You buy index funds through a brokerage account, just like you would buy individual stocks

An index fund is a mutual fund or exchange-traded fund (ETF) that holds all the stocks or bonds in a specific market index — the S&P 500, the total U.S. stock market, or the bond market, for example. To own one, you open an account at a brokerage firm, deposit money, search for the fund by its ticker symbol, and place a buy order. The whole process takes about 15 minutes once your account is open.

The brokerage holds your shares and handles the paperwork. You do not need to pick individual stocks, time the market, or make daily decisions. You own a piece of hundreds or thousands of companies through a single fund. Most people who invest for retirement — through a 401(k), IRA, or taxable brokerage account — own index funds because the fees are low and the results are predictable.

Key Takeaways

  • Open a brokerage account at a firm like Fidelity, Vanguard, or Charles Schwab, which takes 10 to 15 minutes online and requires your Social Security number and bank details.
  • Deposit money into your account from your bank, then search for an index fund by its ticker symbol (such as VOO for the S&P 500) and place a buy order.
  • Index funds charge annual fees called expense ratios, which range from 0.03% to 0.20% per year for most broad-market funds — far lower than actively managed funds.
  • You can buy index funds inside a tax-advantaged retirement account like a 401(k) or IRA, or in a regular taxable brokerage account with no contribution limits.
  • The price of an index fund changes every trading day, so you will see your account balance go up and down — this is normal and does not mean you should sell.

Choose a brokerage and open an account

A brokerage is a company that lets you buy and sell investments. The largest ones for individual investors are Fidelity, Vanguard, Charles Schwab, and E*TRADE. All of them offer index funds, charge no commission to buy or sell, and have no account minimums (or very low ones). You can open an account on their website in about 10 minutes.

You will need your Social Security number, a valid ID, your current address, and access to a bank account. The brokerage will ask you a few questions about your age, income, and investment experience — these are required by law, not a test you can fail. Once you answer, your account is usually open within a day. Some brokerages let you start trading when ready while they verify your information in the background.

If you have a 401(k) through your employer, your employer has already chosen a brokerage for you — you do not need to open a separate account. You invest in index funds (or other funds) through that plan's website or app. If you have an IRA or want to invest money outside retirement accounts, you choose the brokerage yourself.

Deposit money and find the fund you want

Once your account is open, link it to your bank account. The brokerage will ask for your bank's routing number and your account number — you can find both on a check or in your bank's app. You can then transfer money from your bank to your brokerage account. Transfers usually take one to three business days.

Once the money is in your brokerage account, search for the index fund you want to buy. Every fund has a ticker symbol — a short code like VOO (Vanguard S&P 500 ETF), VTI (Vanguard Total Stock Market ETF), or BND (Vanguard Total Bond Market ETF). You can search by ticker or by the fund's full name. The brokerage will show you the fund's price, its expense ratio (annual fee), and how much of your money will buy.

You do not have to buy a whole share. If a fund costs $400 per share and you have $1,000, you can buy 2.5 shares. Most brokerages now let you buy fractional shares, so your money goes to work entirely — nothing sits unused.

Understand expense ratios and fees

An expense ratio is the annual fee the fund charges you, expressed as a percentage of your money. A fund with a 0.05% expense ratio costs you $5 per year for every $10,000 you own. This fee is taken automatically from the fund's value — you do not write a check or see a bill.

Index funds have low expense ratios because they straightforward hold the stocks or bonds in an index and do not require a manager to pick investments. Most broad-market index funds charge between 0.03% and 0.20% per year. Actively managed funds, where a manager tries to beat the market, often charge 0.50% to 1.50% or more. Over decades, that difference compounds into thousands of dollars.

Some brokerages also charge account fees or trading commissions, but the major ones (Fidelity, Vanguard, Schwab, E*TRADE) charge no commission to buy or sell index funds. Check the brokerage's fee schedule before you open an account, but you will not find hidden costs at the major firms.

