Summary:
Discover the best index funds for 2025 with top ETFs to buy. Build a diversified portfolio with low-cost, high-performing options for long-term growth.
Index funds, particularly exchange-traded funds (ETFs), continue to dominate the investment landscape in 2025, offering a low-cost, diversified way to track major market indices. With market volatility persisting due to economic uncertainties and geopolitical tensions, investors are increasingly turning to these passive investment vehicles for stability and consistent returns.
Whether you're a beginner or a seasoned investor, selecting the right index funds can be a cornerstone of your portfolio. This article highlights the best index funds for 2025, focusing on top ETFs to buy based on performance, cost, and market relevance.
Index funds, especially ETFs, replicate the performance of a specific market index like the S&P 500 or Nasdaq-100, providing broad market exposure with minimal fees. In 2025, their appeal is stronger than ever due to ongoing fee reductions by major providers like Vanguard and State Street, as well as their ability to outperform many actively managed funds over the long term.
According to recent data, index funds now account for approximately 60% of US equity market assets, up from 21% in 2012, reflecting their growing dominance. With economic indicators pointing to potential slowdowns, these funds offer a safer, more predictable way to invest compared to stock-picking.
The S&P 500, representing 500 of the largest US companies, remains a benchmark for broad market performance. Here are some of the best ETFs tracking this index:
1. Vanguard S&P 500 ETF (VOO)
Expense Ratio: 0.03% ($3 per $10,000 invested annually)
5-Year Annualised Return: 18.8%
Why It's Top: With hundreds of billions in assets under management, VOO is a staple for investors due to its ultra-low cost and consistent performance mirroring the S&P 500. It's highly liquid and widely available.
Best For: Core portfolio holdings for long-term investors.
2. SPDR S&P 500 ETF Trust (SPY)
Expense Ratio: 0.0945% ($9.45 per $10,000 invested annually)
5-Year Annualised Return: Approx. 18-19% (historically aligned with S&P 500)
Why It's Top: One of the oldest ETFs, SPY offers high liquidity and is a favourite among active traders and institutional investors.
Best For: Traders seeking flexibility and high trading volume.
3. iShares Core S&P 500 ETF (IVV)
Expense Ratio: 0.03% ($3 per $10,000 invested annually)
5-Year Annualised Return: Approx. 18-19% (historically aligned with S&P 500)
Why It's Top: IVV matches VOO's low cost and provides excellent exposure to the S&P 500 with strong liquidity.
Best For: Cost-conscious investors wanting a reliable ETF.
For those seeking growth through technology and innovation-focused companies, Nasdaq-100 ETFs are ideal.
4. Invesco QQQ Trust (QQQ)
Expense Ratio: 0.20% ($20 per $10,000 invested annually)
5-Year Annualised Return: 21.2%
Why It's Top: QQQ tracks the Nasdaq-100, heavily weighted towards tech giants like Apple, Microsoft, and Nvidia. Its strong historical returns make it a standout for growth investors.
Best For: Investors seeking tech-heavy growth exposure.
For broader diversification beyond the S&P 500 or Nasdaq, total market and international ETFs offer global exposure.
5. Vanguard Total Stock Market ETF (VTI)
Expense Ratio: 0.03% ($3 per $10,000 invested annually)
5-Year Annualised Return: Approx. 15-18% (historically competitive with total market indices)
Why It's Top: VTI tracks the CRSP US Total Market Index, covering nearly 4,000 US stocks across all sectors for comprehensive market exposure at a minimal cost.
Best For: Investors wanting total US market diversification.
6. Vanguard Total World Stock ETF (VT)
Expense Ratio: 0.07% ($7 per $10,000 invested annually)
5-Year Annualised Return: Approx. 10-12% (historically aligned with global indices)
Why It's Top: VT provides exposure to both US and international stocks, offering true global diversification.
Best For: Investors seeking worldwide equity exposure.
Specialised ETFs cater to specific needs like income or sector focus, adding balance to portfolios.
7. Schwab U.S. Dividend Equity ETF (SCHD)
Expense Ratio: 0.06% ($6 per $10,000 invested annually)
5-Year Annualised Return: Approx. 12.7% since inception
Why It's Top: SCHD focuses on high-quality dividend stocks, offering both income and capital appreciation with low fees.
Best For: Income-focused investors seeking stability.
8. Vanguard Dividend Appreciation ETF (VIG)
Expense Ratio: 0.05% ($5 per $10,000 invested annually)
5-Year Annualised Return: Approx. 10-12% (historically strong for dividend growth)
Why It's Top: VIG tracks the S&P U.S. Dividend Growers Index, requiring 10 years of consecutive dividend growth, recently benefiting from fee cuts.
Best For: Long-term investors wanting dividend growth.
9. VanEck Semiconductor ETF (SMH)
Expense Ratio: 0.35% ($35 per $10,000 invested annually)
5-Year Annualised Return: Approx. 24% since inception
Why It's Top: SMH invests in semiconductor leaders like Nvidia and TSMC, capitalising on AI and tech growth trends.
Best For: Investors seeking aggressive tech sector growth.
10. iShares Physical Gold ETC (SGLN)
Expense Ratio: 0.06% ($6 per $10,000 invested annually)
1-Year Return (as of March 2025): 35.2%
Why It's Top: With gold prices soaring past $3,000 per ounce in 2025, SGLN offers a low-cost way to hedge against inflation and market volatility.
Best For: Investors seeking a safe-haven asset.
Expense Ratios: Prioritise low-cost funds like VOO, IVV, and VTI, as fees directly impact long-term returns. Many providers have slashed fees in 2025, with some like Fidelity ZERO funds at 0%.
Diversification Needs: Match your fund choice to your portfolio goals—S&P 500 for core US exposure, Nasdaq for growth, or total world funds for global reach.
Performance History: While past performance isn't a guarantee, funds like QQQ (21.2% 5-year return) and VOO (18.8%) show consistent strength.
Liquidity and AUM: Larger funds like SPY and VOO offer high liquidity, reducing trading costs and ensuring ease of buying or selling.
Market Conditions: With 2025's volatility, consider defensive options like SCHD or SGLN to balance riskier growth funds like SMH.
The best index funds for 2025, particularly ETFs, offer a blend of low costs, diversification, and strong performance potential. Whether you're building a core portfolio with Vanguard S&P 500 ETF (VOO) or seeking growth through Invesco QQQ Trust (QQQ), there's a fund to match your goals.
Specialised options like Schwab U.S. Dividend Equity ETF (SCHD) and iShares Physical Gold ETC (SGLN) add further balance. Evaluate expense ratios, historical returns, and your risk tolerance to select the right mix for your investment strategy this year.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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