8 Best Index Funds To Buy and Invest In For 2026

An investment approach that balances growth and global diversification — in emerging and developed markets — is increasingly important in 2026.

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The market is approaching the finish line for 2025, on track to post a third consecutive year of double-digit gains. As 2026 nears, investors face a familiar question: Does the rally still have room to run, or are signs of fatigue beginning to emerge?

The bullish case rests on familiar pillars — rising corporate earnings, tax stimulus, a Federal Reserve with a more dovish stance and sustained capital investments in artificial intelligence.

Skeptics point to persistent inflation now stretching into a fourth year, elevated valuations, the impact of tariffs on consumers and more volatility that typically accompanies a midterm election year.

In this uncertain environment, an investment approach that balances growth and global diversification — in emerging and developed markets — is increasingly important. That framework offers the strongest risk-adjusted opportunity heading into 2026.

Before we examine index-fund opportunities, it’s worth examining where the market stands today and where it may be headed in 2026.

Where Is The S&P 500 Headed In 2026? Experts Weigh In

The S&P 500 is up 17.5% year to date as of Dec. 23, following price gains of 23.3% in 2024 and 24.2% in 2023.

Major institutions continue to project double-digit gains into 2026:

• UBS Global Wealth Management expects the S&P 500 to reach 7,700 by the end of 2026, representing a roughly 11% gain from the Dec. 23 closing price of 6,909.79.
• J.P. Morgan, in a November research report, forecasts the index rising 13% to 15% next year, supported by robust corporate earnings growth, and even sees the momentum extending into 2027.
• Goldman Sachs recently updated its projection to 7,600 by 2026, citing solid earnings growth and widespread AI adoption — an implied gain of roughly 10% from Dec. 23 levels.

From a bottom-up perspective, FactSet reports that industry analysts collectively project a 12-month S&P 500 target of 7,969, which was 15.3% above the Dec. 23 close. This estimate aggregates the median target prices for all companies in the index based on company-level target prices submitted by analysts.

How accurate is the bottom-up target price which is estimated at the start of the year?

Over the past 20 years, bottom-up targets have overestimated the S&P 500’s final value by an average of 5.9% one year in advance.

Applying this adjustment to the current FactSet estimate suggests a more conservative 2026 closing level of around 7,500 — still roughly 10% upside from late-December price levels.

Even after accounting for this bias, analysts broadly expect double-digit gains in 2026. This shows that the bull run may be maturing but not exhausted yet.

Adding further context, Fidelity noted that long-term market uptrends have historically lasted decades. If the current cycle follows that pattern, the S&P 500 could continue rising well into the 2030s.

From a valuation standpoint, the index currently trades at 22 times forward 12-month earnings, unchanged from a year ago. This suggests recent gains have been driven more by earnings growth rather than multiple expansion, supporting the sustainability of today’s valuation if earnings targets are met.

Given these expectations, it is reasonable to consider the Vanguard S&P 500 ETF (VOO) as a core holding for 2026.

Core U.S. Equity Holding: Vanguard S&P 500 ETF (VOO)

VOO seeks to track the S&P 500 using a full replication strategy. Investor demand has been strong. In November, VOO saw record estimated net inflows of $21.2 billion, nearly double that of iShares Core S&P 500 ETF’s (IVV) $11.9 billion. Together, VOO and IVV captured more than half of all U.S. equity ETF inflows for the month.

Inflows now stand at roughly $125 billion for VOO and $48.6 billion for IVV. SPDR S&P 500 ETF (SPY) was not as fortunate, experiencing estimated outflows of $4.6 billion in November, bringing its YTD outflows to $26.1 billion.

Why VOO Outshines IVV And SPY

All three ETFs track the same index, but VOO remains the favorite among long-term investors, including Warren Buffett, who recommends VOO in his will primarily because it has an ultra-low expense ratio of 0.03%, compared with SPY’s 0.0945%.

