The basic steps to buy an S&P 500 index fund

To buy an S&P 500 index fund, you open a brokerage account, 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 set up, though the money transfer itself may take a few business days.

You do not need to pick individual stocks or time the market. You are buying a single fund that holds all 500 companies in the S&P 500 index in the same proportions the index uses. When you own the fund, you own a tiny piece of each company.

The three main routes are a traditional brokerage (like Fidelity or Charles Schwab), a robo-advisor (like Betterment or Vanguard Personal Advisor Services), or your employer's retirement plan if one is offered. Each route has different minimums, fees, and account types.

Key Takeaways

  • You need a brokerage account before you can buy any fund; opening one takes 10 to 15 minutes and requires basic personal information and a funding method.
  • S&P 500 index funds are identified by ticker symbols like VOO, SPY, or VTSAX, and the fund you choose depends on your account type and which brokerage you use.
  • Minimum investments range from zero dollars at some brokerages to $1,000 or $3,000 at others, depending on whether you are buying mutual funds or exchange-traded funds.
  • Fees vary widely: some S&P 500 index funds charge 0.03% per year while others charge 0.40%, so comparing expense ratios before you buy saves money over time.
  • Money you deposit takes one to three business days to settle in your account, so plan ahead if you want to buy on a specific date.

Choosing a brokerage and opening an account

A brokerage is a company that holds your money and lets you buy and sell investments. The major ones are Fidelity, Charles Schwab, Vanguard, E*TRADE, and TD Ameritrade. Each one has a website and a mobile app where you can manage your account.

To open an account, go to the brokerage's website and click "Open an Account" or similar. You will enter your name, address, Social Security number, date of birth, and employment information. The brokerage will ask whether you want a regular taxable account (called a brokerage account) or a retirement account like a Roth IRA or traditional IRA. For most people starting out, a regular brokerage account is simpler because there are no contribution limits and no age restrictions on withdrawals.

The whole process takes 10 to 15 minutes. Most brokerages approve you when ready or within a few hours. After approval, you link a bank account so you can transfer money in.

Understanding the different types of S&P 500 funds

S&P 500 index funds come in two main types: mutual funds and exchange-traded funds (ETFs). Both track the same index and hold the same 500 companies, but they work differently.

A mutual fund is priced once per day, after the market closes. You place an order during the day, but the price you pay is set at the end of that trading day. Mutual funds often have minimum investments of $1,000 to $3,000, though some brokerages waive the minimum if you set up automatic monthly deposits. Common S&P 500 mutual fund ticker symbols are VTSAX (Vanguard), FSKAX (Fidelity), and SWPPX (Schwab).

An ETF trades throughout the day like a stock, so the price changes minute by minute. You can buy a single share of an ETF for whatever the current price is — often $300 to $500 per share, meaning you can start with less money. Common S&P 500 ETF ticker symbols are VOO (Vanguard), IVV (iShares), and SPY (SPDR). ETFs are simpler for beginners because you do not have to worry about minimums.

For most people, the choice between them does not matter much. Pick whichever your brokerage makes easiest, or whichever has the lowest expense ratio (the annual fee, explained below).

Comparing expense ratios and fees

An expense ratio is the annual fee the fund company charges to manage the fund. It is expressed as a percentage of the money you have invested. For S&P 500 index funds, expense ratios range from 0.03% to 0.40% per year.

Here is what that means in dollars: if you invest $10,000 in a fund with a 0.03% expense ratio, you pay $3 per year. The same $10,000 in a fund with a 0.40% expense ratio costs $40 per year. Over 20 years, that difference compounds. The lower-cost fund will have significantly more money in it at the end.

The lowest-cost S&P 500 index funds are VOO (Vanguard), IVV (iShares), and VTSAX (Vanguard), all around 0.03% to 0.04%. Fidelity's FSKAX is also very low. Avoid funds with expense ratios above 0.20% unless there is a specific reason — there is no reason to pay more for the same index.

