5 Index Funds That Beat 90% of Investors

You've heard it a thousand times: "Just invest in index funds." But which ones? The S&P 500? Total market? International? Dividend funds? There are hundreds of index funds and most investors have no idea which to choose. Here's the truth backed by 15 years of performance data: These 5 specific index funds have consistently beaten 90% of actively managed funds while charging fees so low they're almost invisible. No stock picking. No market timing. Just automatic market returns that compound into serious wealth over decades.

Why Index Funds Beat Active Investing

90% of active fund managers underperform their benchmark index over 15 years. These 5 index funds consistently deliver market returns with rock-bottom fees, beating expensive stock-pickers. Perfect next step after your basic investing foundation simple, automatic wealth building for young professionals.

The math that proves index funds win:

• Active fund average fee: 1.0-1.5% annually
• Index fund average fee: 0.03-0.20% annually
• Fee difference over 30 years: $150,000+ less to active funds on $100K invested
• Active fund success rate: Only 10% beat their index over 15 years
• Your odds picking a winning active fund: 1 in 10 (terrible odds)

Real example: $10,000 invested in 2010:

• VTI index fund: $48,200 today (10.2% annualized)
• Average active fund: $22,000 today (5.1% annualized after fees)
• Difference: $26,200 more with index fund (219% better!)

Before diving into specific funds, make sure you understand investing basics. Check our complete investing 101 guide for young professionals.

Fund #1: VTI - Vanguard Total Stock Market ETF (The Perfect Core)

Why VTI is the #1 choice for most investors:

Key Statistics

• Expense Ratio: 0.03% ($3 yearly per $10,000 invested)
• Total Holdings: 3,700+ U.S. companies automatically
• 15-Year Performance: 10.2% annualized returns
• Current Price: ~$260 per share (fractional shares available)
• Total Assets: $1.7 trillion (massive liquidity)
• Dividend Yield: 1.3% annually

What You Own When You Buy VTI

• Large cap (82%): Apple, Microsoft, Amazon, Nvidia, Tesla
• Mid cap (13%): Growing companies moving up
• Small cap (5%): Future large caps in early stage
• Automatic rebalancing: Winners get bigger positions, losers shrink naturally
• Zero decisions needed: Market decides weightings for you

Why VTI is Perfect for Beginners

• Owns literally the entire U.S. stock market in one purchase
• Can't pick wrong companies system owns them all
• Lowest fee possible only 3 cents per year per $100
• Works with $50 monthly or $10,000 lump sum equally well
• Tax efficient minimal capital gains distributions

Best use case: 40-60% of your portfolio as core holding.

Fund #2: VOO - Vanguard S&P 500 ETF (The Classic Winner)

The most popular index fund in history for good reason:

Key Statistics

• Expense Ratio: 0.03% (identical to VTI)
• Total Holdings: 500 largest U.S. companies
• 10-Year Performance: 13.8% annualized returns
• Total Assets: $1.5 trillion (most popular ETF)
• Dividend Yield: 1.2% annually

VOO vs VTI: What's the Difference?

• VOO: Top 500 companies only (large cap focused)
• VTI: All 3,700+ companies (includes mid/small cap)
• Performance difference: Nearly identical long-term (within 0.5%)
• Choose VOO if: You want pure large-cap blue chip exposure
• Choose VTI if: You want complete market coverage

Warren Buffett's Recommendation

In his will, Warren Buffett instructed 90% of his wife's inheritance go into an S&P 500 index fund (VOO). His reasoning: "By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals."

Best use case: Core retirement holding, set-it-forget-it investing.

Fund #3: SCHD - Schwab U.S. Dividend Equity ETF (Income Plus Growth)

The perfect blend of growing dividends and capital appreciation:

Key Statistics

• Expense Ratio: 0.06% (still incredibly low)
• Dividend Yield: 3.5% annually (paid quarterly)
• Total Holdings: 100 quality dividend-growing companies
• 10-Year Total Return: 11.5% (dividends reinvested)
• Dividend Growth: Average 12% increase yearly

What Makes SCHD Special

• Quality screening: Only companies with 10+ years dividend growth
• Financial health required: Strong cash flow, low debt
• Dividend safety: Companies must sustain and grow dividends
• Lower volatility: 15% less volatile than total market
• Recession resilient: Quality companies weather downturns better

Top Holdings (Examples)

• Home Depot: 4.2% of fund
• Verizon: 3.8%
• Coca-Cola: 3.5%
• PepsiCo: 3.3%
• Merck: 3.1%

Perfect for Roth IRA Compounding

That 3.5% dividend reinvests automatically in your Roth IRA, buying more shares every quarter. Over 30 years, dividend reinvestment accounts for 40-50% of total returns. In a Roth IRA, all dividends and growth are 100% tax-free forever.

