You need a brokerage account to buy index funds
Index funds are mutual funds or exchange-traded funds (ETFs) that track a market index — a basket of stocks or bonds that moves as a group. To buy one, you open an account with a brokerage firm, deposit money, and place an order for the fund you want. The brokerage holds the account and executes the trade. You do not need special permission, a minimum amount of money (though some funds have minimums), or prior investing experience.
The brokerage is the company that lets you buy and sell investments. Common brokerages include Fidelity, Vanguard, Charles Schwab, E*TRADE, and Robinhood. Each one has a website and app where you can open an account in 10 to 20 minutes. You will need your Social Security number, a government ID, and a bank account or debit card to fund the account.
Once your account is open and funded, you search for the index fund by its ticker symbol (a short code like SPY or VOO), choose how many shares you want to buy, and submit the order. The trade typically settles within one or two business days, meaning the fund appears in your account and you own it.
Key Takeaways
- You must open a brokerage account with a firm like Fidelity, Vanguard, or Schwab before you can buy any index fund.
- Opening an account takes 10 to 20 minutes online and requires your Social Security number, a government ID, and a way to fund the account.
- Index funds have ticker symbols (like SPY or VOO) that you use to search for and order them through your brokerage.
- You can buy index funds with as little as one share, though some funds set their own minimums that may be higher.
- After you place an order, the trade settles in one or two business days and the fund shows up in your account.
Choose a brokerage that fits your needs
Different brokerages offer different features, fees, and fund selections. Some charge a commission (a flat fee per trade), while others offer commission-free trading on most index funds. Some have lower account minimums than others. Some have better mobile apps or customer service. The choice depends on how much money you plan to invest, how often you plan to trade, and whether you want a human advisor or prefer to manage your account yourself.
Vanguard and Fidelity are popular for long-term index fund investors because they offer commission-free trading on their own index funds and many others, have low account minimums (often $0 to $1,000), and charge low fees on the funds themselves. Charles Schwab and E*TRADE offer similar features. Robinhood charges no commissions and has no account minimum, but it is designed more for frequent traders and has fewer fund options. If you want a human advisor to help you choose funds and manage your money, you may prefer a full-service brokerage, though these typically charge higher fees.
Read the brokerage's fee schedule before you open an account. Look for the commission per trade, any account maintenance fees, and the expense ratio (annual cost) of the index funds they offer. Many brokerages publish this information on their website under "Pricing" or "Fees."
Open your account and verify your identity
The account opening process is the same at most brokerages. You go to their website or app, click "Open an Account" or "Sign Up," and fill out a form with your name, address, date of birth, Social Security number, and employment status. You will also choose what type of account you want: a standard taxable brokerage account, a retirement account (like an IRA), or both.
After you submit the form, the brokerage verifies your identity. This usually happens instantly or within a few hours. Some brokerages ask you to upload a photo of your government ID (driver's license or passport). Others verify you through a third-party service that checks public records. A few may call you or send a verification code to your phone or email.
Once your identity is verified, you can fund your account. You link a bank account or provide a debit card number. The brokerage transfers money from your bank into your investment account. This transfer usually takes one to three business days. Some brokerages let you start trading before the money arrives, but you cannot withdraw it until it has fully settled.
Find and research the index fund you want to buy
Index funds track different markets. Some track the entire U.S. stock market (like the S&P 500 index). Others track international stocks, bonds, or specific sectors like technology or healthcare. The fund's name usually tells you what it tracks. For example, a "Total Stock Market Index Fund" tracks all U.S. stocks, while a "Nasdaq-100 Index Fund" tracks 100 large technology and growth companies.
Each index fund has a ticker symbol — a short code of letters. The S&P 500 index is tracked by funds with tickers like SPY, VOO, and IVV. The total U.S. stock market is tracked by funds with tickers like VTI and ITOT. When you search for a fund in your brokerage account, you use the ticker symbol. Most brokerages show you the fund's expense ratio (the annual fee you pay), its performance history, and what it holds.
Before you buy, check the expense ratio. Index funds are cheap compared to actively managed funds, but costs still vary. A fund with a 0.03% expense ratio costs $3 per year for every $10,000 you invest. A fund with a 0.20% expense ratio costs $20 per year on the same amount. Over decades, that difference compounds. Vanguard, Fidelity, and Schwab all offer index funds with expense ratios below 0.10%.
