should expect:

• Under 0.05%: best-in-class (common at Fidelity, Vanguard, Schwab for major indexes)
• 0.05%–0.20%: good
• Above 0.20%: question whether a cheaper equivalent exists

The Fidelity ZERO Total Market Index Fund (FZROX) charges 0.00%. Vanguard’s S&P 500 ETF (VOO) charges 0.03%. Schwab’s S&P 500 Index Fund (SWTSX) charges 0.02%. These are all reasonable choices for the same core exposure with negligible fee differences.

Step 3: Confirm availability and minimums

ETFs vs mutual fund versions: Most major index funds come as both an ETF and a mutual fund. ETFs can be purchased commission-free at most major brokerages with no minimum investment (you buy whole shares or fractional shares). Mutual fund versions sometimes require a minimum initial investment — Vanguard’s Admiral Shares funds typically require $3,000 to start.

No-minimum mutual funds: Fidelity and Schwab offer index mutual funds with no minimum investment. These work like ETFs for cost purposes but trade at end-of-day NAV rather than intraday.

Sales loads: Avoid funds with sales loads — upfront or back-end commissions. Major index funds from Vanguard, Fidelity, and Schwab don’t charge loads. Investor.gov explicitly recommends avoiding sales loads where no-load alternatives exist.

Step 4: Match fund type to account type

In a 401(k), you can only invest in the options your plan offers — the best choice is typically the lowest-expense-ratio broad market or S&P 500 fund on the menu.

In an IRA or taxable brokerage, you choose from whatever your broker offers. ETFs work best in taxable accounts because they rarely distribute capital gains. Mutual funds can be slightly more convenient for automatic contributions in amounts that don’t neatly fit share prices.

Common picks by category

Expense ratios are subject to change; verify current rates at the fund company before investing.

The simplest approach

Most long-term individual investors don’t need more than two funds: one broad US market index fund and one international fund. Or three, adding a bond fund. The debate over which specific fund to pick from among these low-cost options is much less important than the decision to invest in index funds at all. Pick one of the major providers, confirm the expense ratio is below 0.10%, and start. The gap between a 0.03% fund and a 0.05% fund is negligible over any reasonable holding period; the gap between investing and not investing is enormous.