Best use case: 10-20% of portfolio for income generation and stability.

Fund #4: QQQ - Invesco Nasdaq-100 ETF (The Growth Machine)

High risk, high reward for long-term investors under 40:

Key Statistics

• Expense Ratio: 0.20% (higher but justified by performance)
• Total Holdings: 100 largest non-financial Nasdaq companies
• 15-Year Performance: 17.8% annualized (stunning returns)
• Dividend Yield: 0.6% (low, focused on growth)
• Tech concentration: 55% technology sector

What You Own in QQQ

• Magnificent 7 (48% of fund): Apple, Microsoft, Nvidia, Amazon, Meta, Tesla, Alphabet
• Other tech leaders: AMD, Intel, Qualcomm, Adobe, Netflix
• Consumer discretionary: Costco, Starbucks, Booking.com
• Healthcare tech: Regeneron, Vertex, Moderna

The Volatility Trade-Off

• 2022 crash: QQQ down 33% (brutal year)
• 2023 recovery: QQQ up 55% (massive rebound)
• 2020 COVID crash: Down 30%, recovered in 5 months
• Long-term result: 17.8% annualized beats everything else

Who Should Own QQQ

• Age under 40: 30+ year timeline absorbs volatility
• Risk tolerance: Can stomach 30-40% drops without selling
• Growth focus: Don't need current income from dividends
• Tech believers: Convinced technology drives future economy

Warning: Don't make QQQ your entire portfolio. 10-20% maximum for most investors.

Best use case: 10-20% of portfolio for aggressive growth if under 40.

Fund #5: VIG - Vanguard Dividend Appreciation ETF (The Safe Option)

Lower volatility, consistent growth, perfect for conservative investors:

Key Statistics

• Expense Ratio: 0.06% (extremely low)
• Total Holdings: 300+ companies with 10+ years dividend increases
• 15-Year Performance: 11.2% annualized
• Dividend Yield: 1.8% annually
• Volatility: 20% lower than total market

What Makes VIG Different from SCHD

• VIG: 300 holdings, more diversified, lower yield (1.8%)
• SCHD: 100 holdings, higher yield (3.5%), value-focused
• Performance: Nearly identical long-term
• Choose VIG if: You want broader diversification
• Choose SCHD if: You want higher current income

Perfect for Emergency Fund Overflow

Once you have your 6-month emergency fund in high-yield savings (4.5% APY), additional savings can go into VIG for higher returns with lower risk than pure stock funds. Not as safe as cash, but 11% long-term returns beat inflation handily.

For building that emergency fund first, see our guide on how to build an emergency fund fast, even on a tight budget.

Best use case: 10-20% of portfolio for stability and consistent growth.

Head-to-Head Performance Comparison

Here's how all 5 funds stack up against each other:

📱 Mobile users: Swipe left on the table below to see all columns →

Fund	Expense Ratio	10-Yr Return	Dividend Yield	Volatility	Best For
VTI	0.03%	12.1%	1.3%	Medium	Core holding (40-60%)
VOO	0.03%	13.8%	1.2%	Medium	Retirement accounts
SCHD	0.06%	11.5%	3.5%	Low-Medium	Income generation
QQQ	0.20%	18.2%	0.6%	High	Growth (under 40)
VIG	0.06%	11.2%	1.8%	Low	Conservative growth
Average Total Cost: $4.50 yearly per $10,000 invested (weighted by typical 60/20/10/10 allocation)

Key takeaway: All 5 funds have fees under 0.20%, saving you thousands compared to active funds charging 1%+.