Some brokerages also charge a transaction fee when you buy or sell a fund. Most major brokerages have eliminated these fees, but check before you open an account. The brokerage's website will list any trading fees clearly.

Depositing money and placing your first order

Once your account is open and approved, link your bank account. Go to the "Deposit" or "Transfer Funds" section of your brokerage's website or app. Enter your bank's routing number and your account number (both appear on a check or in your bank's app). The brokerage will send two small test deposits to your bank account — usually $0.01 and $0.02 — to verify you own the account. You confirm the amounts in your brokerage account, and the link is complete.

Transfer the amount you want to invest. Most brokerages take one to three business days to move money from your bank to your investment account. Plan ahead if you want to buy on a specific date.

Once the money is in your brokerage account, go to the "Buy" or "Trade" section. Search for the fund by its ticker symbol (VOO, VTSAX, IVV, or whichever you chose). Click on the fund. Enter the dollar amount you want to spend or the number of shares you want to buy. Review the order and click "Confirm" or "Submit." The order executes when ready (for ETFs) or at the end of the trading day (for mutual funds).

Tax considerations for different account types

If you opened a regular brokerage account, you will owe taxes on any gains when you sell the fund. If you opened a Roth IRA, you pay no taxes on gains ever, but you can only contribute $7,000 per year (the limit changes occasionally) and you cannot withdraw the money before age 59½ without a penalty. If you opened a traditional IRA, you may deduct your contributions from your taxes, but you will owe taxes on the gains when you withdraw the money in retirement.

For most people starting out, a Roth IRA is the simplest choice if you have earned income. You get the tax benefit, and the rules are more flexible than a traditional IRA. If you have already maxed out your Roth IRA for the year, a regular brokerage account is the next step.

Do not let taxes paralyze you. Index funds are very tax-efficient compared to actively managed funds, and the long-term growth far outweighs the tax cost. Open whichever account type makes sense for your situation and start investing.

What happens after you buy

After your order is complete, the fund appears in your account. You own it. You do not have to do anything else. The fund automatically reinvests dividends (small payments the companies pay to shareholders) back into more shares of the fund, so your investment grows without you taking any action.

You can check your account balance anytime through your brokerage's website or app. The balance will go up and down with the stock market. This is normal. Index fund investors typically check their balance once or twice a year, not every day, because daily changes are noise.

If you want to add more money later, transfer it to your brokerage account and buy more shares using the same process. Many people set up automatic monthly transfers so they invest the same amount every month without thinking about it.

Frequently Asked Questions

Do I need a lot of money to start?

No. If you buy an ETF like VOO, you can start with as little as $100 to $500 (the price of one share). If you buy a mutual fund, some have $1,000 minimums, but many brokerages waive the minimum if you set up automatic monthly deposits of $50 or $100. Check your chosen brokerage's website for its specific minimums.

What is the difference between VOO, IVV, and VTSAX?

All three track the S&P 500 and hold the same 500 companies. VOO and IVV are ETFs that trade throughout the day. VTSAX is a Vanguard mutual fund priced once per day. The expense ratios are nearly identical (around 0.03% to 0.04%). Pick whichever your brokerage makes easiest or whichever you can afford to buy with your starting amount.

Can I lose all my money in an S&P 500 index fund?

Theoretically yes, but it would require all 500 of the largest U.S. companies to go bankrupt simultaneously, which has never happened. The S&P 500 has recovered from every crash in its history. That said, your money can go down in value in the short term. If you need the money within five years, an index fund is not the right place for it.

Should I wait for the market to go down before I buy?

No. Trying to time the market is a losing game even for professionals. Investors who buy the same amount every month regardless of price end up with more money than those who try to guess when to buy. Start now with whatever you have, and add more money regularly.

Can I buy an S&P 500 index fund through my employer's 401(k)?

Yes. Most 401(k) plans offer S&P 500 index fund options. If your employer matches contributions, contribute enough to get the full match first — that is information programs. Then decide whether to contribute more to the 401(k) or to a Roth IRA. Your employer's plan administrator can show you the fund options and their expense ratios.