While Berkshire Hathaway holds a stake in SPY, it is VOO that features prominently in Buffett’s estate planning.

VOO also benefits from its open-ended fund structure, which allows automatic dividend reinvestment within the fund — buying additional or fractional shares of VOO using dividend payouts. This is an advantage over SPY’s unit investment trust structure that does not allow you to reinvest dividends automatically. While brokerages can reinvest SPY dividends externally, the distinction matters over time.

Charles Schwab illustrates the compounding power of reinvesting dividends with a million-dollar example: $100,000 invested in a S&P 500 index fund in 1990 would have exceeded $2.1 million by 2022 had dividends been reinvested, but worth only $1.1 million without dividend reinvestment.

Why VOO Beats IVV

VOO and IVV have similar cost structures and are functionally twins, yet VOO attracts more capital for two key reasons:

1. Vanguard is owned by its funds, and therefore by its investors, fostering deep trust and brand loyalty.
2. VOO is an ETF share class of Vanguard’s massive S&P 500 mutual fund (VFIAX). This structure allows tax-free conversions from mutual fund shares into ETFshares — something IVV cannot replicate.

With U.S. valuations elevated and the bull market maturing, investors increasingly need diversification beyond domestic equities.

Why International Stocks Matter In 2026

After lagging U.S. equities for many years, international stocks staged a powerful comeback, marking one of their strongest relative years in recent history. Through mid-December, non-U.S. equities returned approximately 30%, beating the S&P 500 by double-digits.

A key driver has been a shift toward a more multipolar global economy and the decline of the U.S. dollar. The U.S. dollar index (DXY) is down 9% year to date, reflecting a weakening dollar against a basket of currencies, including the euro (EUR), Japanese yen (JPY), British pound (GBP), Canadian dollar (CAD), Swedish krona (SEK) and Swiss franc (CHF). Even after this drop, the dollar still appears overvalued relative to developed and emerging market currencies, leaving room for further downside.

Despite the stellar comeback this year, international stocks remain attractively valued, trading about 35% cheaper than U.S. stocks based on forward price-earnings (P/E) ratios. Earnings growth and economic momentum are also expected to accelerate outside the U.S.

This backdrop supports diversification into international markets. To identify the strongest opportunities, it helps to break the landscape into two parts:

1. Emerging markets, such as India, projected to grow 7% in fiscal 2026
2. Developed markets outside the U.S., such as Germany, which is embarking on a large fiscal stimulus program, and Japan, which is undergoing corporate restructuring.

Part 1: Emerging Market Index Funds For 2026

Emerging market ETFs attracted $7.43 billion of inflows in November — the fourth-best month of the year — bringing year-to-date inflows to $29.5 billion. With investor interest clearly accelerating, the next step is to identify the emerging-market index funds best positioned for 2026.

Criteria For Selecting Emerging Market Index Funds

My selection process considered:

• Inclusion of at least three emerging market index funds with meaningful exposure to India.
• Inclusion of at least one emerging market dividend-focused fund to address income-oriented strategies.
• Emphasis on funds with low expense ratios, dividend yields above 2%, and one-year total returns exceeding 20%.

iShares Core MSCI Emerging Markets ETF (IEMG)

Overview

iShares Core MSCI Emerging Markets ETF (IEMG) is a low-cost fund that offers a single, liquid way to access emerging market equities. IEMG provides diversified exposure to countries including China, India and Taiwan — markets experiencing rapid urbanization and industrial development. With a portfolio holding more than 2,600 stocks across various sectors, IEMG’s universe also includes small-cap companies, giving investors a broader slice of the emerging-market economy.

The fund’s top holdings include major technology and consumer companies such as Taiwan Semiconductor Manufacturing (TSMC), Tencent, Samsung Electronics, Alibaba and SK Hynix. With TSMC, maker of advanced chips, and SK Hynix, which makes high-bandwidth memory, both essential for AI development — IEMG offers a more reasonably valued entry point into AI compared with highly priced U.S. tech stocks. IEMG’s asset allocation leans heavily toward information technology and financials.

