How Busy People Should Invest: Broad Market Index Funds
If you don't have much time to research investments, broad market index funds are a good option for without having to think much or worry. They provide diversification and long-term growth potential.
Complete Index Fund Investment Strategy Guide
Start with the Foundation: Begin with broad market index funds covering large-cap (S&P 500) and small-cap markets. These serve as the cornerstone of your portfolio, providing diversified exposure to U.S. companies across market capitalizations.
Expand Strategically: Once your foundation is established, diversify into mid-cap, international markets, and sector-specific funds like the Nasdaq Composite. Be mindful of overlap—particularly between S&P 500 and Nasdaq funds, which share significant technology exposure.
Maintain Balance: Whether you're a hands-off investor or prefer active management, prioritize diversification across markets, industries, and geographies to manage risk effectively.
1. Large-Cap Foundation: S&P 500
What It Is
A market-cap-weighted index tracking 500 of the largest publicly traded U.S. companies, representing approximately 80% of the U.S. stock market's total value.
Key Features
Market Dominance: Covers industry leaders like Apple, Microsoft, and Amazon
Benchmark Standard: Widely used as the primary benchmark for large-cap U.S. stocks
Broad Sector Exposure: Diversified across all major industries
Top ETF Options
Vanguard S&P 500 ETF (VOO)
Expense Ratio: 0.03%
Ideal for long-term buy-and-hold strategies
SPDR S&P 500 ETF (SPY)
Expense Ratio: 0.09%
Highest trading volume and liquidity
Tightest bid-ask spreads
Most robust options market
Premium choice for active traders
Choosing Your S&P 500 ETF
Long-term investors: VOO for lower costs
Active traders: SPY for superior liquidity and options
2. Small-Cap Diversification
Russell 2000 Index
What It Is: Tracks 2,000 small-cap U.S. stocks, serving as the primary benchmark for small-cap investing.
Key Features:
Exposure to high-growth potential companies
Complements S&P 500 by adding market-cap diversification
Access to the complete small-cap universe
S&P SmallCap 600 Index
What It Is: Tracks 600 profitable small-cap U.S. stocks with strict quality requirements.
Key Features:
Quality-screened approach requiring profitability
More concentrated but higher-quality exposure
Strong liquidity despite fewer holdings
Small-Cap ETF Comparison
iShares Core S&P Small-Cap ETF (IJR)
Expense Ratio: 0.06% (lowest cost)
Quality Focus: Only profitable companies
Best For: Long-term investors wanting quality screening and ultra-low costs
Assets: $84.5B for excellent scale
Vanguard Russell 2000 ETF (VTWO)
Expense Ratio: 0.10%
Diversification: Full 2,000-stock Russell 2000 exposure
Best For: Cost-conscious investors wanting broad small-cap coverage
Assets: $10+ billion
iShares Russell 2000 ETF (IWM)
Expense Ratio: 0.19%
Liquidity: Highest trading volume
Best For: Active traders and options strategies
Assets: $60+ billion
Small-Cap Recommendation
IJR emerges as the top choice for most investors due to its combination of ultra-low costs, quality screening, and excellent liquidity.
3. Growth & Technology: Nasdaq Exposure
What It Is
Broad index tracking 3,000+ technology-focused growth stocks listed on the Nasdaq Stock Market.
Key Features
Heavy weighting toward technology and growth companies
Includes major players like Apple, Microsoft, and Amazon
Higher growth potential with increased volatility
Top Nasdaq ETFs
Invesco QQQM
Expense Ratio: 0.15%
Coverage: Nasdaq-100 (top 100 non-financial companies)
Best For: Long-term investors wanting lower costs
Advantage: Same holdings as QQQ at reduced fees
Invesco QQQ
Expense Ratio: 0.20%
Coverage: Nasdaq-100
Best For: Active traders
Advantage: Superior liquidity and options market
Fidelity Nasdaq Composite Index ETF (ONEQ)
Expense Ratio: 0.21%
Coverage: Full Nasdaq Composite (3,000+ stocks)
Best For: Broader tech diversification beyond top 100
Nasdaq Recommendation
QQQM provides the best value for long-term investors, offering identical exposure to QQQ at lower cost.
4. Mid-Cap Bridge: S&P 400 MidCap
What It Is
Mid-cap stocks bridge the gap between large-cap and small-cap companies, typically ranging from $2-10 billion in market capitalization.
