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All Contents © 2019The Kiplinger Washington Editors
By Todd Shriber
| November 15, 2017
Index funds are a great way for investors of all skill levels to build or enhance their portfolios. These days, with investors being increasingly cost-conscious, low-cost index funds, including exchange-traded funds, are pilfering market share from higher-cost, actively managed mutual funds.
Novice investors like index funds because they remove the burden of stock picking while tactical investors can find a lot to like with index funds as well. As the universe of index funds has boomed, there are more funds covering more asset classes, including international stocks, emerging markets equities, sectors, industries and much more.
Additionally, income investors can find a plethora of index funds that can help boost portfolio yield and income potential, whether that be with dividend index funds or fixed income funds.
Consider the following cheap index funds as potentially rewarding additions to any long-term portfolio.
Prices and data are from the original InvestorPlace story published on Nov. 9. Click on ticker-symbol links in each slide for current prices and more.
Expense Ratio: 0.03%, or $3 annually on a $10,000 investment
Not surprisingly, U.S. equities are the asset class most represented among index funds. With that in mind, investors should not pay up for domestic equity index funds. The Schwab Total Stock Market Index Fund certainly helps frugal investors keep fee erosion to a minimum. In fact, SWTSX is cheaper than competing Fidelity and Vanguard strategies.
The $6.5 billion SWTSX helps keep costs low with a turnover ratio of just 1%, meaning stocks are not frequently moving in and out of this index fund. Home to more than 2,400 stocks, SWTSX is an alternative for investors looking for a deeper bench than is offered by S&P 500 index funds.
SWTSX allocates over 22% of its weight to technology stocks with financial services and healthcare combining for over 29% of the fund's weight. Top 10 holdings in this index fund include well-known large-caps such as Apple. (AAPL), Microsoft Corporation (MSFT) and Facebook (FB).
Expense Ratio: 0.15%
What would a compilation of index funds be without some Vanguard fare. The Vanguard High Dividend Yield Index Fund Investor Shares "seeks to track a benchmark that provides broad exposure to U.S. companies that are dedicated to consistently paying larger-than-average dividends," according to index fund juggernaut Vanguard.
VHDYX is ideal for conservative income investors as the index fund's 402 holdings have a median market value north of $135 billion. This dividend index fund's largest sector allocation is 14.3% to technology with the financial services, healthcare and industrial sectors all garnering weights of at least 13%.
Keeping with Vanguard tradition, VHDYX fits the bill as a cheap index fund as its 0.15% expense ratio makes it cheaper than 86% of rival funds, according to issuer data.
Expense Ratio: 0.16%
Index fund investors should not confine their search for the ideal funds to U.S. borders. The Fidelity International Index Fund Investor Class is a perfect example of a cheap index fund featuring access to international stocks. In fact, FSIIX is favorably priced relative to competitors in the large-cap foreign blend category. Additionally, FSIIX's long-term performance is better than the average large-cap foreign blend index fund.
Another perk of FSIIX is its exposure to Europe. European equities account for 64% of this cheap index fund's lineup, which is an advantage at a time when European stocks are less expensive than their U.S. counterparts. Japan, another developed market that trades at significant discounts to the S&P 500, represents nearly 23% of this index fund's weight.
"By region, Europe ex U.K (+7%) led the way amid improving credit conditions and overall positive market sentiment. European Central Bank (ECB) President Mario Draghi cautioned, however, that the ongoing economic recovery must result in stronger inflation before monetary accommodation can be meaningfully reduced. Norway, Portugal, Austria, Netherlands and Italy each gained by double digits," said Fidelity at the end of the third quarter.
This article is from Todd Shriber of InvestorPlace. As of this writing, Shriber did not personally hold a position in any of the aforementioned securities.
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