Key Details:

• Issuer: BlackRock (under iShares brand)
• Inception date: Oct. 18, 2012
• Assets under management (AUM): ~$119 billion
• Expense ratio: 0.09%
• Dividend yield (TTM): 2.80%
• Number of holdings: 2,679
• Top countries: China (25.98%), Taiwan (19.95%), India (16.72%)
• Top sectors: Information technology (25.86%), financials (21.19%), consumer discretionary (11.77%)
• Top 5 holdings: Taiwan Semiconductor Manufacturing (9.84%), Tencent Holdings (4.36%), Samsung Electronics (3.04%), Alibaba Group (2.78%), SK Hynix (1.84%)
• Total return (past year): ~29.9%

Pros:

• Provides diversified access to high-growth areas of the global economy in a single fund
• Exposure to the AI supply chain at attractive valuations via top holdings like TSMC and SK Hynix
• Exposure to multiple geographies with major economic catalysts
• Low expense ratio compared with many actively managed emerging market funds
• Inclusion of small-cap stocks provides broader diversification

Cons:

• Small-cap exposure can increase volatility
• Subject to geopolitical and currency risks common in emerging markets

Schwab Emerging Markets Equity ETF (SCHE)

Overview

Schwab Emerging Markets Equity ETF (SCHE) aims to track the FTSE Emerging Index, giving investors exposure to large- and mid-cap companies across fast-growing economies.

The FTSE Emerging Index excludes South Korea because the FTSE classifies it as a developed country, while MSCI continues to include South Korea in its Emerging Markets Index. This matters because the index an ETF tracks can significantly affect a portfolio’s country exposure. Investors should be mindful of this distinction to prevent unintentionally overweighting or entirely missing exposure to certain countries. For instance, pairing an MSCI World ETF with a FTSE Emerging Markets ETF results in zero exposure to South Korea. That omission can be meaningful, as South Korea’s KOSPI index surged more than 60% in 2025, fueled by strong AI-related semiconductor demand and sweeping corporate reforms.

SCHE is heavily weighted toward China, Taiwan and India, which together represent roughly 75% of the portfolio. While SCHE offers a stated lower expense ratio than IEMG, its one-year returns have trailed IEMG.

Key Details:

• Issuer: Charles Schwab
• Inception Date: Jan. 14, 2010
• Assets under management (AUM): ~$11.42 billion
• Expense ratio: 0.07%
• Dividend yield: 2.91%
• Number of holdings: 2,171
• Top countries: China (35.67%), Taiwan (20.66%), India (18.37%)
• Top sectors: Information technology (22.13%), financials (21.97%), consumer discretionary (14.33%)
• Top 5 holdings: Taiwan Semiconductor Manufacturing (11.82%), Tencent Holdings (5.11%), Alibaba Group (3.52%), HDFC Bank (1.31%), Reliance Industries (1.25%)
• Total return (past year): ~24.5%

Pros:

• SCHE excludes small-cap stocks in its coverage. As small-caps in emerging markets are prone to extreme volatility, the exclusion offers drawdown protection compared with funds that include smaller, more sensitive companies.

Cons:

• Concentrated in China and Taiwan (~55% of holdings), increasing regulatory and economic risks
• No exposure to South Korea, a key growth market
• One-year returns lag IEMG’s
• SCHE’s median bid-ask spread is about 0.03%, versus 0.01% for IEMG. This 0.02 percentage point difference in trading spread effectively matches the 0.02% gap in their expense ratios (0.07% for SCHE versus 0.09% for IEMG). As a result, SCHE’s lower headline fee is often offset by higher trading costs, particularly for investors who trade more frequently.

