You can buy S&P 500 index funds through a brokerage account in about 15 minutes

An S&P 500 index fund tracks the 500 largest publicly traded companies in the United States. To own one, you open an account at a brokerage firm, deposit money, search for the fund by its ticker symbol, and buy shares. The whole process takes a few clicks once your account is open. You do not need to pick individual stocks or time the market — the fund automatically holds all 500 companies in the same proportion the index does.

The three main routes are a traditional brokerage (like Fidelity, Charles Schwab, or Vanguard), a robo-advisor (which builds a portfolio for you automatically), or an employer retirement plan if your workplace offers one. Each has different costs, minimum deposits, and tax treatment. Most people start with a regular brokerage account if they are saving outside retirement, or a 401(k) or IRA if their employer offers one.

Key Takeaways

  • You need a brokerage account, which you open online by providing your name, address, Social Security number, and employment information.
  • S&P 500 index funds charge annual fees (called expense ratios) that range from 0.03% to 0.20% depending on the fund family and share class you choose.
  • The most common S&P 500 index funds are VFIAX (Vanguard), FSKAX (Fidelity), and IVV (iShares), each available through most brokerages.
  • You can buy index funds inside a 401(k), traditional IRA, or Roth IRA to reduce taxes on your investment gains, though each has contribution limits and withdrawal rules.
  • Once you buy shares, you own them until you sell — there is no expiration date, and you can hold them for decades.

Opening a brokerage account

Start by choosing a brokerage firm. The largest and most common are Fidelity, Charles Schwab, Vanguard, and E*TRADE, though dozens of others exist. Visit the firm's website and click the button to open an account (usually labeled "Open an Account" or "get your free guide"). You will answer questions about your name, address, date of birth, Social Security number, employment status, and annual income. The firm uses this information to verify your identity and comply with federal banking rules.

After you submit your information, the firm will review it — this usually takes a few minutes to a few hours. Once approved, you can log in and link a bank account. You transfer money from your bank to your brokerage account (called a "deposit" or "transfer"). This step typically takes one to three business days. Only after the money arrives in your brokerage account can you buy the fund.

You do not need a minimum deposit to open the account itself, but most brokerages require at least $1 to $500 to make your first purchase. Some firms waive minimums for certain funds or accounts. Check the firm's website for current requirements.

Choosing which S&P 500 index fund to buy

Most brokerages offer multiple S&P 500 index funds from different fund families. The three largest are Vanguard, Fidelity, and iShares (owned by BlackRock). Each tracks the same index but charges slightly different annual fees and may have different share classes.

The most widely available low-cost options are VFIAX (Vanguard S&P 500 ETF Admiral Shares), FSKAX (Fidelity S&P 500 Index Fund), and IVV (iShares Core S&P 500 ETF). All three charge between 0.03% and 0.04% per year in expense ratios — meaning if you own $10,000 in the fund, you pay $3 to $4 annually. This fee is deducted automatically and does not appear as a separate bill.

If you are buying inside a 401(k) or IRA, your employer or plan may offer only one or two S&P 500 options. In that case, choose whichever one is available. The difference in cost between a 0.03% fund and a 0.10% fund matters over decades, but any S&P 500 index fund beats picking individual stocks or paying an active manager 1% or more per year.

Placing your first purchase

Once your money is in your brokerage account, log in and look for a "Buy" or "Trade" button. Enter the ticker symbol of the fund you chose (VFIAX, FSKAX, or IVV). The system will show you the current price per share and ask how many shares you want to buy or how much money you want to invest. If you have $5,000 in your account and the fund costs $400 per share, you can buy 12 shares (which costs $4,800) and have $200 left over.

You can also set up automatic monthly or weekly purchases. Most brokerages call this a "recurring investment" or "automatic investment plan." You specify an amount (like $500 per month) and the day it should happen, and the system buys shares on that schedule. This removes the need to decide when to buy and spreads your purchases across different prices over time.

After you submit your order, it usually executes within seconds during market hours (9:30 a.m. to 4 p.m. Eastern Time on weekdays). If you buy after hours or on a weekend, the order waits until the market opens the next trading day. You will see the shares appear in your account when ready, and you own them from that moment forward.

