Index funds are a great low-cost way to invest in the share market and we often recommend them for starter investors taking baby steps into the market.
But index funds and exchange traded funds (ETFs) are also eminently suitable investments for professional investors too, providing a wide degree of diversification and exposure that retail investors might not normally get access to.
Investors also have the choice of picking a broad-based index fund that covers an entire market such as the SPDR S&P/ASX 200 Fund (ASX: STW) which tracks the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), or specialised funds that focus on a particular part of the market.
Here are three that offer investors a diversified array of investments at a low price…
Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO)
The Vanguard Small Companies ETF charges a small management fee of just 0.3% and gives investors a diversified exposure to small companies listed on the ASX. Since inception in May 2011, the fund has returned 1.5% per annum after fees and while that isn't great, arguably the time frame is still short (just 5 years). If investors believe we are near the bottom of the commodities cycle, now could be a great time to take a closer look at this index fund/ETF.
Vanguard Australia Fixed Interest Index ETF or VAUSFI ETF UNITS (ASX: VAF)
This exchange traded fund invests in high-quality fixed income securities issued by the Commonwealth government, state governments and treasury corporations as well as investment-grade corporate issuers. For a management cost of just 0.2%, investors can get exposure to a wide variety of 'safe' investments delivering a much higher return than most bank accounts and term deposits. The ETF has delivered annual returns of 4.9% since inception (October 2012) and income is paid quarterly.
SPDR S&P Global Dividend Fund (ASX: WDIV)
The SPDR Dividend Fund aims to track the S&P Global Dividend Aristocrats index, which are the highest-yielding companies in the S&P Global Broad Market index and charges a management fee of 0.5%. Since inception in November 2013, the fund has delivered annualised returns of 12.2%. The fund is highly diversified and most investors will never have heard of any of the top 10 companies it holds.
Foolish takeaway
If those funds don't appeal to you, the ASX has a huge list of all the various exchange traded funds here.
