Index funds and ETFs are the two dominant vehicles for low-cost diversified investing. The distinction is less about superiority and more about understanding where each fits.
The short answer: VOO (ETF, 0.03%) and VFIAX (mutual fund, 0.04%) track the same S&P 500 with virtually identical returns.
Expense ratio compounding
On $10,000 at 7% for 30 years: 0.00% ER = $76,122 | 0.60% (avg active) = $63,614 | 1.00% = $57,435. The gap compounds into thousands of dollars.
Best funds in 2026
VOO, IVV (S&P 500, 0.03%), FZROX (Fidelity ZERO, 0.00%), VTI (Total Market, 0.03%), VXUS (International, 0.07%).
Use our Compound Interest Calculator to model this.
Frequently asked questions
Difference between index fund and ETF?
Mutual fund prices once daily; ETF trades continuously. Similar holdings and returns for the same index.
VOO or VFIAX?
Both track S&P 500 with nearly identical returns — pick based on account type.
Good expense ratio?
Below 0.10% excellent; above 0.50% starts eroding returns.
Can I lose everything in an index fund?
Only if every constituent company fails simultaneously — historically has not happened.
S&P 500 or total market?
Difference is negligible over 30 years; S&P 500 is ~80% of total market cap.