Index funds offer one of the best strategies for building a cost-effective portfolio. They track market indexes like Dow Jones Industrial Average.
Index funds offer investors options that focus on company size, capitalization, industry sector or geography – you could even opt to target stocks which pay dividends!
1. Fidelity Total Stock Market Index Fund (FSKAX)
Index funds follow market indexes by investing in hundreds or thousands of publicly traded firms that make up those indexes, rather than trying to outstrip or surpass their returns. They offer broad diversification at lower costs.
Index funds come in many different varieties. Some fund focuses on small, mid or large-sized companies (stock market capitalization). Others examine specific industries or geographic regions. Yet others invest in volatile growth stocks with potential for greater returns over the long term.
Roth IRA investors seeking a sound foundation should begin by choosing an investment option with broad market stock and bond exposure, such as broad market stock/bond funds. Such funds provide both buy-and-hold potential as well as an excellent way to expand into more complex investments over time. NerdWallet rates retirement brokers and robo-advisors using 15 factors including account fees/minimums/choices/mobile app capabilities/customer support to determine rankings of retirement brokers/robo-advisors.
2. Vanguard Total Stock Market ETF (VTI)
The VTI fund follows the CRSP US Total Stock Market Index and offers extensive market coverage with low fees, making it an excellent option for anyone looking for long-term growth while diversifying equity exposure across sectors and company sizes.
Since 1999, Invesco Asset Management Company (Invesco), one of the world’s largest asset managers has managed this fund and its 0.03% expense ratio makes it one of the lowest cost ETFs available on the market.
Investment strategies such as mutual fund or index fund investing through an Individual Brokerage account can be helpful; but for maximum returns it would be smart to open a Roth IRA instead. This pre-tax retirement account allows you to keep more of what you earn and offers tax benefits not available with other brokerage accounts.
3. Vanguard Total Bond Market ETF (VTB)
People saving for retirement with Roth IRAs or other tax-advantaged individual retirement accounts (IRAs) generally desire to build a portfolio consisting of both stocks and bonds. To do this, they typically choose several broad stock and bond funds as foundational investments.
Vanguard Total Bond Market ETF (VTB) is one of the top choices available, tracking the CRSP US Bond Market Index and offering investors access to a diverse portfolio of bonds. Being an exchange-traded fund (ETF), investors can buy and sell shares as needed throughout the day – just like with any stock.
Vanguard Total Bond Market ETF and BNDX each provide a diversified global bond portfolio with expense ratios below industry norms, making them excellent choices for core portfolio construction.
4. Vanguard Total International ETF (VTII)
Retirees looking forward to retirement will likely need a mix of stocks and bonds in their Roth IRA portfolios to secure their financial futures. A good way to begin investing is with broad US stock index funds such as Vanguard S&P 500 ETF (VOO) or Vanguard Total International Stock ETF (VTII), both offering low expenses that track closely against market performance.
These funds offer another advantage by being passive indexing strategies, which helps keep turnover and management fees to a minimum, helping ensure maximum long-term returns from portfolio investments.