How to Invest in Index Funds: The Easiest Path to Long-Term Wealth

Best S&P 500 Index Funds

If you're looking for the best low-cost index funds to anchor a long-term portfolio, S&P 500 index funds are the most straightforward starting point. They track roughly 500 of the largest U.S. companies, give you instant diversification, and — critically — charge very little to own. Here's how the three most popular options compare.

Vanguard 500 Index Fund (VFIAX / VOO)

Vanguard essentially invented the index fund as a retail product, and VFIAX/VOO remains the gold standard. The mutual fund version (VFIAX) carries a 0.04% expense ratio and a $3,000 minimum investment. The ETF share class (VOO) has the same 0.03% expense ratio with no minimum beyond the cost of one share. Both track the S&P 500 identically — the choice between them usually comes down to whether your brokerage account is better suited to mutual funds or ETFs.

Fidelity 500 Index Fund (FXAIX)

FXAIX is one of the most competitive low-cost index funds available anywhere. Its expense ratio sits at 0.015% — among the lowest in the industry — and there is no minimum investment, making it accessible whether you're starting with $50 or $50,000. For investors who already use Fidelity, FXAIX is a natural default choice. It tracks the S&P 500 with near-perfect fidelity and reinvests dividends automatically.

Schwab S&P 500 Index Fund (SWPPX)

SWPPX offers a 0.02% expense ratio and no minimum investment, sitting comfortably between Vanguard and Fidelity on cost. Schwab customers will find it integrates seamlessly with their existing accounts and automatic investment plans. Performance between SWPPX, FXAIX, and VOO is nearly indistinguishable over time — at these expense ratios, the differences in annual cost on a $10,000 investment amount to just a few dollars.

Which Should You Choose?

Honestly, any of these three funds will serve you well. The decision mostly comes down to where you already have an account:

• Fidelity account? Use FXAIX — lowest expense ratio, no minimum.
• Schwab account? SWPPX is an excellent fit with no minimum.
• Vanguard account or prefer ETFs? VOO or VFIAX are the trusted standard.

What matters far more than picking between these funds is your savings rate and how consistently you invest. Use the simple math behind FI to see how a low expense ratio compounds over decades, or calculate your FI number to set a concrete target.

Before you dismiss small fee differences, understand how important low fees really are when choosing index funds — the impact compounds dramatically over decades.

Best Total Stock Market Index Funds

When it comes to building wealth for financial independence, few tools are as dependable as low-cost total market index funds. Unlike picking individual stocks or paying a fund manager to do it for you, total market index funds give you broad ownership across thousands of companies in a single, simple investment — at a fraction of the cost.

If you're still figuring out where you stand, use the FI calculator or calculate your FI number before choosing how to deploy your money.

Vanguard Total Stock Market — VTSAX and VTI

VTSAX (the mutual fund) and VTI (its ETF equivalent) are arguably the most widely held funds in the FI community — and for good reason. Both track the CRSP US Total Market Index, covering over 3,900 U.S. stocks across large-cap, mid-cap, small-cap, and micro-cap companies. That breadth means you're not betting on any single sector or company size.

Key details:

• Expense ratio: 0.03% for VTI; 0.04% for VTSAX
• VTSAX minimum investment: $3,000
• VTI minimum: price of one share (or $1 with fractional shares at most brokerages)
• Issued by Vanguard, which is owned by its fund shareholders — a structure that keeps costs low by design

VTI is particularly useful if you're starting with less than $3,000, since you can buy a single share through any major brokerage. Once you cross the $3,000 threshold at Vanguard, many investors convert to VTSAX for automatic investment convenience.

Understanding the simple math behind FI makes it clear why expense ratios matter so much: over 30 years, even a 0.5% difference in fees can cost you tens of thousands of dollars in compounding returns.

Fidelity ZERO Total Market — FZROX

FZROX takes cost-cutting to its logical endpoint: a 0.00% expense ratio. Launched by Fidelity in 2018, it was the first true zero-expense-ratio fund available to retail investors. There's also no minimum investment, making it accessible whether you're investing $50 or $500,000.