Vanguard FTSE Emerging Markets ETF (VWO)

Overview

Vanguard FTSE Emerging Markets ETF (VWO) tracks the FTSE Emerging Markets All Cap China A Inclusion Index, somewhat similar to the FTSE Emerging Index that SCHE tracks — resulting in comparable country and sector allocations and overall performance. However, VWO offers broader diversification through its inclusion of small-cap stocks and China A-shares. It should be noted that China A-shares market only became more accessible to international investors within the past decade. VWO also holds more than 6,000 securities — nearly three times as many as SCHE — and manages over $140 billion in assets, giving it a significantly larger asset base than both SCHE (approximately $11 billion) and IEMG (roughly $119 billion). VWO distributes dividends on a quarterly basis, allowing for more frequent reinvestment compared with SCHE’s semiannual payouts.

Key Details:

• Issuer: Vanguard
• Inception date: March 4, 2005
• Assets under management (AUM): ~$141.2 billion
• Expense ratio: 0.07%
• Dividend yield (TTM): 2.82%
• Number of stocks: 6,146
• Top countries: China (32.7%), Taiwan (22%), India (19.8%)
• Top sectors: Information technology (22.77%), financials (21.25%), consumer discretionary (13.09%)
• Top 5 holdings: Taiwan Semiconductor Manufacturing (10.34%), Tencent Holdings (4.51%), Alibaba Group (3.25%), HDFC Bank (1.18%), Reliance Industries (1.11%)
• Total return (past year): ~23.9%

Pros:

• Very low expense ratio for such a huge-sized fund. VWO’s bid-ask spread of 0.02% is narrower than SCHE’s 0.03%, indicating superior liquidity, and is only marginally wider than the highly liquid IEMG’s 0.01%
• A portfolio of more than 6,000 stocks, including small-caps, allows VWO to capture growth potential across the entire market-cap spectrum, while still mitigating volatility through sheer number of holdings. VWO’s Beta of 0.88 is lower than IEMG’s 0.97, suggesting lesser volatility

Cons:

• Zero exposure to South Korea
• One-year returns lag IEMG’s, likely due to the exclusion of South Korean gains — a pattern also seen with SCHE

WisdomTree Emerging Markets High Dividend Fund (DEM)

Overview

If your goal is income from emerging markets, WisdomTree Emerging Markets High Dividend Fund (DEM) seeks to provide exposure to high-dividend-yielding companies across emerging markets. It tracks the WisdomTree Emerging Markets High Dividend Index (WTEMHY), which draws from the top 30% of highest-dividend-yielding stocks in emerging markets. Rather than weighting constituents by market capitalization, the index weights them by annual cash dividends paid. This methodology tilts toward large-cap value stocks with established dividend profiles and generally results in lower volatility than traditional market-cap-weighted emerging market indices.

DEM has a top focus on financials, technology and industrials. The fund holds more than500 stocks but caps individual stock holdings at 5% of portfolio. This prevents any single stock from dominating the fund. Its higher dividend yield of more than 5% makes it attractive for income-focused strategies, although dividend growth appears inconsistent. Investors should also weigh DEM’s higher expense ratio of 0.63% and high portfolio turnover of more than 50%.

Key Details:

• Issuer: WisdomTree
• Inception date: July 13, 2007
• Assets under management (AUM): ~$3.3 billion
• Expense ratio: 0.63%
• Dividend yield (as of Dec. 22, 2025): 5.9%
• Number of holdings: ~500
• Top countries: China (24%), Taiwan (21.85%), Saudi Arabia (6.58%)
• Top sectors: Financials (26.33%), information technology (13.68%), industrials (11.51%)
• Top 5 holdings: China Construction Bank-H (4.21%), Industrial & Commercial Bank of China-H (2.64%), MediaTek Inc. (2.49%), Saudi Arabian Oil Co. (1.93%), Ping An Insurance Group of China (1.90%)
• Total return (past year): ~20%

Pros:

