Index funds seem to be extremely popular now, with very low management fees and good diversification on offer.
The easiest way to get access to these indexes is through an exchange-traded fund (ETF), which just means you can buy it on a stock exchange like the ASX.
Here are three of the best ETFs on offer in my opinion:
Vanguard MSCI Index International Shares ETF (ASX: VGS)
This is one of the most diverse ETFs on the ASX. It has around 1,600 holdings invested all across the world, it looks to track the MSCI Index – as you could guess with the name.
It has the largest American tech stocks as some of its largest holdings, but it also owns European and Asian powerhouses like Samsung, Tencent, Nestle, Toyota and Vodafone.
It hasn't performed quite as strongly as American-focused ETFs recently because its portfolio is also invested in areas where economic growth hasn't been as good, like Europe.
Vanguard US Total Market Shares Index ETF (ASX: VTS)
This ETF only invests in the USA, but it invests in a broad range of American shares, it has nearly 3,600 holdings.
The ETF also owns the large American tech stocks but it gives much more weight to other big American businesses like Berkshire Hathaway, Visa, Lowe's and Bank of America.
It has performed well and could continue to do so as long as the American economy doesn't go backwards.
BETANASDAQ ETF UNITS (ASX: NDQ)
The biggest contributors to the above two index returns have been the tech shares, so why not just skip all the other industries and just invest in the American tech industry?
This NASDAQ ETF is heavily focused on Apple, Alphabet (Google), Amazon, Microsoft and Facebook.
Those shares have produced strong returns for investors over the past five years and it's hard to look beyond them being the strongest-performing blue chips over the next five years as well. They are all growing profit at an impressive rate. Technology is only going to become more important in the future.
Foolish takeaway
I'm a fan of all three ETFs and I think they all would provide excellent diversification and good returns for investors. At the current prices I'd definitely go for the NASDAQ ETF because the tech shares have recently gone down in price. I think rising interest rates will hurt the overall value of the two Vanguard ETFs as elevated valuations reduce somewhat.
