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Why Index Funds and ETFs Are So Popular

Why Index Funds and ETFs Are So Popular

If you’re new to investing and you’re looking to place your money in the market, understanding what an index fund is might be something you’ll want to learn. Not only will it be a solid investment, but it’ll also help you understand how the market moves.

Basically, an index fund is a mutual fund or exchange-traded fund (EFT) and follows the path of a certain number of underlying investments. For example, Vanguard Total Stock Market Index Fund ETF (VTI) is an index fund that tracks the total stock market. If the stock market itself is at an all-time high, you can bet VTI will be as well. The same goes for if the stock market is plummeting, VTI will not be looking so hot.

By using index funds, you can leverage your money in the market to follow certain categories of investments that you like. You don’t have to invest in a specific stock, but instead you can invest in a lot of little different stocks that all create one fund.

Popular index funds


As previously stated, VTI is a very popular index fund because it models the movement of the entire stock market. It’s like investing in every stock in the market. This is popular for long-term investors because at the end of the day, the stock market always goes up.

If you check the overall history of the stock market, you’ll see that it has always gone up and will continue to go up the more that the economy grows. That’s why VTI is a safe bet if you want to grow your money over the next few decades. Even if the market crashes, it will rebound and your money will continue to grow. All you have to do is continue dollar-cost averaging (frequently investing) your money in the market and don’t sell. You will see your money increase.

On top of that, VTI also pays a dividend. By no means does it have a great dividend yield percentage, but it does pay a dividend nonetheless so you will get paid for holding shares of the fund.

This makes VTI a solid play for new investors who want to secure some of their portfolio in the market for a long time and not have to worry about losing it.


Vanguard Total International Stock Index Fund ETF (VXUS) is another popular index fund. It’s popular because it follows the market outside of the United States. This covers the emerging markets area which is mainly China’s economy is a big part of this fund 22%.

By pairing VXUS with a fund like VTI, you can be sure to cover a lot of your basis for markets around the world and investing in funds that incorporate a lot of high-performing stocks.

VXUS pays a dividend that is similar to VTI: not great. But you wouldn’t invest in a fund like VXUS for its dividends or for short-term gains. VXUS is a fund that you’d invest in for a long-term hold. Decades later, VXUS will be worth more than it is today and your money will have grown if you continue to invest it without selling it. It’s nice that VXUS pays a dividend, but that shouldn’t be your main focus with a fund like this.

-Dividend ETFs-

If you want to get the best of both worlds by investing in an ETF that also pays a respectable dividend, there are funds like that out there. Funds like Vanguard High Dividend Yield Index (VHYAX) and Vanguard Dividend Growth Fund (VDIGX) are specifically designed for dividend investors.

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