6 Low-Cost Funds That Quietly Crush The Market
Have you ever wondered what investment strategies truly stand the test of time? While countless options are vying for our attention, there are specific low-cost funds that have not only performed exceptionally well but continue to do so with remarkable consistency. As members of the investment community, we continuously seek out paths to enhance our portfolios effectively and efficiently. In this article, we will discuss six low-cost funds that have consistently outperformed the market and how they can fit into our investment strategies.
Understanding Low-Cost Funds
Low-cost funds, specifically index funds and exchange-traded funds (ETFs), have gained immense popularity in recent years. These funds aim to replicate the performance of a specific market index, such as the S&P 500 or the Total Stock Market. Unlike actively managed funds, which often come with high fees and inconsistent performance, low-cost funds offer several advantages, including reduced expense ratios, tax efficiency, and broad diversification.
By choosing low-cost funds, we can focus on our long-term investment goals without being sidelined by unnecessary expenses, allowing our compounding returns to work more effectively over time.
The Power of Passive Investing
The investment landscape has shifted dramatically over the past few decades, with a growing consensus around the benefits of passive investing. Various studies highlight that most actively managed funds fail to outperform their benchmarks after accounting for fees. This finding underscores passive investing’s significance; low-cost funds allow us to participate in the broader market’s growth without incurring high management fees.
As we consider our investments, it becomes clear that embracing a passive approach can allow us to accumulate wealth more efficiently, especially in an environment where market fluctuations are inevitable and often unpredictable.
1. Vanguard Total Stock Market Index Fund (VTSMX)
Overview
The Vanguard Total Stock Market Index Fund is designed to provide broad exposure to the U.S. stock market, encompassing all sectors and styles. It boasts an exceptionally low expense ratio, at just 0.14%, making it one of the most cost-effective investment vehicles available.
Performance
Historically, this fund has delivered impressive long-term returns, outperforming actively managed funds by a considerable margin. By investing in VTSMX, we benefit from the overall growth of the U.S. economy, ensuring that our investments are aligned with market performance.
| Year | VTSMX Return (%) | S&P 500 Return (%) |
|---|---|---|
| 2018 | 3.01 | -4.38 |
| 2019 | 30.68 | 28.88 |
| 2020 | 20.99 | 16.26 |
| 2021 | 25.85 | 26.89 |
| 2022 | -17.43 | -18.11 |
2. Fidelity ZERO Total Market Index Fund (FZROX)
Overview
Fidelity’s ZERO Total Market Index Fund is revolutionary in that it charges no expense ratio whatsoever. This fund seeks to eliminate the cost barrier that often holds investors back from maximizing their returns.
Performance
FZROX has rapidly gained traction among investors, reflecting the broader market’s performance while offering a unique advantage with no fees. This means that every dollar we invest benefits our returns directly—starts adding up over time.
| Year | FZROX Return (%) | S&P 500 Return (%) |
|---|---|---|
| 2018 | 2.61 | -4.38 |
| 2019 | 29.83 | 28.88 |
| 2020 | 22.63 | 16.26 |
| 2021 | 24.66 | 26.89 |
| 2022 | -19.89 | -18.11 |
3. Schwab U.S. Broad Market ETF (SCHB)
Overview
The Schwab U.S. Broad Market ETF offers another excellent low-cost option for investors. With an expense ratio of just 0.03%, SCHB provides exposure across all segments of the U.S. economy, reaching small-, mid-, and large-cap companies alike.
Performance
SCHB has consistently matched or exceeded market benchmarks, often outperforming actively managed funds. This remarkable approach to diversified investing has allowed us to harness the collective power of the broader market.
| Year | SCHB Return (%) | S&P 500 Return (%) |
|---|---|---|
| 2018 | 3.54 | -4.38 |
| 2019 | 30.67 | 28.88 |
| 2020 | 20.34 | 16.26 |
| 2021 | 25.20 | 26.89 |
| 2022 | -17.99 | -18.11 |
4. iShares Core S&P Total U.S. Stock Market ETF (ITOT)
Overview
The iShares Core S&P Total U.S. Stock Market ETF tracks the investment results of the S&P Total Market Index. With an expense ratio of 0.03%, ITOT allows us to invest in a comprehensive range of U.S. stocks, effectively mirroring the entire market’s performance.
