Diversification

Editors' Index Fund Picks, by Asset Class

Diversification

We at IndexFunds.com feel it is high time we begin to separate the wheat from the chaff. With some firms charging 4% loads and 1% annual fees on S&P 500 index funds, there is a penalty for not choosing carefully.

The following links lead to our current picks for domestic asset classes. We encourage investors and their advisors to use these recommendations in sensible asset allocations that overweight and underweight asset classes based on time horizon, risk tolerance, and agreement with various indexing theories.

Also see our editors' model portfolios.

Domestic equities

International (including regional and emerging markets, click here)

Domestic bond funds (short-, intermediate-, and long-term bond funds, click here)

For each asset class there are several popular indexes to choose from. Our goal is to identify the funds that track those indexes efficiently and cheaply. None of the funds on our list charge front or deferred loads, or 12b-1 fees. We listed some funds with fairly high fees because investors who choose to work with broker or advisors understand this may be part of how they earn their fees. In the case of both ETFs and funds only available through advisors (such as the Dimensional Fund Advisor or DFA funds) there are additional transaction or holding costs.

Our list is by no means complete, but we think it's a good starting point. We're very interested in comments you might have. For example, there aren't many options in the mid-cap style area as far as traditional funds. We're willing to consider even higher-cost funds for our list, but we need to be convinced. Please post comments to our bulletin boards.

For all lists, the funds are in no particular order and not listed by preference.

Of course, an asset allocation plan is more than just finding good building blocks. They must fit together. But we think this is a good start.