The Simple Portfolio Formula for $100/Month

You don't need to pick just one fund. Here's the optimal allocation for most investors:

Balanced Growth Portfolio (Ages 25-40)

• 60% VTI ($60/month): Core total market exposure
• 20% SCHD ($20/month): Dividend income and stability
• 20% VIG ($20/month): Dividend growth and lower volatility
• Total monthly investment: $100
• Weighted expense ratio: 0.045% ($4.50 yearly per $10K)
• Expected long-term return: 11-12% annually

Aggressive Growth Portfolio (Under 30, High Risk Tolerance)

• 40% VTI ($40/month): Broad market foundation
• 20% VOO ($20/month): Large cap exposure
• 20% QQQ ($20/month): Tech growth boost
• 10% SCHD ($10/month): Dividend stability
• 10% VIG ($10/month): Conservative balance
• Expected return: 13-15% annually (higher volatility)

Conservative Growth Portfolio (Ages 40+)

• 40% VTI ($40/month): Core holding
• 30% VOO ($30/month): Blue chip stability
• 20% SCHD ($20/month): Higher dividend income
• 10% VIG ($10/month): Extra stability
• Expected return: 10-11% annually (lower volatility)

This complements the strategy from our $50/month retirement investing guide perfectly just scale up amounts.

Broker Setup: Buy These Funds in 15 Minutes

Here's exactly how to start investing in these funds today:

Step 1: Open Fidelity Roth IRA (5 minutes)

1. Go to Fidelity.com
2. Click "Open an Account" → Select "Roth IRA"
3. Complete application with SSN and bank info
4. Fund with initial $100 from checking account
5. Account approved instantly for most applicants

Step 2: Buy Your First Index Fund (5 minutes)

1. Log into Fidelity account
2. Click "Trade" → Search ticker symbol (example: "VTI")
3. Select "Buy" → Enter dollar amount ($60 for 60% allocation)
4. Order type: Market order
5. Review and submit
6. Repeat for SCHD ($20) and VIG ($20)

Step 3: Set Up Automatic Investing (5 minutes)

1. Navigate to "Automatic Investment Plan"
2. Select each fund (VTI, SCHD, VIG)
3. Set frequency: Weekly or monthly
4. Set amounts: $60/$20/$20 or $15/$5/$5 weekly
5. Enable dividend reinvestment for all funds
6. Confirm and activate

Done. Your portfolio now runs on autopilot, buying more shares automatically every month.

Why These 5 Funds Beat 90% of Investors

The evidence is overwhelming:

Reason 1: No Manager Risk

• Index funds use algorithms to track indexes automatically
• No human manager making emotional decisions
• No risk of manager retiring or changing strategy
• Consistent execution year after year

Reason 2: Microscopic Fees

• These 5 funds: 0.03-0.20% fees ($3-20 per $10,000)
• Active funds: 1.0-1.5% fees ($100-150 per $10,000)
• Difference over 30 years on $100K: $150,000+ savings
• Lower fees = more money compounds for you

Reason 3: Full Diversification

• Own 100 to 3,700 companies in single fund
• Individual company bankruptcy doesn't matter
• Sector rotation happens automatically
• Winners naturally get bigger, losers shrink

Reason 4: Tax Efficiency

• Low turnover = minimal taxable distributions
• In Roth IRA: 100% tax-free growth forever
• Active funds trigger taxes annually from trading
• Index funds: Hold companies for years, rarely sell

Reason 5: Time in Market Wins

• Dollar-cost averaging smooths volatility automatically
• Monthly buying = more shares when prices low
• Crashes become buying opportunities not disasters
• 30-year timeline makes short-term drops irrelevant

Market Crash Strategy: Don't Panic

Every fund on this list has survived and recovered from major crashes:

2008 Financial Crisis

• VTI crash: Down 37% peak to trough
• Recovery: Up 26% in 2009, full recovery by 2013
• Result: Investors who held and kept buying won big

2020 COVID Crash

• VOO crash: Down 34% in 5 weeks (fastest crash ever)
• Recovery: Up 31% by year-end, new all-time highs
• Result: One of fastest recoveries in history

2022 Bear Market

• All 5 funds down: VTI -20%, QQQ -33%
• 2023 rebound: VTI +26%, QQQ +55%
• Result: Monthly investors bought the dip automatically

The lesson: Crashes are temporary. Monthly investing turns crashes into buying opportunities. Winners hold through volatility.

Dollar-Cost Averaging in Action

Here's what $100 monthly into these funds actually becomes:

Year 1: Building Foundation

• Monthly investment: $100 (60% VTI, 20% SCHD, 20% VIG)
• Total invested: $1,200
• Account value: $1,320 (10% average gain)
• Psychological win: System working, momentum building

Year 5: Compound Interest Visible

• Total invested: $6,000 ($100 × 60 months)
• Account value: $8,200 (11% annualized)
• Free gains: $2,200 from compound growth
• Monthly dividends: ~$20 reinvesting automatically

Year 10: Serious Wealth Building

• Total invested: $12,000
• Account value: $21,500 (11.5% annualized)
• Free gains: $9,500 (79% more than invested!)
• Dividends: $60+ monthly reinvesting