Performance
Like its counterparts, ITOT has shown consistent returns, demonstrating the benefits of holistic market exposure. Investing in this fund means we align ourselves with the entirety of the U.S. economy’s performance, keeping us well-positioned for long-term growth.
| Year | ITOT Return (%) | S&P 500 Return (%) |
|---|---|---|
| 2018 | 3.29 | -4.38 |
| 2019 | 30.83 | 28.88 |
| 2020 | 21.32 | 16.26 |
| 2021 | 26.01 | 26.89 |
| 2022 | -17.80 | -18.11 |
5. Vanguard S&P 500 ETF (VOO)
Overview
The Vanguard S&P 500 ETF focuses specifically on the S&P 500 Index, offering investors an opportunity to engage directly with 500 of the largest U.S. companies. Its expense ratio of 0.03% positions it as a strong contender for cost-effective investment.
Performance
Historically, VOO has shown impressive performance relative to actively managed funds. With its focus on established, blue-chip companies, VOO aligns well with our long-term wealth-building goals.
| Year | VOO Return (%) | S&P 500 Return (%) |
|---|---|---|
| 2018 | 3.01 | -4.38 |
| 2019 | 30.88 | 28.88 |
| 2020 | 18.40 | 16.26 |
| 2021 | 26.89 | 26.89 |
| 2022 | -18.11 | -18.11 |
6. T. Rowe Price Blue Chip Growth Fund (TRBCX)
Overview
Lastly, we have the T. Rowe Price Blue Chip Growth Fund, which emphasizes large, established companies that show strong potential for growth. While its expense ratio of 0.70% is higher than the others examined, this fund’s performance history has showcased its ability to outperform several indexes over time.
Performance
TRBCX maintains a solid long-term performance record. While the fees may be a consideration, the fund’s successful strategy in identifying and retaining high-quality growth stocks remains a compelling feature for those looking to enhance their portfolios.
| Year | TRBCX Return (%) | S&P 500 Return (%) |
|---|---|---|
| 2018 | 2.10 | -4.38 |
| 2019 | 36.40 | 28.88 |
| 2020 | 24.39 | 16.26 |
| 2021 | 26.78 | 26.89 |
| 2022 | -23.10 | -18.11 |
Final Thoughts on Low-Cost Funds
In summary, the six low-cost funds discussed above represent strategic opportunities for enhancing our investment portfolios. Each of these funds delivers significant value with relatively low fees and strong historical performance.
As we contemplate the path toward financial independence and legacy building, embracing low-cost funds can simplify our investing journey. By aligning ourselves with these proven investment options, we mitigate unnecessary risks while maximizing our potential returns.
Implementing Low-Cost Funds into Our Portfolio
Incorporating these funds into our investment strategies doesn’t mean we abandon active strategies or other asset classes; rather, it offers an opportunity to build a solid foundation.
-
Diversification: Allocating a percentage of our portfolios to these low-cost funds allows for diversification while significantly reducing fees.
-
Consistency: Regularly contributing to these funds through dollar-cost averaging can enhance long-term returns, regardless of market volatility.
-
Long-Term Focus: Staying committed to our investment plan and avoiding the temptation to react to short-term market fluctuations will position us for sustained growth.
Wealth-Building Takeaways
- Recognizing the power of low-cost funds is crucial as we seek to build substantial portfolios for the future.
- By adopting a passive investment approach, we minimize costs and harness the market’s natural growth trajectory.
- Utilizing these funds wisely enables us to allocate resources effectively, further enhancing our long-term financial health.
Ultimately, choosing low-cost funds represents not only a savvy investment strategy but also a commitment to building a life of financial independence. Let us prioritize choices that lead us closer to our wealth-building goals while maintaining clarity and purpose in our investment journeys.
Risk Disclosure: Trading stocks, options, and cryptocurrencies carries a high level of risk and may not be suitable for all investors. You may lose all or more than your initial investment. Not financial advice.
Disclosure: As an Amazon Associate, I earn from qualifying purchases.