Decide between a retirement account and a taxable account

You can buy index funds inside a tax-advantaged retirement account or in a regular taxable brokerage account. The choice depends on your situation and how much you want to invest.

A 401(k) is offered by your employer. You contribute money from your paycheck before taxes are taken out, which lowers your taxable income that year. Your employer may match part of what you contribute — information programs. You cannot withdraw the money before age 59½ without a penalty (with some exceptions). You choose from the funds your employer's plan offers, which usually includes several index funds.

An IRA (Individual Retirement Account) is an account you open yourself. A traditional IRA works like a 401(k) — contributions lower your taxable income, and you pay taxes when you withdraw. A Roth IRA works the opposite way — you contribute after-tax money, but withdrawals in retirement are tax-free. For 2024, you can contribute up to $7,000 per year to an IRA (or $8,000 if you are 50 or older). You choose any index funds you want.

A taxable brokerage account has no contribution limits and no withdrawal restrictions. You pay taxes on any gains when you sell, and on dividends the fund pays each year. This account makes sense if you have already maxed out your retirement accounts or if you need the money before retirement.

Place your first buy order

Once you have found the fund and decided how much to invest, click "Buy" or "Trade" in your brokerage account. You will see a screen asking how many shares you want, or how much money you want to spend. Enter your amount and review the order — it will show you the fund's current price, how many shares you will get, and the total cost.

Click "Confirm" or "Submit." The order is placed when ready during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays). If you place an order after market hours or on a weekend, it will execute the next trading day at that day's closing price. You will see the shares appear in your account within seconds or minutes.

That is it. You now own the index fund. You do not have to do anything else — the fund automatically reinvests dividends (the money companies pay to shareholders) back into more shares, so your investment grows without any action from you.

Watch your account without overreacting to price changes

Your index fund's price changes every trading day. Some days it goes up, some days it goes down. This is normal. The price reflects what the stocks or bonds inside the fund are worth on that day. If you own an S&P 500 index fund and the stock market drops 5% in a week, your fund drops 5% too. If the market rises 10% over a year, your fund rises 10%.

Many new investors panic when they see their balance drop and sell at a loss. This is the most common mistake. Index funds are meant to be held for years or decades. Short-term price swings do not matter if you are not selling. In fact, when prices drop, your regular contributions buy more shares at a lower price — this is called "buying the dip" and it helps you over time.

Check your account balance once a month or once a quarter, not every day. Set up automatic deposits from your bank if your brokerage offers it — many do. This way you invest the same amount every month without thinking about it, which removes emotion from the decision and takes advantage of market ups and downs automatically.

Frequently Asked Questions

Do I need a lot of money to start investing in index funds?

No. Most brokerages have no minimum account balance, and you can buy fractional shares with as little as $1. Many people start with $100 or $500 and add more over time. The key is to start early — even small amounts grow significantly over decades because of compound interest.

What is the difference between an ETF and a mutual fund index fund?

Both track an index and have low fees. ETFs trade like stocks during market hours and can be bought at any time. Mutual funds are priced once per day after the market closes. For most investors, the difference does not matter — pick whichever your brokerage recommends or whichever has the lower expense ratio.

Can I lose all my money in an index fund?

Theoretically, yes, but only if the entire market crashes and never recovers — which has never happened in U.S. history. The S&P 500 has recovered from every crash, including the Great Depression and 2008. If you hold for 20+ years, the odds of a loss are very small. If you need the money in 5 years, index funds carry more risk.

Should I buy index funds in a 401(k) or a Roth IRA first?

Contribute to your 401(k) up to the point where your employer stops matching — that is information programs. Then max out a Roth IRA if you can. Then go back to your 401(k). If you have money left after that, use a taxable brokerage account. This order maximizes tax benefits.

How often should I rebalance my index fund portfolio?

If you own only one broad index fund (like a total stock market fund), you do not need to rebalance — it rebalances itself. If you own multiple funds (stocks and bonds, for example), rebalance once a year by selling the part that has grown too large and buying the part that has shrunk. This keeps your risk level steady.