• Superior dividend yield of over 5%
• Reduced concentration risk with 5% cap on individual stocks, and reduced volatility due to the fund’s structural tilt toward large-value caps
• A 3.79% exposure to South Korea — a key growth market

Cons:

• A higher expense ratio of 0.63% could eat into long-term returns. DEM is nine times more expensive than low-cost peers like VWO (0.07%)
• Limited exposure of roughly 5% to India — one of the fastest-growing major economies in 2025. Many Indian stocks have low dividend yields, the reason why the fund underweights the geography
• High portfolio turnover (~52%), increasing potential transaction costs and resulting in lower tax efficiency due to potential capital gains distributions
• Inconsistent dividend growth with recent data showing uneven paying trends, even sharp contractions

While emerging markets offer compelling growth potential, developed markets outside the U.S. present a different set of opportunities.

Part 2: Why Developed Markets Offer Protection From U.S. Risks

For investors seeking to diversify from U.S. risks, here are t some developed-markets index funds to consider:

Selection Criteria For Developed Market Funds

• Inclusion of developed market funds that have total returns in excess of 30% in the past year.
• Emphasis on funds offering relatively high dividend yields to support income-oriented strategies.
• Preference for funds with meaningful exposure to Japan and Germany — countries with growth catalysts.
• Inclusion of at least one developed index fund that excludes North American exposure to enhance geographic diversification.

Vanguard FTSE Developed Markets ETF (VEA)

Overview

The Vanguard FTSE Developed Markets ETF (VEA) is a passively managed fund that provides exposure to developed markets outside of the U.S. with more than half its assets allocated to Europe, — which is benefitting from more favorable monetary and fiscal policies. The fund covers large-, mid- and small-cap companies across Canada and the major markets of Europe and the Pacific region, providing diversified access to some of the world’s largest economies.

VEA has top exposure to Japan, which is a compelling 2026 global opportunity with its corporate restructuring efforts. M&A activity in Japan increased to more than $200 billion this year, while share buybacks rose trillions of yen. Sony and Hitachi shed noncore assets to focus on high-growth areas, while Nissan and Toshiba cut nearly 13,000 jobs combined. The turnaround has been slow but impressive.

A favorable 7.2% exposure to Germany, which is embarking on a fiscal stimulus program with an estimated value of $1.3 trillion in the next decade, also bodes well for VEA.

For a fund managing $260 billion in assets, VEA has an ultra-low expense ratio of 0.03%, increasing its appeal for long-term investors.

Key Details:

• Issuer: Vanguard
• Inception date: July 20, 2007
• Assets under management (AUM): ~$260 billion
• Expense ratio: 0.03%
• Dividend yield (TTM): 3.25%
• Number of stocks: 3,864
• Top countries: Japan 21.2%, U.K. 12.2%, Canada 11% (exposure to Germany 7.2%)
• Top sectors: Financials 23.5%, industrials 18.7%, technology 11.5%
• Top 5 holdings: ASML Holding NV 1.49%, Samsung Electronics 1.15%, AstraZeneca 0.99%, Roche 0.96%, Nestlé 0.90%
• Total return (past year): ~35%

Pros:

• Ultra-low expense ratio
• Top exposure to Japan, benefiting from corporate restructuring catalysts
• More than50% exposure to Europe, which is benefitting from fiscal and monetary support
• Exposure to Germany, which is setting up for a trillion-dollar fiscal stimulus program

Con:

• Currency and geopolitical risks typically associated with foreign economies and markets

iShares Core MSCI EAFE ETF (IEFA)

Overview

For investors seeking international market exposure excluding North America, iShares Core MSCI EAFE ETF (IEFA) is a strong choice. Focusing on large-, mid- and small-cap equities in the EAFE region — Europe, Australasia and the Far East — the fund provides more concentrated international diversification, excluding the U.S. and Canada. IEFA does not include South Korea, as MSCI classifies the country under emerging markets. A high dividend yield of 3.56% (TTM) may appeal to income-focused investors.

