Index Funds
The simplest, lowest-cost, most reliable way to build wealth over time. Here's why index funds are the backbone of the FI community's investment strategy.
Total Market vs S&P 500
Two approaches, both excellent. Understanding the difference helps you choose with confidence.
S&P 500 Index
VOO / VFIAX — ~500 large-cap US companies
- Tracks the 500 largest US companies
- Extremely liquid and widely held
- Lower expense ratios than most funds
- Warren Buffett recommends it for 90% of investors
Total Stock Market
VTI / VTSAX — ~4,000 US companies of all sizes
- Includes small-cap and mid-cap stocks
- Broader diversification across entire US market
- Captures growth from smaller companies
- Slightly higher historical returns due to small-cap premium
Why Expense Ratios Matter
Small differences in fees create massive gaps over time. Here's the math.
| Fund Type | Expense Ratio | Cost on $100K over 30 years |
|---|---|---|
| VTI (Vanguard Total Stock) | 0.03% | $2,800 |
| Average Index Fund | 0.10% | $9,300 |
| Average Active Fund | 1.00% | $86,000 |
On a $100,000 investment over 30 years, the difference between VTI at 0.03% and an average active fund at 1% is over $83,000 in fees alone.
Popular Index Funds Compared
The FI community's most recommended total market index funds.
VTI
Vanguard ETF — 0.03% expense ratio, $1 minimum. Most popular ETF in the FI community.
VTSAX
Vanguard Mutual Fund — 0.04% expense ratio, $3,000 minimum. Admiral shares with auto-invest features.
FZROX
Fidelity Mutual Fund — 0.00% expense ratio, $0 minimum. Zero expense ratio — genuinely free.
The Bogleheads Philosophy
Named after Vanguard founder Jack Bogle: simplicity, low cost, and staying the course.
Keep it simple
A 3-fund portfolio is all most people need. Adding complexity rarely adds returns but always adds risk of behavioral mistakes.
Stay the course
Markets will crash. Your job is to do nothing. Investors who sell during downturns and buy during euphoria underperform those who simply hold.
Minimize costs
Every dollar in fees is a dollar not compounding. Choose index funds with the lowest expense ratios.
Don't try to time the market
Nobody can consistently predict market movements. Dollar-cost averaging into index funds removes emotion from the equation.
Dollar-Cost Averaging
Dollar-cost averaging means investing a fixed amount at regular intervals, regardless of market conditions. When prices are high, you buy fewer shares. When prices drop, you buy more. Over time, this naturally lowers your average cost per share.
The real power of DCA isn't mathematical — it's behavioral. By automating your investments, you remove the temptation to time the market, chase performance, or freeze during downturns. Set up automatic contributions on payday and let the system work.
Continue Your Journey
Dive deeper into topics that complement your index fund strategy.