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.
Source: Pexels
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.
8. Vanguard S&P Small-Cap 600 Value Index Fund Institutional Shares (MUTF:VSMVX)
Expense Ratio: 0.030%
5-Year annualized Return as of July 29: 12.93%
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 targets investors seeking to diversify their investment portfolios by investing in small-cap stocks. That’s because it tracks the performance of the S&P SmallCap 600 Value Index.
The index fund features smaller-cap companies than most of its peers in the small value category. Likewise, the fund’s broader reach minimizes stock-specific risks. Consequently, the index fund measures the return of small capitalization value stocks. It relies on an indexing investment strategy to track the performance of the benchmark index.
Vanguard S&P Small-Cap 600 Value Index Fund Institutional Shares (MUTF:VSMVX) portfolio appears somewhat different from the average peer due to its smaller size and blend of stocks. Financial services stocks account for the largest share of the portfolio, at 20.73%, followed by Industrials at 15.21% and Consumer Cyclical at 14.65%. Technology stocks account for 12.86%. Over the past five years, the index fund has generated an annualized return of 13%.
7. Schwab Total Stock Market Index Fund (MUTF:SWTSX)
Expense Ratio: 0.03%
5-Year annualized Return as of July 29: 15.66%
The Schwab Total Stock Market Index Fund (MUTF:SWTSX) is one of the best low-risk index funds to buy now. The index fund attempts to generate returns by tracking the returns in the US stock market, as measured by the Dow Jones U.S. Total Stock Market Index.
While tracking the Dow Jones U.S. Total Stock Market Index, the Schwab Total Stock Market Index Fund includes technology stocks, accounting for 32.73% of its portfolio. Financial Services, Consumer Cyclical, and Healthcare stocks account for 14.24%, 10.58%, and 9.56% of the portfolio, respectively.
The Schwab Total Stock Market Index Fund (MUTF:SWTSX) guarantees investors a low expense ratio of 0.03%. In addition, it boasts a 5-year annual average return of 15.44%.
6. Fidelity ZERO Total Market Index Fund (MUTF:FZROX)
Expense Ratio: 0.00%
5-Year annualized Return as of July 29: 15.89%
Fidelity ZERO Total Market Index Fund (MUTF:FZROX) is one of the best low-risk index funds to buy now. It is an index fund tailored to investors eyeing exposure to the broad US equity markets. The fund invests at least 80% of its assets in common stocks included in the Fidelity U.S. Total Investable Market Index.
Being a float-adjusted market capitalization-weighted index, the Fidelity ZERO Total Market Index Fund reflects the performance of large, mid, and small capitalization stocks in the U.S. equity markets.
Fidelity ZERO Total Market Index Fund (MUTF:FZROX) has a big inclination towards technology stocks, which account for 31.40% of the portfolio, followed by Financial Services at 14.11% and Consumer cyclical at 10.89%. The diversified nature has been the catalyst behind the fund generating a 5-year average annualized return of 15.89%. Additionally, it boasts of a low expense ratio of 0.00%.
5. Fidelity ZERO Large Cap Index Fund (MUTF:FNILX)
Expense Ratio: 0.00%
5-Year annualized Return as of July 29: 16.30%
Fidelity ZERO Large Cap Index Fund (MUTF:FNILX) is one of the best low-risk index funds to buy now. The index fund tracks the Fidelity US Large Cap Index. Therefore, it is an ideal index fund for investors seeking exposure to large-cap US companies.
The float-adjusted market capitalization-weighted index fund invests at least 80% of its assets in US large capitalization stocks to reflect their performance. The Fidelity ZERO Large Cap Index Fund is designed for investors seeking broad exposure in the markets.
Technology stocks account for 33.19% of the portfolio followed by Financial Services at 13.87% and Consumer Cyclical at 10.66%. Fidelity ZERO Large Cap Index Fund (MUTF:FNILX) also stands out as a low-risk index fund as it comes with a 0.00% expense ratio. Additionally, it has generated a 16.03% annualized return over the past 5 years.