Place your order and review before confirming
Once you have chosen your fund and funded your account, you are ready to buy. Log into your brokerage account, search for the fund by its ticker symbol, and click on it. The brokerage shows you the current price per share and lets you enter how many shares you want to buy. You can also enter a dollar amount and the brokerage calculates the number of shares automatically.
Before you confirm the order, review the details: the fund name, the ticker, the number of shares, the price per share, and the total cost. Make sure the price and number of shares are what you intended. Some brokerages let you set a limit price (the maximum you will pay per share) or a time limit for the order (good for one day, one week, or until canceled). For most index fund buyers, the default settings work fine.
Click "Confirm" or "Place Order" to submit. The order goes to the market immediately. The trade settles within one or two business days, meaning the fund is officially yours and appears in your account. You can then see your shares, their current value, and your total gain or loss.
Understand the difference between mutual funds and ETFs
Both mutual funds and ETFs are index funds, but they work slightly differently. A mutual fund is a pool of money managed by a company. You buy shares directly from the fund company. The price is set once per day after the market closes. You can buy or sell at that day's closing price. Most mutual funds do not charge a commission when you buy or sell them through the fund company or a brokerage.
An ETF (exchange-traded fund) is also a pool of money, but it trades on a stock exchange like a stock does. The price changes throughout the day as people buy and sell. You can buy or sell at any time during market hours and get the price at that moment. Most brokerages charge no commission on ETF trades, but you may pay a small bid-ask spread (the difference between the buy and sell price) that goes to the market maker, not the brokerage.
For a beginning investor buying index funds to hold long-term, the difference matters less than you might think. Both are cheap, both track the same indexes, and both are easy to buy. Many people own both. The main practical difference is that ETFs trade during the day (so you can buy at 10 a.m. or 3 p.m.) while mutual funds trade only at the day's close. If you are buying and holding for years, this does not matter much.
Set up automatic investments if you want to invest regularly
Most brokerages let you set up automatic investments. You choose a fund, an amount of money, and a frequency (weekly, monthly, or quarterly). The brokerage automatically transfers that amount from your bank account and buys the fund on your chosen date. This is called dollar-cost averaging. You invest the same amount regardless of whether the fund price is high or low, which can reduce the impact of market timing.
Automatic investments are optional but useful if you want to invest a fixed amount regularly without thinking about it. For example, you might set up a $500 monthly investment in a total stock market index fund. Every month on the 15th, $500 moves from your bank to your brokerage and buys the fund at whatever the price is that day. Over time, you build a position without having to remember to place an order each month.
To set up automatic investments, log into your brokerage account, find the "Recurring Investments" or "Automatic Investments" section, and enter the fund ticker, amount, and frequency. The brokerage confirms the setup and shows you when the next investment will occur. You can pause or cancel automatic investments at any time.
Frequently Asked Questions
Do I need a lot of money to start buying index funds?
No. Most brokerages have no account minimum, and you can buy a single share of an index fund for whatever that share costs. If a fund costs $100 per share, you can buy one share for $100. Some funds have their own minimums (often $1,000 or $2,500 for the first purchase), but many index funds have no minimum at all. Check the fund's details before you buy.
Can I buy index funds through my employer's retirement plan?
Yes. Many employer 401(k) plans and similar retirement accounts offer index funds as investment options. You choose the funds when you enroll in the plan, and your contributions are automatically invested in them. This is often the easiest way to start investing because your employer may match part of your contribution. Check your plan's investment menu to see which index funds are available.
What happens if the brokerage goes out of business?
Your investments are protected. Brokerages are required to hold customer securities separately from their own assets. If a brokerage fails, the Securities Investor Protection Corporation (SIPC) protects your account up to $500,000. Your index funds belong to you, not the brokerage, so they are safe even if the company closes.
Can I sell my index funds whenever I want?
Yes. You can sell any index fund you own at any time during market hours. Log into your account, find the fund, enter how many shares you want to sell, and confirm. The trade settles in one or two business days and the money goes back into your brokerage account. You can then withdraw it to your bank account. There is no penalty for selling, though you may owe taxes on any gain if the fund is in a taxable account.
Should I buy all my index funds from one brokerage or spread them across multiple?
One brokerage is simpler and easier to track. You see all your investments in one place, and you do not have to manage multiple accounts. Spreading across multiple brokerages is unnecessary for most investors. The only reason to use multiple brokerages is if one does not offer a specific fund you want, but this is rare with large brokerages like Vanguard and Fidelity.