An index fund tracks a market index—like the S&P 500—so you own a slice of many companies at once. That means instant diversification and lower risk than picking individual stocks.
Why Index Funds Win
- • Low fees compared to actively managed funds
- • Broad diversification
- • Less guesswork and lower stress
- • Historically competitive performance
What to Look For
- Expense ratio: Aim for under 0.20% (many are 0.03%–0.10%).
- Tracking error: How closely the fund matches its index.
- Index coverage: Total market, S&P 500, international, and bonds.
Simple Three-Fund Portfolio
- 1. Total U.S. Stock Market Index
- 2. Total International Stock Market Index
- 3. Total U.S. Bond Market Index
Sample Allocation for 30-Somethings
- 80% stocks (60% U.S., 20% International)
- 20% bonds for stability and rebalancing fuel
Where to Buy
You can buy index funds in your 401(k), Roth IRA, Traditional IRA, or taxable brokerage account. Low-cost providers include Vanguard, Fidelity, and Schwab.
Set It and Forget It
- Automate monthly contributions.
- Rebalance annually or use target-date funds with automatic rebalancing.
- Ignore daily market noise—focus on your long-term plan.