You need a brokerage account, then you search for the fund and place an order
Buying an index fund works like buying a stock, except you own a basket of companies instead of one. You open an account at a brokerage — a company that lets you buy and sell investments — search for the index fund by its ticker symbol or name, and place an order to buy shares. The brokerage holds the fund in your account and handles the paperwork. Most brokerages charge no commission to buy index funds, though some funds charge a small annual fee to cover their operating costs.
The whole process takes about 10 minutes once your account is open. The account itself takes one to three business days to set up. You will need a Social Security number, a valid ID, and a way to fund the account — usually a bank account or debit card.
Key Takeaways
- You must open a brokerage account before you can buy any index fund; popular brokerages include Fidelity, Vanguard, Charles Schwab, and E*TRADE.
- Index funds are identified by a ticker symbol (like SPY or VOO) that you search for in your brokerage's fund search tool.
- Most brokerages charge zero commission to buy index funds, but the fund itself may charge an annual expense ratio that reduces your returns slightly each year.
- Your order executes at the end of the trading day, so you will not know the exact price until after you place it.
- You can buy index funds inside a regular taxable account, a retirement account like an IRA, or a 401(k) if your employer offers one.
Choose a brokerage and open an account
A brokerage is a company licensed to buy and sell investments on your behalf. The major brokerages that serve individual investors are Fidelity, Vanguard, Charles Schwab, E*TRADE, and TD Ameritrade. Each one offers index funds, charges no commission to buy them, and has a website or app where you can manage your account. The differences between them are small — customer service quality, the design of their app, and whether they offer other services like financial information.
To open an account, go to the brokerage's website and click the button to open a new account. You will answer questions about your name, address, Social Security number, employment, and income. This is standard Know Your Customer verification required by law. The brokerage will ask what type of account you want: a regular taxable account (called a cash account or individual account), a retirement account (IRA), or both. If you are unsure, start with a regular account. The whole process takes 10 to 15 minutes.
After you submit your information, the brokerage reviews it — usually within one business day — and sends you a confirmation email. Your account is then open and ready to fund. You do not need to fund it when ready; you can set it up and add money later.
Fund your account with money from your bank
Once your account is open, you need to move money into it so you have cash to buy index funds with. Log into your brokerage account and look for a link that says "Deposit" or "Fund Account" or "Transfer Money." The brokerage will ask you to link a bank account. You provide your bank's routing number and your account number — both appear on a check or in your bank's app — and the brokerage verifies the account by depositing two small amounts (usually under $1 each) into your bank account. You then confirm those amounts in your brokerage account to prove you own the bank account.
Once your bank account is linked, you can transfer money from your bank to your brokerage account. A transfer usually takes one to three business days. Some brokerages offer faster transfers for a small fee, or when ready transfers if you connect a debit card instead. Start with a regular bank transfer — it is free and fast enough for most people.
You do not have to transfer all the money you plan to invest at once. Many people transfer money monthly or whenever they have cash available.
Search for the index fund by its ticker symbol
Once money is in your account, you are ready to buy an index fund. Every index fund has a ticker symbol — a short code of letters that identifies it. For example, VOO is the Vanguard S&P 500 ETF, and VTSAX is the Vanguard Total Stock Market Index Fund. The ticker tells the brokerage which exact fund you want to buy.
To find the ticker, search online for the index fund by name — for example, "Vanguard S&P 500 index fund" — and look for the ticker in the search results. You can also go to the fund company's website (Vanguard, Fidelity, iShares, and Schwab all offer index funds) and search there. Write down the ticker symbol.
Once you have the ticker, log into your brokerage account and look for a search box or a link that says "Buy" or "Trade." Type the ticker symbol into the search box. The brokerage will show you the fund's name, current price, and annual expense ratio (the yearly fee the fund charges). Review this information to make sure you have the right fund, then proceed to place your order.
