The Index Fund Paradox of Choice

Flint Luu
9 min readFeb 19, 2021

One prevalent piece of investment advice when investing in the stock market often recommended by pros and amateurs alike is to buy into a passive broad-based US index fund with low expense ratios. While an important suggestion, this piece of advice misses out on one of the more difficult decisions to make when you’re about to place a majority of your net worth into an investment — which specific index fund, and why?

The goal of this post is to help answer those questions for an analysis paralyzed investor, and walk you through the process I took to come up with my data-driven recommendations.

Before I begin, I wanted to give you a sense of the credentials I have to advise you on financial matters.

I have none.

If I had to rank myself on the 4 levels of financial analyst performance consciousness, I am probably somewhere between unconsciously competent and consciously incompetent.

I lost money on GME.

I’ve taken a few finance and accounting courses while in uni, recently read Random Walk Guide to Investing by Burton G. Malkiel, and did some research with the support of a financial consultant.

I encourage you to fact check my data and critique my analysis. I do not guarantee that the data provided in my analysis is correct, nor do I guarantee there are no errors. Please do your due diligence before taking any of my recommendations written below. I have not read all the fund prospectuses.

Investing involves risk, including possible loss of principal. Past performance does not guarantee future results. Investing in equities involves significant risk and diversification does not ensure a profit or protect against loss. I am not rendering legal, accounting, or tax advice. Please consult with appropriate counsel or advisors on legal, tax, or financial matters.

As a disclaimer, I may have accounts with the brokers listed below and may have positions in some of their funds at the time of writing. I also do not have a business partnership with any of these funds, nor am I attempting to entice you to purchase into any of these funds.

To give you some solace, I also care about my financial outlook, and will be basing my investments on this analysis.

Being the PM that I am, let’s start by listing out who I was looking to target with these recommendations:

  1. A curious investor looking to maximize their index investment.
  2. Someone who is looking to passively and continually invest into a US stock market-based index fund.
  3. Someone who plans to leave their large investment in the market for a long period of time (~15 years).

Don’t mind the details? Jump to the TL;DR.

The method I took involved 6 steps:

  1. Gathering the candidate funds (~2,500 mutual funds and ETFs in total).
  2. Mining the key data points for each fund (~20 columns).
  3. Filtering down the funds with the relevant attributes to identify broad US stock market-based index funds (61 funds tracking 9 different indices representing the US stock market).
  4. Calculating an estimated hypothetical growth of a $100k 15-year investment into the fund using the 10-year average total return and net expense ratios.
  5. Ranking the funds by their estimated hypothetical growth.
  6. Selecting the top 3 mutual funds and top 3 ETFs by filtering based on a set of criteria, such as the estimated hypothetical return, fees (expense ratios and possible transaction and/or load fees), and fund inception date.
Top 3 broad US stock market-based mutual funds and ETFs selection process.

Step 1/2: Data gathering and mining

Fidelity provides two decent tools to gather all the mutual funds and ETFs offered by them — the Mutual Fund and ETF Screener tools — and both were used to gather a list of ~2,500 funds with detailed fund attributes and metrics. The data points ranged from the 10-year trailing returns, expense ratios, and fund inception dates to the Morningstar ratings and Betas.

To ensure that all the popular and of interest funds were included, more than 30 colleagues provided me a list of funds they currently invest in. Most were covered by the initial 2,500 funds. Some weren’t funds. I am still trying to understand why one would invest into IAMF, OLLO, and WING, when they could just heed, would heeded, heeded of, headed of, take headed of, take heed, take heed of, heeding this advice right now.

Similar to any task that involves large amounts of data, cleaning and prepping this data took a majority of the time. Making sure all the data represented numbers in a similar way, aligning attribute columns between the two tools, and concatenating the various files together into one mega sheet. Next time you run into your data engineer, make sure to thank them.

Step 3: US equity index fund filtering

One of my goals was to find specific US equity index funds to recommend, and this involved filtering down the 2,500 funds to a list that followed indices tracking the US equity market. This was done by leveraging the various attributes (category, investment philosophy, etc.) to narrow down the list to a manageable list (~300), and going through the remaining to identify which indices they tracked. Fidelity’s tool doesn’t provide fund summaries in their output, but thanks to some Bash scripting and Yahoo! Finance, I was able to scrape all the summaries fairly quickly to scan which index each fund tracked.

Step 4/5: Calculating the estimated hypothetical growth of $100k over 15 years and ranking

The last 10 years have treated us well — with the stock market averaging a ~13% return, with the last 5 averaging a whopping ~16%. Using the most data available — the 10-year trailing return — I projected the growth of $100k in each fund for 15 years — $100k * (1+10_Year_Return — Expense_Ratio)¹⁵.

Potential load fees (make sure to read the prospectus to ensure there are none in the fund you invest into) and/or transaction fees (depends on your broker) were not taken into account, but luckily, the prominent funds do not have these fees; if you find the fund you’d like to invest into does, reconsider your investment.


The moment you have all been waiting for, here are the top 10 funds:

Top 10 broad US equity index funds.

Here are some recognizable funds that did not make the top 10:

Known broad US equity index funds.

Continue reading to the bottom to get my Top 3 Mutual Fund and ETF picks.

There are a few funds to note that are not on these lists: Fidelity’s new ZERO funds. Due to being < 5 years old, I have excluded them from these lists. More on this later.

There are a few things that pop out when looking at the data (assuming the 10-year trailing returns persist — which is unlikely, I know):

1. Expense ratios have a huge effect on the final returns — WFIVX, one of the most popular Wilshire 5000 funds, is estimated to make a whopping $110k less over 15 years than ITOT. Therefore, for every $100k you invest into WFIVX, you could have purchased a Tesla if you put it into ITOT instead (even if you assume 1/2 of the 10-year average returns, the difference goes down to $34k, which could still cover a large portion of your no bells and whistles rocket on wheels). This graph, with each point being a fund, best illustrates the point:

To be fair, many of the funds with an ER > 0.3% were Class funds — meaning, the ER may decrease after you satisfy some investment minimums.

2. Both Total Market and S&P 500 funds provide similar returns over time, and the return impact has more to do with the ER / fund than it does the specific index it follows. Although, it is worth noting that if you use the last 5 year trailing returns, you get a graph where the Total Market indices (those highlighted in yellow below) outperform the S&P 500 funds — this is likely due to this past year’s favoring of growth companies, and I suspect will not sustain. It may be worthwhile to invest some into the S&P 500, as the market has a way of contracting to the mean.

Total Market funds have been outperforming S&P 500 funds over the past 5 years, but not the past 10.

3. Brand-named funds, at times, come at a cost. SPY (from S&P’s cool SPDR, pronounced “spider”, trademark) is 3x the cost of a top 10 ETF, and the Wilshire 5000 fund costs more per year than the top 10 funds combined. Using “S&P”, “Dow Jones”, “Russell”, or any other luxury brand trademark in the name of your fund adds a tax, which is why some of the best performing funds simply use “500” or “total”.

4. Not all index funds are created equal. Out of the 61 broad-based index funds I analyzed, 44 were tracking the S&P 500. The 10-year average returns ranged from 13.49% (Fidelity’s 500 Index Fund) to 11.61% (Rydex S&P 500 Fund Class H, no load) with an average of 12.88% across all the funds. The true S&P 500 annual 10-year trailing return is 13.89%. While a 0.5% difference between the actual and the top fund’s returns may not sound like much, a $100k 15 year investment difference equates to ~$36k future value.

Step 6: TL;DR

To select the top 3 mutual funds and ETFs, I used the following criteria:

  1. High returns and low fees — low expense ratios, no loads, and no transaction fees. As shown above, fees have a huge impact on your future return. Luckily, the top funds have no load fees, and the transaction fee will depend on whether you choose an ETF or mutual fund and which broker you use. If you find yourself using Fidelity, Vanguard, or Schwab, and they charge to invest into another broker’s funds, choose that broker’s fund to invest into. If you’re outside one of these, you may want to consider opening up an account (or buying into ETFs).
  2. The fund must be established and well-known. As we’ll be contributing large sums of money, and potentially leveraging dollar-cost averaging to help improve our longterm performance, we have to be confident that the fund will be reliable and there will be little-to-no risk in the operator of the fund. This criteria disqualifies Fidelity’s ZERO funds from being in the Top 3. While the funds contain no fees, the product is new, and the consistency in performance isn’t yet proved. If you assume the returns will end up being similar to their 0.015% ER counterparts, the difference is ~$1,300 for each $100k over 15 years— a price I’m willing to pay for a more established fund.
  3. The fund must be a broad-based US equities index fund. While there are many index funds out there — growth, value, etc. — we are looking for a fund that tracks the broad US equities market. Purchasing the whole market ensures that you own all the US stocks (or some representation of it) and you will benefit from the periods of value and/or growth-based funds performing well.

Top 3 Mutual Funds:

  1. Fidelity 500 Index Fund (FXAIX; S&P 500 Index; 0.015% ER) (or Vanguard 500 Index Fund Admiral Shares — VFIAX ; 0.04% ER— if you use Vanguard)
  2. Fidelity Total Market Index Fund (FSKAX; Dow Jones U.S. Total Stock Market Index) (or Vanguard Total Stock Market Index Fund Admiral Shares — VTSAX ; 0.04% ER— if you use Vanguard)
  3. Schwab S&P 500 Fund (SWPPX; S&P 500; 0.02% ER) (or Schwab Total Stock Market Index Fund — SWTSX ; 0.03% ER— if you would like to invest into the total stock market instead and have Schwab— they both have the same outcome, but the S&P 500 fund has a lower ER)

Top 3 ETFs:

  1. iShares Core S&P Total U.S. Stock Market ETF (ITOT; S&P Total Market Index; 0.03% ER)
  2. Vanguard Total Stock Market Index Fund ETF Shares (VTI; CRSP US Total Market Index; 0.03% ER)
  3. Vanguard S&P 500 ETF (VOO; S&P 500; 0.03% ER)

All these funds have low fees, are established and well-known, and cover a broad-based US equities index. Within the mutual funds, Fidelity has the lowest net ERs at 0.015%, next to Schwab at ~0.025%, and Vanguard at 0.04%. All the ETFs recommended have the same ERs at 0.03%. All the funds have no load fees, according to Yahoo! Finance, and have their gross ERs equal to their net.

If you need help choosing between ETFs and mutual funds, check out the differences here: Mutual Fund vs. ETF: Similarities and Differences ( If you still can’t decide, like everything else in investing — diversify.

And there you have it, the Top 3 Mutual Funds and ETFs covering the broad US stock market. Feel free to provide any critique, and please do your due diligence on the fund before investing.


Investing involves risk, including possible loss of principal. Past performance does not guarantee future results. Investing in equities involves significant risk and diversification does not ensure a profit or protect against loss. I am not rendering legal, accounting, or tax advice. Please consult with appropriate counsel or advisors on legal, tax, or financial matters.