Maximize Retirement Investments with Index Funds and ETFs

If you are planning for retirement and want to maximize your investment returns without becoming a stock market expert, consider simple index funds. These funds track specific indices, such as the S&P 500, which encompasses 500 of the largest companies in America.

Index funds attempt to mirror the performance of their corresponding indices by holding most of the same stocks, generally in similar proportions. This approach allows you to achieve similar returns as the index, minus any associated fees. Notably, the best index funds usually come with very low fees.

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Let’s take a closer look at three straightforward index funds that might be suitable for your portfolio. Each option is an exchange-traded fund (ETF), which trades similarly to a stock. ETFs have gained popularity and are easily accessible through any reputable brokerage. After presenting these options, we will also discuss sector funds to broaden your investment perspective.

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Key Broad-Based Index Funds

For investors looking to minimize time spent managing their portfolio, broad index funds are an excellent choice. Below are some effective options:

ETF	Expense Ratio	5-Year Avg. Annual Return	10-Year Avg. Annual Return	Recent Dividend Yield
Vanguard S&P 500 ETF (NYSEMKT: VOO)	0.03%	15.27%	11.56%	1.36%
Vanguard Total Stock Market ETF (NYSEMKT: VTI)	0.03%	14.76%	10.84%	1.36%
Vanguard Total World Stock ETF (NYSEMKT: VT)	0.06%	12.50%	7.92%	1.95%

Source: Morningstar.com.

The Vanguard S&P 500 ETF may suffice for your portfolio, as its 500 constituent companies constitute around 80% of the total U.S. stock market value. With a minimal expense ratio of 0.03%, an investor pays just $3 annually for every $10,000 invested.

Similarly, the Vanguard Total Stock Market ETF maintains the same low fee and covers nearly the entire U.S. stock market, incorporating many small- and mid-cap companies often excluded from the S&P 500 index.

The Vanguard Total World Stock ETF extends even further, representing a vast array of global companies. This ETF is ideal for those optimistic about both the U.S. and international economies or looking to diversify their holdings geographically.

Investing in these three ETFs while consistently adding to your contributions can lead to substantial growth over time. Historically, the stock market has averaged close to a 10% annual return, and in the table below, we illustrate how your investments might grow conservatively at an 8% annual return. Keep in mind that your returns may vary throughout your investing journey.

Growing at 8% Annually for:	$7,500 Invested Annually	$15,000 Invested Annually
5 years	$47,519	$95,039
10 years	$117,341	$234,682
15 years	$219,932	$439,864
20 years	$370,672	$741,344
25 years	$592,158	$1,184,316
30 years	$917,594	$1,835,188
35 years	$1,395,766	$2,791,532
40 years	$2,098,358	$4,196,716

Source: Calculations by author.

You can see that by consistently investing regular amounts into the stock market over time, it is possible to accumulate $1 million or more.

Sector Index Funds to Explore

In addition to broad index funds, you may want to diversify your investments by including funds poised for faster growth. Consider selecting ETFs focused on sectors or niches that align with your investment outlook. Below is a selection of notable sector ETFs to explore:

ETF	Expense Ratio	5-Year Avg. Annual Return	10-Year Avg. Annual Return	Recent Dividend Yield
Vanguard Energy ETF (NYSEMKT: VDE)	0.09%	23.71%	2.99%	2.86%
iShares U.S. Home Construction ETF (NYSEMKT: ITB)	0.39%	22.23%	12.75%	0.54%
iShares Semiconductor ETF (NASDAQ: SOXX)	0.35%	19.42%	19.38%	0.95%
Technology Select Sector SPDR ETF (NYSEMKT: XLK)	0.08%	18.92%	17.97%	0.00%

Analyzing Recent ETF Performance and Investment Strategies

Vanguard Information Technology ETF (NYSEMKT: VGT)	0.09%	18.67%	18.02%	0.55%
Financial Select Sector SPDR ETF (NYSEMKT: XLF)	0.08%	16.61%	8.61%	1.39%
Vanguard Industrials ETF (NYSEMKT: VIS)	0.09%	16.09%	9.68%	1.20%
Vanguard Communication Services ETF (NYSEMKT: VOX)	0.09%	12.83%	6.67%	1.02%
Fidelity MSCI Consumer Staples ETF (NYSEMKT: FSTA)	0.084%	10.39%	7.96%	2.11%
Health Care Select Sector SPDR ETF (NYSEMKT: XLV)	0.08%	9.00%	7.94%	1.70%
Vanguard Utilities ETF (NYSEMKT: VPU)	0.09%	7.46%	8.73%	2.89%
Vanguard Real Estate ETF (NYSEMKT: VNQ)	0.13%	4.83%	4.11%	4.01%

Source: Morningstar.com.

While top-performing ETFs may catch your attention, it’s crucial to remember that these returns reflect past performance and may not predict future results. Consider the sectors you believe are set for growth. Do you anticipate increased homebuilding in the United States or sustained demand for semiconductors? Alternatively, if a recession looms, you might lean towards utility and consumer staples stocks known for steady dividends.

Evaluate which investments align with your risk tolerance and investment objectives. A high average annual return could stem from a few exceptional years, and a lower dividend yield may be accompanied by rapid growth. Focus on metrics that matter to you as you make investment decisions.

Regardless of your approach, saving and investing for the future is essential. Whether you choose ETFs, individual stocks, or other forms of investments, a solid retirement plan could help you reach $1 million or more by the time you retire.

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*Returns as of April 14, 2025, according to Stock Advisor.

Selena Maranjian holds positions in iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Vanguard Real Estate ETF, Vanguard S&P 500 ETF, Vanguard Total Stock Market ETF, and iShares Trust-iShares Semiconductor ETF. For more information, please see our disclosure policy.

The views expressed are those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.