Why Index Funds Win
The evidence is overwhelming: over 90% of actively managed funds fail to beat their benchmark index over 15-year periods. After accounting for higher fees, active managers destroy wealth rather than create it for most investors.
Index funds win because of three factors: low fees (0.03% vs 1%+), broad diversification (500+ stocks), and tax efficiency (minimal trading means fewer taxable events).
How Index Funds Work
An S&P 500 index fund buys all 500 stocks in the S&P 500 in proportion to their market capitalization. Apple makes up ~7% of the index, so ~7% of the fund is Apple. When the index changes (companies are added/removed), the fund adjusts automatically.
The Three-Fund Portfolio
One of the most popular strategies for index fund investors:
- US Total Stock Market — VTI or VTSAX (60-80%)
- International Stock Market — VXUS or VTIAX (15-30%)
- US Total Bond Market — BND or VBTLX (5-30%)
Adjust percentages based on your age and risk tolerance. Use our portfolio allocation tool to find your ideal mix.
Top Index Funds
- VOO / VFIAX — S&P 500 (0.03% / 0.04%)
- VTI / VTSAX — Total US Stock Market (0.03% / 0.04%)
- VXUS / VTIAX — Total International (0.07% / 0.11%)
- BND / VBTLX — Total Bond Market (0.03% / 0.05%)
- FXAIX — Fidelity S&P 500 (0.015%) — one of the cheapest anywhere
- FZROX — Fidelity ZERO Total Market (0.00%) — literally free