Any investor hunting for the best index funds out there should realize one thing: Many of the best index funds are simply some of the best funds period. Active management has had its day. While individual managers and sometimes whole teams were once the gold standard of Wall Street funds, they’re ceding more and more ground to funds essentially run by a computer and tied to an index. Indeed, as Vanguard founder and index-investing guru John Bogle said recently in The Wall Street Journal,
The trend of investors moving away from actively managed mutual funds and toward passive index funds will strengthen. Index funds now account for 34% of U.S. equity mutual-fund assets. Since 2007, investors have added $930 billion to their investments in passively operated U.S. equity index funds, and they have withdrawn $240 billion from their holdings in actively managed equity funds. That’s a swing of more than $1.17 trillion in investor preferences. In the years ahead, that trend will accelerate.
As a bonus to investors, some of the best index funds — usually exchange-traded funds, but often available as mutual funds, too — also happen to be some of the cheapest. Without one or several managers doing research and taking up office space, assistants and the like, index funds are able to operate with some of the lowest expense ratios in the game. So if you’re interested in getting diversified for a song, the place to start is this look at five of America’s best index funds — funds that include the famous SPY ETF and QQQ, among others: