It's important to recognize that an index fund is simply a way of structuring how a fund selects and weights its holdings. That applies whether we're talking about mutual funds or exchange-traded funds (ETFs).
Being an index fund does not mean it is simplistic. It means that instead of a portfolio manager actively picking stocks based on proprietary models or analyst research, they follow a transparent, rules-based framework designed to track a specific benchmark.
Take the S&P 500 Index as an example. Many investors think it's just a list of the 500 largest U.S. companies, but that's an oversimplification.
While a committee makes final decisions on additions and deletions based on publicly available methodology, companies must meet requirements related to market capitalization, liquidity, earnings history and other financial standards.
Indexing has also evolved far beyond simple benchmarks for large-cap stocks. Today, indexes can target small-cap stocks, international markets, specific factors such as value or momentum or even blend multiple asset classes together.
An index fund's job is straightforward: replicate the performance of its benchmark as closely as possible, net of fees.
This can be done through full replication, meaning the fund owns every security in the index, or through sampling, where it holds a representative subset to reduce trading costs.
Because of this proliferation, there is no single "best" index fund for every goal. Some are built for capital preservation, others for income. And some are explicitly structured for long-term growth.
For investors with a high risk tolerance and a long time horizon, growth-oriented index funds can potentially serve as powerful compounding engines.
Here are the key factors to consider when selecting an index fund for long-term growth, along with five ETF candidates worth watching for 2026.
What makes an index fund suitable for long-term growth?
If your goal is long-term capital appreciation, the first step is not to look at the fund's marketing page, but to examine the underlying index methodology. Most ETF providers publish detailed documents explaining exactly how their index selects and weights stocks.
A growth-oriented index will typically screen for companies expected to expand faster than the broader market. It's not looking for undervalued cheap stocks, dividend-paying stocks or defensive stocks.
Instead, it prioritizes traits such as above-average revenue growth, strong earnings growth, high return on equity, expanding profit margins or elevated price-to-earnings growth expectations.
Some methodologies also incorporate forward-looking analyst estimates or historical earnings acceleration.
The exact thresholds and weighting formulas vary, but these are the kinds of characteristics you should expect to see in a true growth benchmark.
For investors who prefer simplicity and a long track record, sticking with established growth indexes is often a prudent move. Three of the most widely followed examples include:
- Russell 1000 Growth Index: This index starts with the largest 1,000 companies from the broader Russell 3000 universe, then screens for higher price-to-book ratios and sales per share growth. The resulting portfolio is market-cap weighted.
- S&P 500 Growth Index: This benchmark carves out the growth half of the S&P 500 using factors such as sales growth, earnings change and momentum. It retains the quality and liquidity screens of the parent S&P 500 while tilting toward higher-growth constituents.
- NASDAQ-100 Index: While not formally labeled a "growth" index, it includes the 100 largest non-financial firms listed on the Nasdaq exchange. Because the Nasdaq historically attracts innovative tech companies, the index has developed a structural growth bias over time.
These benchmarks have another advantage: scale and transparency. They are widely tracked, deeply studied and have long performance histories. That matters because growth investing can be volatile, and long-term data helps investors understand what they are signing up for.
They are also notoriously difficult for active managers to beat. According to the S&P Indices Versus Active (SPIVA) scorecard, over the past 15 years, 96.29% of large-cap growth funds underperformed the S&P 500 Growth Index.
After accounting for higher fees and turnover, only a small minority of active managers managed to add value over the benchmark.
For long-term investors seeking growth, that statistic alone makes a compelling case for sticking with a well-constructed index fund.
How we picked the best index funds for long-term growth
Although index funds exist in both mutual fund and ETF form, we elected to focus exclusively on ETFs. The primary reason is tax efficiency.
While index mutual funds tend to be more tax efficient than many funds that are actively managed due to lower turnover, they lack one structural advantage that ETFs possess: the in-kind creation and redemption mechanism.
With tax-efficient ETFs, new shares are created and redeemed through exchanges of securities rather than forced cash sales. This process allows portfolio adjustments to occur without realizing internal capital gains in the same way mutual funds often must.
As a result, ETFs generally distribute fewer capital gains and, in many cases, none at all in a given year. If you're a long-term growth investor who holds assets in a taxable brokerage account, minimizing unexpected year-end distributions can materially improve compounding.
ETFs also tend to be more accessible. Unlike some mutual funds, they typically don't impose minimum investment requirements. The price of entry is often just the cost of a single share, and in many brokerages even less thanks to fractional share trading.
Expense ratios are also generally lower than comparable mutual fund offerings, even among index-based strategies.
From there, we limited our selection to ETFs that track notable growth-tilted benchmarks, such as the Russell 1000 or the S&P 500. We favor these indexes because of their long track records, broad adoption and deep liquidity.
They also offer flexibility for tax-loss harvesting. Because multiple ETFs track different benchmarks but have high overlap in portfolio holdings, investors can potentially swap between them without violating the wash sale rule, while maintaining comparable exposure.
In our view, these broad, market-cap-weighted benchmarks already provide sufficient exposure to growth stocks without the need to concentrate further.
Because they weight holdings by market capitalization, companies that are growing faster and outperforming naturally rise to the top of the index. When growth stocks lead the market, these indices capture that leadership automatically.
By contrast, pure growth indices can at times become overly concentrated in a single sector, such as tech stocks, or excessively top-heavy in a handful of mega-cap names such as the Magnificent 7.
For long-term investors, broad, growth-tilted benchmarks can offer a more balanced way to participate in upside while reducing the risk that a narrow pocket of the market dominates the portfolio.
Beyond benchmark selection, we applied additional screening criteria. We capped expense ratios at 0.15% per year to ensure that fees don't erode long-term compounding. We required at least $1 billion in assets under management to reduce the risk of fund closure and ensure sufficient liquidity.
