You buy S&P 500 index funds through a brokerage account, either online or with a financial institution
An S&P 500 index fund tracks the 500 largest publicly traded companies in the United States. To own shares, you open an account with a brokerage — a company that buys and sells investments on your behalf — then transfer money in and place an order for the fund you want. The whole process takes a few days to a week, depending on how your brokerage processes deposits.
You do not need to pick individual stocks or time the market. The fund automatically holds all 500 companies in the same proportions as the index itself, so your money is spread across many sectors: technology, healthcare, finance, energy, consumer goods, and others. When you buy shares, you own a small piece of each company in the index.
The cost to buy is low — most brokerages charge no commission to purchase index funds. You will pay an annual fee called an expense ratio, which varies by fund but typically ranges from 0.03% to 0.20% per year. That means on a $10,000 investment, you might pay $3 to $20 annually, taken automatically from your account.
Key Takeaways
- You need a brokerage account to buy S&P 500 index funds; common options include Fidelity, Vanguard, Charles Schwab, and E*TRADE, each with different minimum deposits and fee structures.
- After opening an account and depositing money, you search for the S&P 500 fund by its ticker symbol — common ones are VOO, IVV, and SPY — and place a buy order for the number of shares you want.
- The expense ratio (annual fee) varies by fund and brokerage, so comparing costs before you buy can save hundreds of dollars over decades.
- You can buy S&P 500 index funds inside retirement accounts like a 401(k) or IRA, which offer tax advantages, or in a regular taxable brokerage account with no contribution limits.
Opening a brokerage account and choosing where to buy
A brokerage is a company licensed to hold your money and execute trades. The largest brokerages that offer S&P 500 index funds include Fidelity, Vanguard, Charles Schwab, E*TRADE, and Merrill Edge. Each has a website where you can open an account online in 15 to 30 minutes by providing your name, address, Social Security number, and employment information.
Minimum deposit requirements vary. Some brokerages have no minimum; others require $500 to $2,500 to open an account. After you open the account, you link a bank account and transfer money electronically. The transfer usually takes one to three business days to appear in your brokerage account, though some brokerages offer when ready deposits for smaller amounts.
Before choosing a brokerage, compare the expense ratios of the S&P 500 funds they offer. Vanguard's VOO charges 0.03% annually; Fidelity's FSKAX charges 0.015%; iShares' IVV charges 0.03%. Over 30 years, a lower expense ratio compounds into meaningful savings. You can also look at whether the brokerage offers fractional shares — the ability to buy partial shares with small amounts of money — which makes it easier to invest if you have limited funds.
Finding and buying the specific fund
Once your account is open and funded, you search for the S&P 500 index fund by its ticker symbol, a short code that identifies each fund. The most common S&P 500 index funds are VOO (Vanguard S&P 500 ETF), FSKAX (Fidelity S&P 500 Index Fund), and IVV (iShares Core S&P 500 ETF). Each tracks the same 500 companies but may have slightly different expense ratios and structures.
In your brokerage account, you navigate to the "Buy" or "Trade" section, enter the ticker symbol, and the fund's details appear. You then enter the dollar amount you want to invest or the number of shares you want to buy. If you enter a dollar amount, the brokerage calculates how many shares that buys at the current price. You review the order and confirm it.
The order executes during market hours (9:30 a.m. to 4:00 p.m. Eastern Time on weekdays when the stock market is open). If you place an order after market close or on a weekend, it executes the next trading day. After the order completes, the shares appear in your account and you own a piece of the S&P 500.
Buying inside retirement accounts versus taxable accounts
You can buy S&P 500 index funds in different types of accounts, each with different tax rules. A 401(k) is an employer-sponsored retirement plan where you contribute money before taxes are taken out. Many 401(k) plans offer S&P 500 index funds as one of the investment choices. You choose the fund during enrollment, and money is deducted from your paycheck automatically.
An IRA (Individual Retirement Account) is a personal retirement account you open yourself. A Traditional IRA lets you deduct contributions from your taxes in the year you make them; a Roth IRA lets you withdraw money tax-free in retirement. Both have annual contribution limits — $7,000 for people under 50 in 2024, though this amount changes yearly — and you can buy S&P 500 index funds inside either one.
A taxable brokerage account has no contribution limits and no restrictions on when you withdraw money, but you pay taxes on dividends and capital gains each year. If you have already maxed out your 401(k) and IRA contributions and want to invest more, a taxable account is the next step. The trade-off is that you owe taxes annually on the fund's earnings, whereas retirement accounts defer or eliminate those taxes.