Key details:

• Expense ratio: 0.00%
• Minimum investment: $0
• Only available at Fidelity (not transferable to other brokerages as FZROX shares)
• Tracks the Fidelity U.S. Total Investable Market Index — slightly different composition than CRSP, but similarly broad coverage

The zero-fee structure is genuinely compelling, especially for newer investors who want to keep every dollar working. The main trade-off: because FZROX is proprietary to Fidelity, you can't transfer the shares in-kind to another brokerage. You'd need to sell first, which could trigger a taxable event in a non-retirement account. For long-term holders who are committed to Fidelity, this is rarely a problem in practice.

Why Total Market Funds Work for FI Portfolios

The FI community gravitates toward total market index funds for a few consistent reasons:

• Diversification without complexity — one fund covers nearly every publicly traded U.S. company
• Low cost — expense ratios between 0.00% and 0.04% mean more of your returns stay with you
• Tax efficiency — index funds have low turnover, which means fewer taxable capital gains distributions
• Simplicity — fewer decisions means fewer opportunities to make emotionally-driven mistakes

A common FI portfolio approach pairs a total U.S. market fund with a total international fund for global exposure — but even a single total market fund covers the core of what most people need.

Check your savings rate to see how increasing contributions into low-cost index funds accelerates your timeline.

Best International Index Funds

Adding international exposure to your portfolio is one of the most straightforward ways to reduce concentration risk in U.S. equities. The two funds most commonly recommended in the FI community for international coverage are Vanguard Total International and Fidelity ZERO International — both among the best low-cost index funds available today.

Vanguard Total International (VTIAX / VXUS)

VTIAX (mutual fund) and VXUS (ETF share class) track the FTSE Global All Cap ex US Index, giving you exposure to thousands of stocks across developed and emerging markets. The expense ratio sits at 0.07% for VXUS and 0.12% for VTIAX — a negligible cost for the diversification you get. VTIAX carries a $3,000 minimum investment, while VXUS can be purchased for the price of a single share. If you're working through your FI calculator and want to stress-test global scenarios, these funds are a solid place to start.

Fidelity ZERO International (FZILX)

FZILX is one of the few index funds to invest in with a 0.00% expense ratio — genuinely zero cost. It tracks the Fidelity Global ex U.S. Index and has no investment minimum, making it accessible for investors just starting out. The trade-off is that FZILX is proprietary to Fidelity, meaning it cannot be transferred in-kind to another brokerage. For investors committed to Fidelity's ecosystem, it's a strong pick among low cost index funds.

Both funds serve the same core purpose: broad international diversification at minimal cost. Your specific allocation between U.S. and international holdings depends on your timeline and risk tolerance — not a one-size-fits-all formula. Use the simple math behind FI to see how your asset mix affects your target number.

Best Bond Index Funds

Bonds often get dismissed in FI circles as the boring part of a portfolio — but they serve a real purpose, especially as your balance grows and protecting what you have becomes just as important as accumulating more.

Vanguard Total Bond Market Index Fund (VBTLX / BND)

The Vanguard Total Bond Market Index Fund is the go-to bond holding for most FI-focused investors. Whether you access it as the mutual fund (VBTLX, $3,000 minimum) or the ETF equivalent (BND, no minimum), you're getting broad exposure to over 10,000 U.S. investment-grade bonds — including Treasuries, corporate bonds, and mortgage-backed securities — at an expense ratio of just 0.03%.

That near-zero cost matters. Over decades, even a 0.10% difference in fees compounds into thousands of dollars. You can run those numbers yourself with our FI calculator or dig into the simple math behind FI to see how bond allocations affect your timeline.

Age-Based vs. Fixed Bond Allocation

There are two main philosophies on how much of your portfolio to hold in bonds:

Age-based allocation — A common rule of thumb is to hold your age as a percentage in bonds (e.g., 35% bonds at age 35). A more aggressive variation used by many in the FI community is age minus 20, keeping more in equities during the accumulation phase.

Fixed allocation — Some investors prefer a set ratio regardless of age. A classic example is an 80/20 or 90/10 stock-to-bond split maintained through rebalancing. This approach prioritizes simplicity and consistency over lifecycle adjustments.

Neither approach is universally correct. The right allocation depends on your risk tolerance, your FI number, and how close you are to financial independence. A higher savings rate often means a shorter accumulation window, which changes the calculus on how much bond exposure actually makes sense for you.