Finally, each ETF had to have at least a five-year performance history and demonstrate minimal tracking error relative to its index. Tracking error, the gap between an ETF's return and that of its benchmark, can be influenced by fees, sampling techniques and portfolio management decisions.
- Inception date: November 8, 2005
- Assets under management: $106.5 billion
- Expense ratio: 0.02%
- 30-day median bid-ask spread: 0.01%
- 5-year annualized return: 14.96%
- 5-year tracking error: -0.03%
For investors seeking low-cost S&P 500 exposure in an ETF wrapper, the State Street SPDR Portfolio S&P 500 ETF (SPYM) is among the cheapest options available.
SPYM, which formerly traded under the ticker SPLG, is part of State Street's "Portfolio" lineup, a suite of market-cap-weighted index ETFs built specifically for long-term portfolio construction.
The strategy is straightforward. SPYM tracks the S&P 500 Index, holding large-cap U.S. companies in proportion to their market cap. That structure allows the fund to automatically tilt toward growth when growth stocks outperform and rebalance naturally as leadership changes over time.
Scale and liquidity are additional strengths. With more than $100 billion in assets and a 0.01% median bid-ask spread, trading friction is minimal. Combined with a 0.02% expense ratio and a five-year tracking error of just 0.03%, the total cost of ownership is exceptionally low.
Learn more about SPYM at the State Street provider site.
- Inception date: April 7, 2020
- Assets under management: $5.2 billion
- Expense ratio: 0.00%
- 30-day median bid-ask spread: 0.02%
- Five-year annualized return: 14.89%
- Five-year tracking error: +0.43%
While SPYM already comes in at a razor-thin fee, it still carries a small expense ratio in part because State Street must license the S&P 500 Index from S&P Global. It is not the only way to gain exposure to 500 large-cap U.S. stocks. The BNY Mellon U.S. Large Cap Core Equity ETF (BKLC) offers a true 0.00% expense ratio.
BKLC tracks the Solactive GBS United States 500 Index Total Return. Its composition is very similar to the S&P 500, holding 500 large-cap U.S. companies weighted by market capitalization.
The main difference is structural. It doesn't rely on the S&P committee process or some of the specific earnings and eligibility screens embedded in the S&P methodology. In practice, performance has been very close. Over the last five years, BKLC has delivered a 14.89% annualized return.
Notably, it's exhibited a positive tracking error of +0.43%, meaning the ETF's realized return has slightly exceeded that of its underlying benchmark. Modest positive tracking error can reflect efficient portfolio management and securities lending revenue that more than offsets costs.
Learn more about BKLC at the BNY Mellon provider site.
- Inception date: May 24, 2001
- Assets under management: $585.3 billion
- Expense ratio: 0.03%
- 30-day median bid-ask spread: 0.01%
- Five-year annualized return: 13.52%
- Five-year tracking error: -0.01%
While SPYM and BKLC concentrate on large-cap U.S. stocks, long-term investors may want additional exposure to mid-cap stocks and small caps, where some of the market's future growth can emerge. A broader total market approach helps capture that opportunity.
The Vanguard Total Stock Market ETF (VTI) tracks the CRSP U.S. Total Market Index, which includes more than 3,500 publicly traded U.S. companies across the market-cap spectrum. That means large-, mid- and small-cap stocks are all represented in a single fund.
Despite its broader reach, the ETF remains market-cap weighted. As a result, its top holdings look similar to those in S&P 500-focused funds, though slightly less concentrated due to the addition of smaller companies further down the capitalization scale.
In classic Vanguard fashion, costs remain low and liquidity is deep with a minimal bid-ask spread. The fund has also closely tracked its benchmark, with a minimal five-year tracking error. For investors who prefer mutual funds, a corresponding share class is available.
Learn more about VTI at the Vanguard provider site.
- Inception date: October 11, 2017
- Assets under management: $4.9 billion
- Expense ratio: 0.03%
- 30-day median bid-ask spread: 0.01%
- Five-year annualized return: 13.91%
- Five-year tracking error: -0.05%
If you want to strike a middle ground between the roughly 3,500 stocks in VTI and the 500 in SPYM, the Schwab 1000 Index ETF (SCHK) offers a reasonable compromise.
SCHK tracks the Schwab 1000 Index. It selects the 1,000 largest publicly traded U.S. companies and weights them by market capitalization. According to Schwab, this approach captures approximately 90% of the investable U.S. equity market.
Costs and liquidity are competitive with VTI, and historical performance has also been comparable as well.
Because SCHK tracks a different benchmark than VTI, it can serve as a practical tax-loss harvesting partner while maintaining similar market exposure and avoiding wash sale rule issues.
Learn more about SCHK at the Schwab provider site.
- Inception date: May 15, 2000
- Assets under management: $46.4 billion
- Expense ratio: 0.15%
- 30-day median bid-ask spread: 0.01%
- Five-year annualized return: 13.43%
- Five-year tracking error: -0.16%
SCHK follows a proprietary Schwab benchmark. If you prefer a widely recognized, third-party index with similar breadth, the iShares Russell 1000 ETF (IWB) is a comparable option.
IWB tracks the Russell 1000 Index. Compared with the S&P 500, the Russell 1000 reaches further into mid-cap territory. At the same time, unlike total market indices such as CRSP's U.S. Total Market Index, it excludes small caps.
Over the last five years, performance for IWB has been broadly in line with other large-cap core funds. With a minimal bid-ask spread, trading costs remain low.
The five-year tracking error reflects modest slippage relative to the underlying benchmark, largely attributable to higher fees.
Learn more about IWB at the iShares provider site.
