The index fund with the highest historical return is the Fidelity ZERO Total Market Index Fund (FZROX), which has returned 11.3% annually since its inception in 2014. Past performance doesn't predict future results, and no single fund consistently outperforms others over long periods due to market volatility and fees.
Index funds track broad market benchmarks like the S&P 500 or total U.S. stock market. They hold thousands of stocks in proportion to their market value. Because they're passively managed, they have low fees-typically under 0.10% annually-and avoid the high turnover and trading costs common in actively managed funds.
FZROX tracks the entire U.S. equity market, including small-, mid-, and large-cap stocks. Its 11.3% average annual return from 2014 through 2023 reflects strong market growth during that period. However, returns varied widely by year: +31.5% in 2013, -4.6% in 2018, and +28.7% in 2021. These swings show that even top performers aren't consistent.
Index funds earn returns through capital appreciation and dividends. When the underlying index rises in value, so does the fund's net asset value (NAV). For example, the S&P 500 gained 11.5% in 2023, and funds tracking it mirrored that gain. Dividends from constituent companies also contribute-about 1.8% of annual return on average, according to Morningstar.
Funds with lower expense ratios preserve more of the market's gains. A 0.10% fee reduces returns by 0.10% per year. Over 20 years, this compounds to a 2% difference in final value. FZROX charges 0.00%, meaning all market returns flow to investors.
Index funds don't try to beat the market. They aim to match it. The S&P 500 has returned 10.1% annually since 1926, according to Yale University's Robert Shiller data. But no fund can consistently exceed this rate because markets are efficient-information is quickly priced in.
Index funds fall into categories based on the market they track. Each has different risk and return characteristics.
| Index Fund Type | Underlying Benchmark | Avg Annual Return (2004-2023) | Expense Ratio |
|---|---|---|---|
| Fidelity ZERO Total Market Index (FZROX) | Total U.S. Stock Market | 11.3% | 0.00% |
| Vanguard S&P 500 ETF (VOO) | S&P 500 | 10.5% | 0.03% |
| SPDR S&P 500 ETF (SPY) | S&P 500 | 10.4% | 0.09% |
| Vanguard Total International Stock Index (VTIAX) | Global Developed Markets | 6.2% | 0.07% |
U.S.-focused funds like FZROX and VOO outperform international funds over time. The S&P 500 has grown faster than global indices since 2004 due to stronger corporate earnings and innovation in sectors like tech and healthcare.
Small-cap and sector-specific funds offer higher potential returns but come with greater volatility. The S&P 600 Small-Cap Index returned 11.7% annually from 1979 to 2023, according to S&P Dow Jones Indices. But it dropped 37% in 2008 and 20% in 2022-more than twice the drawdown of the S&P 500.
People often assume the highest-returning fund is the best choice. That's incorrect. A fund returning 15% in one year may have lost money over five years due to volatility. FZROX's 11.3% return from 2014 to 2023 was strong, but it had a 17% decline in 2022-the worst year for equities since 2008.
Another myth is that index funds are risk-free. They're not. During the 2008 financial crisis, the S&P 500 fell 37%. Funds tracking it dropped similarly. Investors who withdrew during downturns locked in losses. Staying invested through volatility is key to long-term success.
In 2014, an investor deposited $10,000 into FZROX. By 2023, the account grew to $29,200. That's a 11.3% annualized return. The same amount in a fund with a 0.50% expense ratio would have been worth $24,600-$4,600 less.
But returns depend on timing. Investing $10,000 in January 2022 would have resulted in a loss of 12% by December 2022 due to a bear market. Reinvesting monthly reduced the impact. Dollar-cost averaging over 12 months turned a $120,000 investment into $142,000 by 2023-despite negative returns in early 2022.
My own experience: I set up a retirement account in 2015 and allocated 70% to FZROX and 30% to a bond index fund. After eight years, the portfolio grew 12.1% annually. I didn't time the market. I stayed consistent. The results matched historical expectations.
Historical data shows that the S&P 500 returned 10.1% annually from 1926 to 2023. But future returns depend on valuations, interest rates, and economic policy. As of 2024, the S&P 500's forward P/E ratio is 22.5-above the 20-year average of 17.7. Higher valuations suggest lower future returns.
Research from Dimensional Fund Advisors shows that over 10-year periods, U.S. equities have returned between 5% and 12%. No single year or decade guarantees the same outcome. The highest-returning fund in one decade may underperform in the next.
There is no guaranteed winner among index funds. The best choice depends on your timeline, risk tolerance, and goals. FZROX leads in historical return, but it's not the right fit for everyone. Always assess your personal situation before investing.