Place an order to buy shares
After you search for the fund, the brokerage will ask you how many shares you want to buy. You have two choices: enter a dollar amount (for example, $1,000) or enter a number of shares. Most beginners find it easier to enter a dollar amount — the brokerage will calculate how many shares that buys based on the current price.
The brokerage will then show you a summary of your order: the fund name, the number of shares, the estimated price, and the total cost. Review this carefully. If it looks correct, click the button to confirm the order. The brokerage will ask you to enter your password or use two-factor authentication to verify that you authorized the purchase.
After you confirm, your order is placed. Index fund orders execute at the end of the trading day (usually 4 p.m. Eastern time), so you will not know the exact price you paid until after the market closes. The brokerage will send you a confirmation email with the exact number of shares you bought and the price per share. The shares then appear in your account and are yours to hold.
Understand the annual fee and how often to buy
Every index fund charges an expense ratio — an annual fee expressed as a percentage of the money you have invested. For example, if a fund has a 0.03% expense ratio and you have $10,000 invested, you pay about $3 per year. The fee is deducted automatically from the fund's value, so you do not write a check or see a bill. Low-cost index funds typically charge between 0.03% and 0.20% per year. Higher-cost funds charge more.
The expense ratio matters because it reduces your returns over time. A fund that charges 0.05% per year will grow faster than an identical fund that charges 0.50% per year, all else equal. When you are comparing index funds, look at the expense ratio and choose the lower one if the funds track the same index.
You do not have to buy all your index funds at once. Many people buy a small amount every month or every paycheck — a practice called dollar-cost averaging. This spreads out your purchases over time and can reduce the impact of buying at a high price. You can set up automatic transfers from your bank account to your brokerage, then manually buy the fund each month, or use your brokerage's automatic investment feature if it offers one.
Track your investment and reinvest dividends
After you buy an index fund, your brokerage account will show your shares, the current value, and how much you have gained or lost. You can check this anytime by logging into your account. Most index funds pay dividends — small cash payments from the companies in the fund — once or four times per year. Your brokerage will automatically reinvest these dividends by buying more shares of the fund, unless you tell it not to. Reinvestment is usually the right choice because it compounds your growth over time.
You do not need to do anything to maintain your index fund investment. It will sit in your account and grow as the index it tracks grows. If you want to buy more, you can repeat the process — transfer money, search for the fund, and place an order. If you want to sell, you follow the same steps in reverse: search for the fund, enter the number of shares or dollar amount you want to sell, and confirm the order. The cash from the sale appears in your account within one to three business days.
Frequently Asked Questions
Can I buy index funds in a retirement account like an IRA?
Yes. Most brokerages let you open an IRA and buy index funds inside it. An IRA offers tax advantages — you do not pay taxes on dividends or gains while the money is in the account. You can open a Traditional IRA (contributions may be tax-deductible) or a Roth IRA (withdrawals in retirement are tax-free). The process is the same: open the account, fund it, search for the index fund, and buy it.
What is the difference between an ETF and a mutual fund index fund?
Both track an index and charge low fees. ETFs trade like stocks — you buy and sell them during market hours at a price that changes throughout the day. Mutual funds execute once per day after the market closes. For most beginners, the difference does not matter. Both are good choices; pick whichever your brokerage makes easier to buy.
Do I have to buy a whole share, or can I buy a fraction?
Most brokerages now let you buy fractional shares — you can invest $100 even if one share costs $150. This makes it easier to start investing with a small amount of money. Check your brokerage's website to confirm it offers fractional shares.
What happens if the stock market crashes after I buy?
The value of your index fund will drop, but you still own the shares. If you do not sell, you keep waiting for the market to recover. History shows that markets recover from crashes over time, though there is no may provide. If you are investing for retirement or a goal more than five years away, a crash is usually not a reason to sell.
Can I set up automatic purchases so I do not have to buy manually each month?
Many brokerages offer automatic investment plans where you set up a recurring transfer from your bank account and the brokerage automatically buys the index fund on a schedule you choose. Check your brokerage's website or app for a feature called "automatic investment," "recurring investment," or "systematic investment plan."