Key Features
Sweet Spot: Growth potential with less volatility than small-caps
Historical Performance: Mid-caps have outperformed both large and small-caps over long periods
Portfolio Completion: Fills the market-cap gap in your portfolio
Top Mid-Cap ETFs
iShares Core S&P Mid-Cap ETF (IJH)
Expense Ratio: 0.06%
Index: S&P MidCap 400 (400 companies, $7.4B-$20.5B market cap)
Holdings: ~400 companies
Sector Tilt: Higher industrial weighting (18.7%)
Assets: $70+ billion AUM
Best For: True mid-cap exposure with strong liquidity
Schwab U.S. Mid-Cap ETF (SCHM)
Expense Ratio: 0.04% (ultra-low cost)
Index: Dow Jones U.S. Mid-Cap Total Stock Market Index
Holdings: ~500 companies (ranks 401-1,100 by market cap)
Sector Tilt: Higher industrial weighting
Best For: Cost-conscious long-term investors
Vanguard Mid-Cap ETF (VO)
Expense Ratio: 0.04%
Index: CRSP U.S. Mid Cap Index (70th-85th percentile of market cap)
Holdings: ~350 companies with larger average market caps
Sector Tilt: Higher technology weighting (16.4% vs 14.2% industrials)
Best For: Tech-tilted "large mid-cap" exposure
Note: Skews toward larger mid-caps, closer to large-cap territory
SPDR S&P MidCap 400 ETF (MDY)
Expense Ratio: 0.23%
Index: S&P MidCap 400 (same as IJH)
Established: 1995 (original mid-cap ETF)
Best For: Active traders needing maximum liquidity
Key Differences Summary
Index Construction:
IJH: Count-based selection of 400 companies after S&P 500
SCHM: Count-based selection of companies ranked 401-1,100
VO: Percentile-based selection (70th-85th percentile), reaches furthest up market-cap ladder
Sector Exposure:
IJH & SCHM: Higher industrial weighting, traditional mid-cap sectors
VO: 5+ percentage points more technology exposure, 6 points less industrials
Market Cap Range:
IJH: True mid-cap positioning ($7.4B-$20.5B)
SCHM: Pure mid-cap range (mean ~$9B)
VO: Largest average market caps, closer to large-cap territory
Mid-Cap Recommendation
IJH provides the truest mid-cap exposure with efficient S&P MidCap 400 tracking and strong liquidity. SCHM offers ultra-low costs for long-term investors wanting broader diversification. VO works best for investors seeking tech-tilted exposure to larger mid-caps, though it skews closer to large-cap territory.
5. International Diversification: MSCI EAFE
What It Covers
Developed markets outside North America, including Europe, Australasia, and Far East regions.
Key Features
Geographic Diversification: Reduces U.S. market concentration risk
Currency Exposure: Natural hedge against dollar weakness
Major Allocations: Japan (~24%), UK (~15%), France (~12%), Switzerland and Germany (~7% each)
Top International ETFs
Vanguard FTSE Developed Markets ETF (VEA)
Expense Ratio: 0.05% (lowest cost)
Holdings: ~3,800 companies
Coverage: Includes Canada and small-caps
Best For: Cost-conscious investors wanting broad international exposure
iShares Core MSCI EAFE ETF (IEFA)
Expense Ratio: 0.07%
Holdings: 2,500+ companies
Coverage: Includes small-caps
Best For: Pure EAFE exposure with comprehensive coverage
Schwab International Equity ETF (SCHF)
Expense Ratio: 0.06%
Coverage: Excludes Canada
Best For: Low-cost FTSE index exposure
iShares MSCI EAFE ETF (EFA)
Expense Ratio: 0.32%
Established: 2001 (original EAFE ETF)
Best For: Active traders needing maximum liquidity
International Recommendation
VEA provides exceptional value with ultra-low costs and the broadest developed market exposure including small-caps and Canada.
Portfolio Construction Strategy
Core Foundation (60-70% of portfolio)
S&P 500 (40-50%): VOO for long-term stability
Small-Cap (10-15%): IJR for growth potential with quality screening
Mid-Cap (5-10%): IJH for market-cap completion
Growth & Diversification (30-40% of portfolio)
International (15-25%): VEA for geographic diversification
Technology/Growth (5-15%): QQQM for tech exposure (watch for S&P 500 overlap)
Key Considerations
Overlap Management: S&P 500 and Nasdaq share significant technology holdings
Rebalancing: Review allocations annually or when they drift 5% from targets
Cost Efficiency: Prioritize low expense ratios for long-term wealth building
Tax Efficiency: Hold tax-efficient index funds in taxable accounts
Final Recommendations by Investor Type
Conservative Long-Term Investor
VOO (S&P 500) + IJR (Small-Cap) + VEA (International)
Focus: Ultra-low costs, broad diversification, minimal maintenance
Balanced Growth Investor
VOO + IJR + IJH + VEA + QQQM
Focus: Complete market coverage with controlled tech exposure
The key to successful investing lies in starting simple with broad market exposure, then thoughtfully expanding your portfolio while maintaining diversification and keeping costs low.