In this article, we will take a look at the 10 Best Low-Risk Index Funds to Buy Now.
Index Funds are solid investment vehicles that track major indices, offering broad exposure to the stock market. They are considered low-risk investment tools as they track broadly diversified indices, thereby spreading risks and shrugging the high volatility associated with individual stocks.
Low cost is a sign of efficiency when it comes to investing. As a result of costs for research, analyst salaries, frequent trading, and management overhead, the focus is slowly shifting from active index funds.
Large-cap fund managers managing active funds have consistently underperformed their benchmarks. An S&P Dow Jones annual survey indicates that 65% of active fund managers underperformed the S&P 500 in 2024. The long-term performance is even worse, with 84% underperforming.
Active managers don’t underperform because they are dumb.
“Everyone is getting too smart. It boils down to the increasing professionalization of the industry, the higher costs, and the fact that there is only a handful of stocks that drive outperformance, and it’s like finding a needle in a haystack to identify them,” said Anu Ganti, head of US Index Investment Strategy for S&P Dow Jones Indices.
Therefore, the best low-risk index funds tend to be passive funds that focus on mirroring the performance of an index benchmark. The only costs that such funds incur are tied to licensing the underlying index and portfolio management expenses, which are extremely low.
While not all index funds fall into the safe category, the best in terms of risk-reward tend to hold up well in turbulent times. Some offer solid long-term returns, regardless of the stock market cycle or political and economic environment. Others tend to perform better during recessions and periods of uncertainty, such as the one triggered by the US trade and tariff war.
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Our Methodology
To compile the list of the best low-risk index funds to buy now, we thoroughly reviewed reputable sources such as Morningstar and Yahoo Finance. We focused on index funds with a low expense ratio of less than 0.1% and a track record in generating more than 10% in five year annualized returns. Finally, we ranked the index funds in ascending order based on their 5-year annualized returns (as of July 29).
Why are we interested in the stocks that hedge funds pile into? The reason is straightforward: our research has demonstrated that we can outperform the market by replicating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Best Low-Risk Index Funds to Buy Now
10. Vanguard S&P Mid-Cap 400 Growth Index Fund Institutional Shares (MUTF:VMFGX)
Expense Ratio: 0.03%
5-Year annualized Return as of July 29: 11.15%
Vanguard S&P Small-Cap 600 Value Index Fund Institutional Shares (MUTF:VSMVX) is one of the best low-risk index funds to buy now. The index fund is tailored for investors seeking to diversify their investment portfolio with mid-cap companies, as it tracks the performance of the S&P MidCap 400 Growth Index.
It employs an indexing investment approach to track the performance of the benchmark index, while focusing on growth companies within the category. Nevertheless, it features smaller companies than most of its peers in the category.
The Vanguard S&P Small-Cap 600 Value Index Fund Institutional Shares (MUTF:VSMVX) has a broad reach of between 200 and 250 stocks, ensuring that stock-specific risks are significantly minimized. Industrial stocks account for 27.41% of the portfolio, followed by technology stocks at 18.04% and Financial services at 15.16%. The index fund’s annualized five-year return stands at 11.20%.
9. Vanguard Tax-Managed Small-Cap Fund Institutional Shares (MUTF:VTSIX)
Expense Ratio: 0.06%
5-Year annualized Return as of July 29: 11.68%
Vanguard Tax-Managed Small-Cap Fund Institutional Shares (MUTF:VTSIX) is one of the best low-risk index funds to buy now, due to its low fees, broad diversification, and profitability bias. The index fund seeks to provide an efficient investment return consisting of long-term capital appreciation.
Vanguard Tax-Managed Small-Cap Fund Institutional Shares (MUTF: VTSIX) tracks the S&P SmallCap 600 Index as its managers strive to minimize tax events. It employs a representative sampling method to construct its portfolio, aiming to mimic the benchmark index’s performance.
Vanguard Tax-Managed Small-Cap Fund Institutional Shares (MUTF:VTSIX)’s diversified portfolio sees the Industrials and Financial sectors accounting for 18.09% and 18.33% of the portfolio, respectively. Technology stocks account for 14.02%, and Consumer Cyclical accounts for 13.33%. The index fund boasts an 11.82% annualized return over the past five years.
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