One of the most common questions new investors ask is: “Which index fund should I buy?” It’s tempting to look for a simple, ranked list of “the best” funds — but the truth is that the right index fund depends on your specific goals, and any list of “top picks” can quickly become outdated as fees, fund lineups, and market conditions change. Instead, this guide focuses on the criteria that actually matter when choosing an index fund, so you can evaluate options for yourself, no matter when you’re reading this.

What Is an Index Fund, Quickly Recap

An index fund is a fund — either a mutual fund or an ETF — designed to track the performance of a specific market index, such as the S&P 500 (large U.S. companies), the Nasdaq Composite (heavily weighted toward technology), or a total stock market index (which includes companies of all sizes). Instead of a manager picking stocks, the fund simply mirrors the index’s holdings.

Criteria #1: Low Expense Ratio

The expense ratio is the annual fee a fund charges, expressed as a percentage of your investment. Even small differences matter over long periods, because fees compound just like returns do. When comparing index funds:

• Look for funds with low expense ratios relative to similar funds tracking the same index
• Compare the expense ratio across a few different providers offering funds that track the same or a similar index
• Remember that extremely low fees shouldn’t be the only factor — make sure the fund’s underlying index and structure match your goals too

Criteria #2: Broad Diversification

A good beginner index fund typically tracks a broad market index rather than a narrow slice of the market. Broad diversification means:

• The fund holds a large number of companies across various industries
• Your investment isn’t overly dependent on the performance of any single sector or company
• The fund’s ups and downs tend to reflect the overall market rather than the fortunes of a few businesses

Common broad indexes include total stock market indexes, large-cap indexes like the S&P 500, and total international indexes. Narrower index funds — such as those tracking a single industry or country — can still be useful, but generally carry more concentrated risk and are often better suited as a smaller piece of a larger portfolio.

Criteria #3: Fund Provider Reputation and Size

Consider the reputation and track record of the company managing the fund. Larger, well-established fund providers often benefit from:

• Greater economies of scale, which can help keep fees low
• Longer track records of closely tracking their target index
• Strong regulatory compliance and transparency

That said, a fund’s size and age aren’t guarantees of quality, so it’s still worth comparing the specific fund’s fees, structure, and index against alternatives.

Criteria #4: Tracking Accuracy

A good index fund should closely match the performance of the index it claims to track, minus fees. The difference between a fund’s actual performance and its target index’s performance is called tracking error. A well-run index fund typically has a very small tracking error. This information is usually available in a fund’s official documents, such as its prospectus or fact sheet.

Criteria #5: Tax Efficiency (for Taxable Accounts)

If you’re investing outside of a retirement account, consider how tax-efficient the fund structure is. As discussed in our comparison of index funds and ETFs, ETF structures often (though not always) offer some tax advantages in taxable brokerage accounts compared to certain mutual fund structures. This may matter less if you’re investing inside a 401(k) or IRA, where taxes are generally deferred or eliminated.

Criteria #6: Minimum Investment Requirements

Some index mutual funds require a minimum initial investment, while ETFs are generally bought by the share (or as a fraction of a share, if your broker supports it). If you’re starting with a small amount of money, this can influence which fund format makes more sense for you.

How to Actually Compare Funds Before Investing

1. Use your brokerage’s research tools or the fund provider’s official website to look up the fund’s current expense ratio, holdings, and performance history.
2. Compare at least two or three funds that track similar indexes to see how their fees and structures differ.
3. Read the fund’s prospectus, a legal document that outlines the fund’s objectives, risks, and costs.
4. Consider how the fund fits into your broader portfolio and financial goals, rather than choosing it in isolation.

A Word on “Best Of” Lists

Any list claiming to name the definitive “best” index funds for a given year should be treated with caution, especially in an area where fees, fund availability, and market indexes can shift. Rather than relying solely on such lists, use the criteria in this guide to evaluate options yourself, and check current data directly from fund providers or a trusted financial research platform before investing.

The Bottom Line

There’s no single “best” index fund for every beginner — the right choice depends on your goals, account type, and the specific indexes and fees available to you at the time you invest. Focus on low costs, broad diversification, a reputable provider, and accurate index tracking, and always verify current fund details before putting your money to work. If you’re unsure where to start, a licensed financial advisor can help you choose funds appropriate for your situation.

Example: How Much Expense Ratios Matter

On a $20,000 investment, a fund with a 0.03% expense ratio costs about $6 a year, while a fund with a 0.50% expense ratio costs about $100 a year.

If both funds track the same index, the cheaper fund leaves more of the returns in your pocket every year, and that gap compounds over time.

Examples are hypothetical and for illustration only. Returns are not guaranteed, and real results will vary.

Frequently Asked Questions

What is the difference between an S&P 500 fund and a total market fund?

An S&P 500 fund holds about 500 large U.S. companies. A total market fund also includes mid-size and small companies, so it is slightly more diversified.

Do I need international funds?

Many investors add international stocks for broader diversification, though how much is a personal decision.

How many index funds should a beginner own?

Some people use just one broad fund; others combine two or three, such as U.S. stocks, international stocks, and bonds.

Related Guides

• Index Funds vs. ETFs: What’s the Difference?
• What Is an ETF? A Beginner’s Guide
• Active vs. Passive Investing: Which Is Right for Beginners?
• Mutual Funds vs. ETFs: Which Should You Choose?