4. Fidelity 500 Index Fund (MUTF:FXAIX)
Expense Ratio: 0.015%
5-Year annualized Return as of July 29: 16.43%
Fidelity 500 Index Fund (MUTF:FXAIX) is one of the best low-risk index funds to buy now. It is an index fund that tries to replicate the performance of the common stocks traded in the U.S. It invests 80% of its assets in common stocks listed in the S&P 500.
Therefore, it is an ideal low-risk index fund due to its diversified portfolio spanning various sectors. While technology stocks account for 32.91% of the portfolio, it also offers exposure to Consumer Cyclical stocks at 10.83% and Financial Services stocks that account for 13.93% of the portfolio. Healthcare stocks account for 9.62% of the index fund holdings.
Some of the hedge fund’s significant holdings include Microsoft, Nvidia, Apple, Amazon, and Meta Platforms. Additionally, the Fidelity 500 Index Fund (MUTF:FXAIX) comes with a low expense ratio of 0.015%, which allows investors to generate optimal returns. Over the past five years, it has generated annualized returns of 16.20%.
3. Vanguard 500 Index Fund Admiral Shares (MUTF:VFIAX)
Expense Ratio: 0.040%
5-Year annualized Return as of July 29: 16.40%
Vanguard 500 Index Fund Admiral Shares (MUTF:VFIAX) is one of the best low-risk index funds to buy now. The Index fund tracks and seeks to replicate the performance of large capitalization stocks as listed in the S&P 500 index. The investment vehicle employs an index-based investment approach to track the benchmark index, the S&P 500.
Likewise, the Vanguard 500 Index Fund Admiral Shares (MUTF:VFIAX) portfolio is heavily weighted towards technology stocks, accounting for 34.40% of the portfolio, with Financial Services accounting for 13.58% of the portfolio. Consumer Cyclical accounts for 10.55%, and Healthcare accounts for 9.35%. The index fund has generated a 5-year annualized return of 16.42%. It also comes with a low expense ratio of 0.04%.
2. Schwab S&P 500 Index Fund (MUTF:SWPPX)
Expense Ratio: 0.020%
5-Year annualized Return as of July 29: 16.43%
The Schwab S&P 500 Index Fund (MUTF:SWPPX) is one of the best low-risk index funds to buy now, with a low expense ratio of 0.020%. It is an index fund designed to track the performance of the S&P 500. It invests at least 80% of its assets in the stocks of the 500 leading publicly traded companies, giving each stock the same weight as the index.
Consequently, it boasts one of the most diversified investment portfolios. While technology stocks account for 34% of the portfolio, financial services come in second at 13.67% followed by Consumer Cyclical at 10.54% and Communication Services at 9.79%.
Some of the index fund’s most significant holdings include Nvidia, Microsoft, Apple, Amazon, and Meta Platforms. Over the past five years, Schwab S&P 500 Index Fund (MUTF:SWPPX) has generated an annualized return of 16.43%.
1. T. Rowe Price Equity Index 500 Fund Z Class (MUTF:TRHZX)
Expense Ratio: 0.0%
5-Year annualized Return as of July 29: 16.45%
T. Rowe Price Equity Index 500 Fund Z Class (MUTF:TRHZX) is one of the best low-risk index funds to buy now. The index fund seeks to track the performance of the S&P 500, which acts as a representative of the US economy. Consequently, it invests at least 80% of its assets in large-cap stocks, including the index.
While the index fund is highly diversified across various sectors, it inclines technology stocks, which account for 34.36% of its total portfolio. Financial services sector stocks account for 13.67% followed by consumer cyclical stocks at 10.54%
The T. Rowe Price Equity Index 500 Fund Z Class (MUTF:TRHZX) has generated a 5-year annualized return of 16.46%, slightly above the 16.09% for the benchmark index. Additionally, the index fund boasts a 0.0% expense ratio.
While we acknowledge the potential of T. Rowe Price Equity Index 500 Fund Z Class (MUTF:TRHZX) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than TRHZX and that has 100x upside potential, check out our report about this cheapest AI stock.
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