Year 20: Life-Changing Money

• Total invested: $24,000
• Account value: $78,000+ (12% annualized)
• Free gains: $54,000 (225% more than invested!)
• Down payment for house or retirement boost

Year 30: Retirement Ready

• Total invested: $36,000
• Account value: $245,000+ (12% annualized)
• Free gains: $209,000 (580% more than invested!)
• Serious retirement nest egg from just $100 monthly

Integration With Your Complete Financial System

These index funds fit perfectly into your broader money strategy:

The complete system:

• Step 1: Create simple monthly budget
• Step 2: Find $100 monthly using $100 Challenge
• Step 3: Build $1,000 emergency fund
• Step 4: Invest $100 monthly in these 5 index funds
• Step 5: Scale up as income increases

Budget line item:

• Add "Index Funds: $100" to zero-based budget
• Treat like rent non-negotiable monthly payment
• Automate so it happens before you see the money

30-Day Index Fund Investing Challenge

Launch your index fund portfolio in just 30 days:

Week 1: Account Setup and First Purchase

• Day 1: Open Fidelity Roth IRA (15 minutes)
• Day 2: Fund account with $100
• Day 3: Buy $60 VTI, $20 SCHD, $20 VIG
• Day 7: Verify all purchases completed

Week 2: Automation Setup

• Day 8: Set up recurring $100 monthly transfer from checking
• Day 9: Set up automatic purchases (60/20/20 split)
• Day 10: Enable dividend reinvestment on all 3 funds
• Day 14: Verify automation scheduled correctly

Week 3: Education and Understanding

• Day 15: Read VTI fund prospectus understand holdings
• Day 18: Review SCHD dividend history see growth
• Day 21: Understand why these beat active funds

Week 4: Review and Commitment

• Day 28: Check account see first week of growth
• Day 29: Calculate 30-year projection at 11% returns
• Day 30: Commit to never stopping monthly investments
• Set calendar reminder: Review portfolio quarterly only

Frequently Asked Questions

Q: Should I invest in all 5 funds or just pick one?

A: Start with VTI if you only want one fund it's 60-70% of most portfolios anyway. Add SCHD and VIG once you're comfortable. Add VOO and QQQ only if you want specific exposure (large cap focus or aggressive tech growth).

Q: Can I invest in these funds outside a Roth IRA?

A: Yes! All 5 are available in taxable brokerage accounts, traditional IRAs, and 401ks. Roth IRA is just the most tax-efficient option for most young investors.

Q: What if the market crashes right after I invest?

A: Perfect! Your next monthly investment buys more shares at lower prices. With 20-40 year timeline, crashes are opportunities not disasters. Every historical crash has recovered and gone higher.

Q: How often should I check my account?

A: Quarterly maximum. Daily or weekly checking causes emotional reactions and bad decisions. Set it, forget it, check every 3 months just to ensure automation working.

Q: Should I sell when I see big gains?

A: No. That's called "timing the market" and it fails 95% of the time. Hold forever, keep buying monthly, let compound interest do the work. Winners hold for decades.

Q: What's the minimum to start?

A: $1 at Fidelity with fractional shares. But $100 lets you split across all 3 funds properly. Start with whatever you have, increase as income grows.

Start Your Index Fund Journey Today

Millionaires invest in index funds while others pick individual stocks and lose.

What happens when you invest in these 5 index funds:

• You automatically beat 90% of professional investors
• Your money compounds at 10-18% annually long-term
• You pay microscopic fees ($4.50 yearly per $10K)
• Market crashes become buying opportunities automatically
• You build serious wealth on autopilot over decades

Your immediate action plan:

1. Open Fidelity Roth IRA today (15 minutes)
2. Fund with $100 initial deposit
3. Buy VTI ($60), SCHD ($20), VIG ($20)
4. Set up $100 monthly automatic investment
5. Enable dividend reinvestment on all funds
6. Check quarterly, ignore daily noise
7. Never stop investing for 30+ years
8. Retire with $245,000+ from $100 monthly

The difference between wealthy people and everyone else: wealthy people invest in index funds starting today. Everyone else plans to start "someday." Which are you?

Download Fidelity app. Buy $100 VTI Friday. Automate monthly purchases. Sleep soundly for 30 years knowing you're beating 90% of investors with 5% of the effort.

Which index fund are you starting with? VTI for simplicity or building a complete portfolio? Share your strategy in the comments below!