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Looking for a little more growth?
An index fund that tracks the S&P 500 is a great foundation for most investors, but there's some evidence that small cap stocks can provide even better returns. With this in mind, Vanguard Small-Cap Growth ETF , which is also available as Vanguard Small-Cap Growth Index Fund Admiral Shares and Vanguard Small Capitalization Growth Index Fund Investor Shares , is worth consideration.
The catch? You have to be willing to ride out higher volatility:
Since inception, the Vanguard Small Cap Growth Index Fund has handily outperformed the market, but it's also fallen much more sharply over short periods of time. For example, since its peak in June 2015, the fund has fallen nearly twice as far as the S&P 500:
In other words, the potential returns over the long term come at the cost of more short-term price volatility. If you're working a shorter window of investing time, this fund may increase your risk of losses, and might not be the right fit.
Income and capital preservation? A utility index fund may be best
Two index funds that come to mind if you're looking for to preserve capital, while counting on some income, are the Vanguard Utilities ETF , and Guggenheim S&P 500 Equal Weight Utilities ETF . Both of these index funds include traditional electric, gas, and water utilities, while the Guggenheim index fund also includes the S&P 500 components of the telecom sector as well.
Neither of these funds is going to reward you with the kind of price appreciation of the growth index fund or even the S&P 500 index fund discussed above, but they are also tend fall less when the market declines. That's not always the case, however, as both of these funds have underperformed the S&P 500 in total returns over the past year:
Furthermore, there's some risk that rising interest rates could further affect utilities with their high-debt balance sheets, so don't consider these to be risk-free investments.
But if you're looking to invest for a few years, not a few decades, but would like some income and lower risk of capital losses, the 4.2% yield of the Guggenheim fund and 3.7% yield of the Vanguard fund, and the stable holdings that most utilities offer, make these two index funds worth considering.
Looking ahead
Nobody knows what the stock market will do over 2016, or even in the years to come. However, investing in low-cost, high-quality index funds should lead to solid returns over the long-term.
And whether you're looking for the foundation of your portfolio, great long-term growth potential, or stability and income, there's a good chance one of the index funds above is right for you.
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The article Best Index Funds for 2016 originally appeared on Fool.com.
Jason Hall has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