Key Details:

• Issuer: BlackRock (under iShares brand)
• Inception date: Oct. 18, 2012
• Assets under management (AUM): ~$163.36 billion
• Expense ratio: 0.07%
• Dividend yield (TTM): 3.56%
• Number of holdings: 2,591
• Top countries: Japan 23.93%, U.K. 14.51%, France 9.67% (exposure to Germany is 8.85%)
• Top sectors: Financials 23.45%, industrials 19.71%, healthcare 10.45%
• Top 5 holdings: ASML 1.72%, Roche 1.21%, AstraZeneca 1.19%, HSBC 1.14%, Novartis 1.09%
• Total return (past year): ~32.4%

Pros:

• High dividend yield
• Low expense ratio of 0.07% for a $160 billion-plus fund, but VEA has $260 billion assets under management and comes with a lower expense ratio of 0.03%
• Focus on the EAFE region provides more concentrated diversification

Cons:

• No exposure to South Korea
• Asset allocation to technology sector limited to 8.45%, which may limit growth

Schwab International Equity ETF (SCHF)

Overview

Schwab International Equity ETF (SCHF) tracks the FTSE Developed ex U.S. Index with a low expense ratio. The fund is suited for investors seeking low or no exposure to small- and micro-cap stocks, as it is designed to track large- and mid-cap equities from developed countries outside the U.S. Its universe includes Canada and South Korea (as it tracks the FTSE index). A high dividend yield makes it attractive for income-focused investors.

Key Details:

• Issuer: Charles Schwab
• Inception date: Nov. 3, 2009
• Assets under management (AUM): roughly $55.24 billion
• Expense ratio: 0.03%
• Number of holdings: 1,505
• Dividend yield: 3.4%
• Total return in the past year: roughly 34.53%
• Top countries: Major exposures include Japan (21.28%), U.K. (12.26%), Canada (10.76%) — it has 7.78% exposure to Germany
• Top sectors: Financials (25.13%), industrials (18.76%), information technology(10.17%)
• Top 5 holdings: ASML Holding NV 1.6%, Samsung Electronics 1.35%, Roche Holding 1.11%, AstraZeneca 1.06%, HSBC Holdings 1.04%

Pros:

• Ultra-low exposure of 0.03% to stocks with a market cap of less than $1 billion
• High dividend yield
• Includes South Korea
• Competitive expense ratio for a fund managing $55 billion in assets

Con:

• More than 40% of its sectoral holdings are concentrated in financials and industrials, which makes the fund sensitive to policy shifts and interest rates.

Key Conclusions For Investors

As 2026 approaches, the market suggests neither complacency nor retreat, but selectivity. While U.S. equities, led by earnings growth rather than valuation expansion, remain a credible core holding through funds like Vanguard S&P 500 ETF (VOO), the margin for error is narrowing after three consecutive years of robust gains.

International equities, particularly emerging and developed markets outside the U.S., offer a more compelling risk-reward setup. Valuations remain materially lower, earnings growth is broadening, and currency dynamics could provide a tailwind if the U.S. dollar continues to weaken.

Within emerging markets, broad, low-cost vehicles such as IEMG and VWO offer diversified growth, while DEM serves a more specialized role for income-focused investors willing to accept higher fees and turnover.

SCHE remains a viable option for more risk-averse investors who prefer large- and mid-cap exposure and are comfortable excluding South Korea, though this positioning has come at the cost of relative performance in the current cycle.

In developed markets, funds like VEA, IEFA and SCHF provide different blends of growth, income and geographic exposure, allowing investors to fine-tune diversification based on their risk tolerance and income needs.

Taken together, a portfolio anchored by U.S. large-caps but complemented by thoughtfully selected international index funds may be better positioned for 2026 — capturing continued upside while reducing reliance on a single market, currency or policy regime. The bull market may be maturing, but diversification, discipline and cost efficiency remain timeless advantages.