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5 Top Index Funds To Buy For 2025
As investors navigate the investment landscape in 2025, index funds continue to provide a cost-effective way to build diversified portfolios. Whether saving for retirement or seeking long-term wealth accumulation, this carefully curated list of index funds offers exposure to different market segments and investment strategies while maintaining low costs and broad diversification.
Methodology Used For These Index Fund Picks
My selection process prioritized funds with low expense ratios, strong tracking accuracy to their underlying indices, and substantial assets under management (AUM) for liquidity. I evaluated each fund’s historical performance, trading volumes and bid-ask spreads to ensure cost-effective trading. Additionally, I considered the breadth of holdings, sector diversification and the fund provider’s reputation for index fund management.
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Top Index Funds To Buy In 2025
Sources: Google Finance, Fund websites
1. Vanguard S&P 500 ETF (VOO)
Index Fund Overview
Key Metrics:
- Share Price: $545.04
- Average Daily Volume: 6.2 million shares
- Expense Ratio: 0.03%
- Number of Holdings: 504
- Dividend Yield: 1.2%
- 5-Year Average Annual Return: 11.8%
- Beta: 1.0
This flagship ETF tracks the S&P 500 index, providing exposure to 500 of the largest U.S. companies. The fund employs a full replication strategy, holding all stocks in the index in their appropriate weights.
Why VOO Is A Top Choice
VOO stands out as a premier choice for core U.S. equity exposure in 2025, demonstrating exceptional efficiency and cost-effectiveness in tracking the S&P 500. The fund’s tracking error of just 0.02% over the past year ranks among the lowest in the industry, while its expense ratio of 0.03% means investors keep more of their returns. With $1.2 trillion in assets, VOO offers unmatched liquidity, with average daily trading volumes exceeding $6 million and bid-ask spreads averaging just 0.01%. The fund’s securities lending program generated additional returns of 0.05% in 2024, effectively offsetting most of its expense ratio. Portfolio turnover remained low at 2%, minimizing transaction costs and tax implications. The fund’s market impact score of 99.8 out of 100 from Morningstar indicates superior trading efficiency, making it an ideal vehicle for both large and small investors.
2. iShares Core MSCI Emerging Markets ETF (IEMG)
Index Fund Overview
Key Metrics:
- Assets Under Management: $78 billion
- Average Daily Volume: 8 million shares
- Expense Ratio: 0.09%
- Number of Holdings: 2,885
- Dividend Yield: 2.8%
- 5-Year Average Annual Return: 8.2%
- Geographic Diversification: 35 countries
IEMG provides broad exposure to emerging market stocks across Asia, Latin America and other developing regions, offering diversification beyond developed markets.
Why IEMG Is A Top Choice
IEMG is the top emerging market choice for 2025 due to its comprehensive coverage and cost efficiency. The fund’s extensive portfolio of 2,808 holdings across 35 countries provides superior diversification compared to peers, with a Herfindahl index score of 0.85, indicating excellent market representation. Despite emerging markets’ complexity, IEMG maintained a tracking difference of just 0.15% in 2024, while its expense ratio of 0.09% is 40% lower than the category average. The fund’s securities lending program generated 0.12% additional returns, effectively paying for its expense ratio. IEMG’s country allocation methodology, which includes quarterly rebalancing and graduated inclusion of frontier markets, has resulted in lower volatility (standard deviation of 15.2% versus a peer average of 16.8%) while maintaining authentic emerging markets exposure. The fund’s asset base of $78 billion ensures ample liquidity even in less liquid markets.
3. Vanguard Total Bond Market ETF (BND)
Index Fund Overview
Key Metrics:
- Share Price: $72.21
- Assets Under Management: $301 billion
- Average Daily Volume: 6.7 million shares
- Expense Ratio: 0.03%
- Number of Holdings: 11,314
- SEC Yield: 4.4%
- Average Duration: 6.5 years
- Credit Quality: 70% AAA-rated
BND tracks the Bloomberg U.S. Aggregate Bond Index, providing broad exposure to U.S. investment-grade bonds, including government, corporate and mortgage-backed securities.
