The Best Index Funds
These mutual funds and ETFs earn Morningstar’s top rating.
Index funds are passive investments. They track an index with the goal of replicating the performance of that index, minus expenses. Active funds, meanwhile, are led by managers who choose particular securities in an effort to outperform an index.
But some index funds are better than others. The best index funds do a good job of closely tracking their indexes, minimizing costs, and following sensible rules-based indexes.
The first index fund, Vanguard 500, made its debut in 1976. Since then, index funds have exploded in popularity: Today, investors are putting money into U.S. stock index funds and pulling money out of their actively managed counterparts. And index funds that focus on international stocks and bonds are becoming more popular, too.
Why? Many argue that buying and holding the broad market (whatever that market may be) generates better results than trying to beat that same market through actively selecting securities. Indeed, Morningstar research has confirmed that in many investment categories, index funds have outperformed active funds over time.
Any historical performance advantage aside, there are several benefits to investing in index funds.
A good place to start your search for top index exchange-traded funds and mutual funds is with the Morningstar Analyst Rating. Funds that earn our highest rating—Gold—are those that we think are most likely to outperform over a full market cycle.
Here’s the list of best index mutual funds and ETFs broken down by three main asset classes that are represented in the portfolios of many investors: U.S. stocks, international stocks, and bonds. We’re also including a list of what we’re calling “specialized” index funds, which features top-rated funds from investment categories that appear less frequently in the portfolios of most investors.
These mutual funds and ETFs all land in one of the broad U.S. stock Morningstar Categories and earn our top Analyst Rating of Gold as of November 2022.
Although this is a list of the best broad-based index funds investing in U.S. stocks, there is some variety here. Several funds in the group track the S&P 500 and therefore provide access to large-cap stocks representing about 80% of the U.S. stock market. Other index funds on the list follow much broader market indexes that include more stocks, some of which are smaller-cap names. Meanwhile, other funds on the list are more narrowly focused, tracking indexes based on market capitalization (mid- or small-cap stocks) or investment style (growth stocks or value stocks).
To fully understand a fund’s strategy, be sure to read its Morningstar Fund Analyst Report.
These mutual funds and ETFs all land in one of the broad international-stock categories and earn our top Analyst Rating of Gold as of November 2022.
Here, too, we have another list of the best broad-based index funds—in this case, focused on international stocks—where there is some variety. Some funds here track global indexes that include U.S. stocks; others follow global indexes that exclude U.S. stocks. Consult the investment’s Morningstar Fund Analyst Report to clarify.
These mutual funds and ETFs all land in one of the broad bond categories and earn our top Analyst Rating of Gold as of November 2022.
Several of the best broad-based index funds on this list land in one of the intermediate-term bond categories. As such, they’d make great choices to anchor the bond portion of an investor’s portfolio, assuming the goals for the money are six or more years away. Those saving for a shorter-term goal in the next three to five years might consider short-term bond funds instead. Those investors with longer time horizons might consider a longer-term bond fund—but they should also be prepared for the enhanced volatility that comes along with investing in long-term bonds.
These mutual funds and ETFs all land in one of the specialized stock or bond categories and earn our top Analyst Rating of Gold as of November 2022.
The top-rated mutual funds and ETFs on this list are good choices for investors looking to fill more niche roles in their portfolios. For instance, retirees often hold a fund that’s meant to blunt the impact of inflation on their portfolios; two funds on this list are designed to do just that.
Of course, focusing on funds that earn Morningstar’s Gold rating may be too limiting for some investors. Those who’d like to consider funds beyond of our top rating can review a full list of U.S. stock index funds and ETFs and bond index funds and ETFs that earn ratings of Bronze, Silver, and Gold.
One product isn’t better than the other; choosing the right wrapper depends on personal preferences. Investors who value trading flexibility or who may have few dollars to invest might prefer an ETF, while those accessing index funds via a company-sponsored retirement plan are more than likely buying mutual funds.
Read “Traditional Index Fund vs. ETF Cage Match” to learn more about the differences between mutual funds and ETFs.
Susan Dziubinski has a position in the following securities mentioned above: VINIX. Find out about Morningstar’s editorial policies.