Why Bonds Still Matter in an FI Portfolio

Bonds act as a stabilizer. During equity market downturns, bonds frequently hold value or even appreciate — giving you assets to draw from or rebalance with rather than selling stocks at a loss. This is sometimes called the "bond tent" strategy, where you temporarily increase bond allocation in the years just before and just after reaching FI to reduce sequence-of-returns risk.

Key facts on VBTLX / BND:

• Expense ratio: 0.03%
• Holdings: 10,000+ U.S. investment-grade bonds
• VBTLX minimum: $3,000 (Admiral Shares)
• BND minimum: Cost of one share (ETF)
• Covers Treasuries, corporate bonds, and mortgage-backed securities

Zero-Fee Index Funds: Are They Worth It?

Fidelity made headlines when it launched its ZERO fund lineup — the first index funds with a 0.00% expense ratio. No annual fee. Not 0.03%. Not 0.01%. Zero. For anyone focused on building wealth through the simple math behind FI, that number is hard to ignore.

Fidelity ZERO Funds Overview

The ZERO lineup includes four funds covering broad U.S. equities (FZROX), international equities (FZILX), large-cap stocks (FNILX), and extended market exposure (FZIPX). Each tracks a proprietary Fidelity index — not a third-party benchmark like the S&P 500 or MSCI — which is an important detail we'll come back to.

They have no investment minimum, making them accessible whether you're investing $50 or $50,000. They're also mutual funds, not ETFs, so they price once per day at market close rather than trading throughout the session.

Pros: Literally Free

The obvious win here is cost. A 0.00% expense ratio means every dollar you invest stays working for you. Over decades, even the difference between 0.00% and 0.03% (Fidelity's standard FSKAX) adds up when you're running the numbers through a FI calculator on a large portfolio.

For investors who keep everything inside Fidelity — brokerage accounts, Roth IRA, 401(k) — the ZERO funds are a legitimate way to reduce drag on long-term returns without sacrificing meaningful diversification.

Cons: Not Transferable, No ETF Option

Here's where it gets more nuanced. Because ZERO funds track proprietary Fidelity indexes, they cannot be transferred in-kind to another brokerage. If you move to Vanguard or Schwab, you'd need to sell first — a taxable event in a non-retirement account. That's a real constraint worth factoring in when you calculate your FI number and plan your long-term account strategy.

The mutual fund-only structure also means no intraday trading, no fractional ETF shares at other brokerages, and slightly less flexibility compared to ETF equivalents like VTI or SCHB.

The FI Verdict

For Fidelity loyalists who plan to stay put, ZERO funds are among the best low-cost index funds available — full stop. The fee savings are real, the diversification is solid, and the barrier to entry is nonexistent.

If you value portability or want the flexibility of ETFs, pairing low-cost index funds like FSKAX (0.015%) or a Vanguard equivalent with a clear account strategy may serve you better. Use our savings rate calculator to see how much your savings rate matters relative to fund fees — you might be surprised which variable moves the needle more.

Either way, the best index funds to invest in are the ones with low costs, broad diversification, and a structure that fits your actual plan.

The Three-Fund Portfolio: The FI Community's Favorite

If you ask experienced FI pursuers which portfolio structure they recommend most, the three-fund portfolio comes up again and again. It's built on just three low-cost index funds — US total market stocks, international stocks, and bonds — and it covers the entire investable world without the complexity of picking individual securities.

What Goes Into a Three-Fund Portfolio

• US Total Market Fund (e.g., VTSAX or FSKAX) — broad exposure to thousands of domestic companies
• International Index Fund (e.g., VTIAX or FTIHX) — diversification across developed and emerging markets outside the US
• Bond Index Fund (e.g., VBTLX or FXNAX) — ballast that reduces volatility, especially as you approach FI

These are consistently among the best low-cost index funds available, with expense ratios often below 0.10%.

Allocation by Age and Risk Tolerance

There's no single correct split, but common starting points include:

• Aggressive (younger or higher risk tolerance): 80–90% stocks, 10–20% bonds
• Moderate: 70% US stocks, 20% international, 10% bonds
• Conservative (closer to FI or lower risk tolerance): 60% stocks, 20% international, 20% bonds

Use our FI calculator or savings rate calculator to see how different allocations affect your timeline, and calculate your FI number to anchor your target.

Why Simplicity Wins

The FI community gravitates toward index funds because they require no active stock-picking, minimize fees, and historically outperform most actively managed funds over long periods. Three funds. Annual rebalancing. That's it.