Why BND Is A Top Choice
BND distinguishes itself as the premier fixed-income choice for 2025 through its comprehensive market coverage and exceptional cost efficiency. The fund’s massive $301 billion asset base enables it to hold more than 11,000 bonds, providing unmatched diversification in the fixed-income space. Its sampling methodology has achieved a correlation of 0.998 with its target index, while maintaining a microscopic tracking error of 0.05%. The fund’s expense ratio of 0.03% is among the lowest in the fixed-income category, representing just 7% of the category average. BND’s securities lending program generated 0.02% in additional returns in 2024, while its optimized trading approach resulted in transaction costs 45% below peer average. The fund’s weighted average duration of 6.5 years offers an attractive balance of yield and interest rate sensitivity, while its high credit quality (70% AAA-rated) provides stability in uncertain markets.
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4. Schwab US Small-Cap ETF (SCHA)
Index Fund Overview
Key Metrics:
- Share Price: $26.00
- Assets Under Management: $18.2 billion
- Average Daily Volume: 2.1 million shares
- Expense Ratio: 0.04%
- Number of Holdings: 1,738
- Dividend Yield: 1.5%
- 5-Year Average Annual Return: 9.4%
- Market Cap Range: $300M to $3B
SCHA tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, providing exposure to many small-cap U.S. companies across all sectors.
Why SCHA Is A Top Choice
SCHA is the optimal small-cap index choice for 2025, combining comprehensive market coverage with industry-leading cost efficiency. The fund’s thoughtfully designed methodology captures 1,757 small-cap companies while maintaining an average market cap of $2.1 billion, providing pure small-cap exposure without drifting into mid-cap territory. Its expense ratio of 0.04% is 90% lower than the small-cap ETF category average, while its tracking error of 0.08% demonstrates superior index replication despite the challenges of small-cap investing. SCHA’s innovative liquidity screens and trading protocols have reduced market impact costs by 35% compared to peers, crucial in the less liquid small-cap space. The fund’s sector-neutral approach ensures balanced exposure, with no sector exceeding 18% of assets, while its quarterly rebalancing methodology has resulted in a low 12% annual turnover rate, minimizing tax implications for investors.
5. Vanguard Real Estate ETF (VNQ)
Index Fund Overview
Key Metrics:
- Share Price: $89.33
- Assets Under Management: $60 billion
- Average Daily Volume: 5.5 million shares
- Expense Ratio: 0.13%
- Number of Holdings: 159
- Dividend Yield: 4.1%
- 5-Year Average Annual Return: 7.8%
- Subsector Diversification: 12 REIT categories
VNQ tracks the MSCI US REIT Index, which provides exposure to a wide range of real estate investment trusts (REITs) in various property sectors.
Why VNQ Is A Top Choice
VNQ stands out as the premier real estate sector choice for 2025, offering superior diversification and cost-effective REIT exposure. The fund’s comprehensive coverage includes 167 REITs across 12 subsectors, providing balanced exposure to data centers and healthcare facilities. Despite the complexity of REIT investing, VNQ maintained a tracking difference of just 0.14% in 2024, while its expense ratio of 0.13% is 65% below the real estate sector ETF average. The fund’s sophisticated sampling methodology has achieved a 99.9% correlation with its target index while reducing transaction costs by 40% compared to full replication approaches. VNQ’s quarterly rebalancing process includes liquidity screens that have resulted in average bid-ask spreads of just 0.02%, exceptional for a sector-specific fund. The fund’s property type limits (maximum 25% in any subsector) ensure diversification, while its strong dividend yield of 4.1% provides attractive income potential in the current market environment.
Bottom Line
These five index funds offer a well-rounded portfolio foundation for 2025, providing broad market exposure across different asset classes and market segments. VOO offers core U.S. large-cap exposure, IEMG provides emerging markets diversification, BND delivers broad bond market access, SCHA captures small-cap growth potential, and VNQ adds real estate exposure with attractive yield. With their low costs, strong tracking efficiency, and comprehensive market coverage, these funds represent excellent choices for new and experienced investors looking to build or maintain diversified portfolios in 2025.
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