Tax-advantaged accounts: 401(k), IRA, and Roth IRA

If your employer offers a 401(k), you can buy S&P 500 index funds inside it using pre-tax dollars. This means the money you contribute reduces your taxable income for the year. If you earn $60,000 and contribute $6,000 to a 401(k), you only pay income tax on $54,000. You do not pay taxes on the fund's gains until you withdraw the money in retirement. The 2024 contribution limit is $23,500 per year (or $30,500 if you are 50 or older).

A traditional IRA works similarly but is opened on your own, not through an employer. You contribute up to $7,000 per year (or $8,000 if you are 50 or older) with pre-tax dollars, and the gains grow tax-deferred. A Roth IRA is the opposite: you contribute after-tax dollars, but the gains and withdrawals are tax-free in retirement. Which one makes sense depends on whether you expect to be in a higher or lower tax bracket in retirement — a tax professional can help you decide.

All three accounts have rules about when you can withdraw money without penalty (usually age 59½ for IRAs and 401(k)s). If you withdraw early, you typically owe income tax plus a 10% penalty on the amount withdrawn. This is why these accounts work best for money you will not need for at least five to ten years.

What happens after you buy

Once you own shares, you do not have to do anything. The fund automatically rebalances itself to match the index — when a company grows and becomes a larger part of the index, the fund's holdings shift automatically. You do not pay fees or taxes for this rebalancing. Your shares stay in your account until you sell them.

You will receive quarterly statements showing the number of shares you own, their current value, and any dividends paid. Most S&P 500 index funds pay dividends (usually in March, June, September, and December). You can choose to have dividends paid in cash or automatically reinvested to buy more shares. Reinvestment is the default at most brokerages and is usually the better choice because it compounds your gains without you having to do anything.

If you want to sell your shares later, log into your account, select the fund, and enter how many shares to sell or how much money you want to withdraw. The sale executes during market hours, and the cash appears in your brokerage account within one to three business days. You can then transfer it back to your bank account.

Common costs and fees to watch

The main cost is the fund's expense ratio — the annual percentage fee charged by the fund company. For S&P 500 index funds, this ranges from 0.03% to 0.20% depending on the fund. A 0.03% ratio is considered very low and is standard for the largest fund families.

Some brokerages charge trading commissions when you buy or sell funds, though most major brokerages eliminated these commissions years ago. Check your brokerage's fee schedule to confirm there are no commissions on index fund purchases.

If you buy and sell frequently, you may owe short-term capital gains tax on profits (taxed as ordinary income) rather than long-term capital gains tax (which is lower). This is another reason to hold index funds for years rather than trading in and out. Inside a 401(k) or IRA, you do not owe capital gains tax until you withdraw the money, which is one of the main tax advantages of these accounts.

Frequently Asked Questions

Can I buy an S&P 500 index fund with just $100?

Yes. Most brokerages allow you to buy index funds with any amount of money, and some funds cost less than $100 per share. You can also set up automatic monthly investments of $50 or $100 if you prefer to build your position slowly. Starting small is better than waiting until you have a large lump sum.

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, but they trade differently. A mutual fund (like FSKAX) is priced once per day after the market closes, and you buy it directly from the fund company. An ETF (like IVV) trades throughout the day like a stock and you buy it through a brokerage. For most people buying and holding, the difference does not matter — pick whichever your brokerage makes easiest to buy.

Do I have to reinvest dividends?

No, but you should. If you choose to receive dividends in cash, you have to manually reinvest them or they sit idle in your account earning nothing. Automatic reinvestment compounds your gains over time and requires no action on your part. Most brokerages set this as the default.

What happens if the stock market crashes after I buy?

Your shares are worth less on paper, but you still own them. If you do not sell, you do not lock in the loss. History shows the market recovers from crashes over months or years, and investors who kept buying during downturns ended up ahead. This is why index funds work best as long-term holdings.

Can I move my index fund shares to a different brokerage?

Yes. You can transfer shares in-kind (meaning the shares move as-is) to another brokerage without selling them. This avoids triggering a taxable event. The process is called an ACAT transfer and usually takes five to ten business days. Contact your new brokerage to start the transfer.