Understanding what happens after you buy
After you own shares, the fund pays dividends — small cash payments from the companies' profits — usually quarterly. Most brokerages automatically reinvest dividends by buying more shares of the fund, which compounds your growth over time. You can change this setting if you prefer to receive the cash instead, though reinvesting is usually the better choice for long-term investors.
The fund's price changes every trading day based on the combined value of the 500 companies it holds. You can check your account balance anytime online. You do not have to do anything else — the fund rebalances itself automatically to stay aligned with the index, and you do not pay fees when it does. Your only ongoing responsibility is to decide whether to add more money to your account or leave it untouched.
If you want to sell your shares later, you log into your account, search for the fund, and place a sell order. The order executes during market hours, and the cash appears in your account within one to three business days. You will owe capital gains tax on any profit if the account is taxable, but not if it is a retirement account.
Comparing S&P 500 index funds side by side
| Fund Name | Ticker | Expense Ratio | Fund Type | Typical Minimum |
|---|---|---|---|---|
| Vanguard S&P 500 ETF | VOO | 0.03% | ETF | Price of one share (~$400–$500) |
| Fidelity S&P 500 Index Fund | FSKAX | 0.015% | Mutual Fund | $0 (Fidelity account) |
| iShares Core S&P 500 ETF | IVV | 0.03% | ETF | Price of one share (~$400–$500) |
| Schwab U.S. Large-Cap ETF | SCHX | 0.03% | ETF | Price of one share (~$70–$90) |
| SPDR S&P 500 ETF Trust | SPY | 0.09% | ETF | Price of one share (~$400–$500) |
The funds listed above all track the same index but have different structures and costs. ETFs (exchange-traded funds) trade like stocks and can be bought at any price point if your brokerage offers fractional shares. Mutual funds are priced once per day after market close. The difference in expense ratios may seem small, but over 30 years, a 0.015% fee costs significantly less than a 0.09% fee on the same investment.
Fidelity's FSKAX has the lowest expense ratio on this list and requires no minimum deposit if you open a Fidelity account. Vanguard's VOO and iShares' IVV both charge 0.03% and are widely available across brokerages. Charles Schwab's SCHX has a lower share price, making it easier to buy a full share with less money. SPY is the oldest and most heavily traded S&P 500 ETF but carries a higher expense ratio, so it is less cost-effective for buy-and-hold investors.
Common mistakes to avoid when buying
One mistake is buying the wrong fund by accident. S&P 500 index funds have similar names, so double-check the ticker symbol before you confirm your order. Another mistake is trying to time the market — waiting for a price drop that may never come, or buying all at once right before a decline. Research shows that investing a fixed amount regularly, regardless of price, typically produces better results over decades than trying to pick the perfect moment.
A third mistake is choosing a fund with a high expense ratio without comparing. The difference between 0.03% and 0.20% does not sound large, but it compounds. On a $100,000 investment over 30 years, the lower-cost fund could leave you with thousands of dollars more. Always check the expense ratio before you buy.
Finally, avoid moving money in and out frequently based on market news. The S&P 500 index fund is designed for long-term holding. Selling during downturns and buying during peaks locks in losses and misses recoveries. If you are investing for retirement, buy and hold for decades.
Frequently Asked Questions
Do I need a lot of money to start investing in an S&P 500 index fund?
No. Many brokerages have no minimum deposit, and if your brokerage offers fractional shares, you can invest as little as $1. If you choose an ETF without fractional shares, you need enough to buy at least one share, which typically costs $70 to $500 depending on the fund.
Can I buy an S&P 500 index fund inside my 401(k)?
Yes, if your employer's 401(k) plan offers one. During enrollment or through your plan's website, you select the S&P 500 index fund from the available investment choices and choose what percentage of your paycheck to invest. If your plan does not offer one, you can ask your plan administrator to add it, though they are not required to.
What is the difference between an ETF and a mutual fund version of the S&P 500?
Both track the same index and have similar costs. ETFs trade throughout the day like stocks, so you can buy or sell anytime the market is open. Mutual funds are priced once per day after market close. ETFs may have lower minimum investments if your brokerage offers fractional shares. For most investors, the difference is small.
Do I pay taxes on S&P 500 index fund dividends?
Only in a taxable account. In a 401(k) or Traditional IRA, dividends are not taxed until you withdraw money in retirement. In a Roth IRA, dividends are never taxed. In a taxable brokerage account, you owe tax on dividends each year, even if you reinvest them.
What happens if I want to sell my S&P 500 index fund shares?
Log into your brokerage account, find the fund, and place a sell order for the number of shares you want to sell. The order executes during market hours, and the cash appears in your account within one to three business days. In a taxable account, you will owe capital gains tax on any profit.