You can buy index funds through a brokerage account, either online or through a financial advisor

An index fund is a mutual fund or exchange-traded fund (ETF) that tracks a market index — a basket of stocks or bonds that moves as a group. To own one, you open an account with a brokerage firm, deposit money, and place an order for the fund you want. The brokerage holds the fund in your account and handles the paperwork.

The main choice is between doing this yourself through an online brokerage or working with a financial advisor who buys them on your behalf. Online brokerages charge little or nothing to buy index funds; advisors charge a fee but handle the decisions for you. Both routes work. Which one fits depends on how much time you want to spend and how much hand-holding you need.

Key Takeaways

  • Online brokerages like Fidelity, Vanguard, and Charles Schwab let you open an account, deposit money, and buy index funds yourself with no commission.
  • You can also buy index funds through a financial advisor, who charges a fee but makes the decisions about which funds to buy and how much to hold.
  • Index funds are available as mutual funds (you buy shares at the end of the trading day) or ETFs (you buy them like stocks during the day).
  • Your account type — a regular taxable brokerage account, an IRA, or a 401(k) — determines the tax treatment of your gains, not where you buy the fund.

Opening an account at an online brokerage

An online brokerage is a company that holds your money and executes trades when you tell it to. You visit their website, fill out an account application (name, address, Social Security number, employment status), link a bank account, and deposit money. The whole process takes 10 to 20 minutes. Once the money settles — usually one to three business days — you can search for an index fund by name or ticker symbol and place an order.

The major online brokerages that serve individual investors are Fidelity, Vanguard, Charles Schwab, E*TRADE, and TD Ameritrade. All of them offer index funds with no commission to buy or sell. They differ in user interface, customer service quality, and the breadth of funds available, but for a beginner buying a simple index fund, any of them will work. Fidelity and Vanguard also offer their own index funds, which tend to have low fees.

You will need to decide what type of account to open. A taxable brokerage account has no contribution limits and no tax advantages — you pay tax on gains when you sell. An IRA (Individual Retirement Account) lets you contribute up to a set amount per year and defer or avoid taxes on gains, but you cannot withdraw the money before age 59½ without penalty. A 401(k) is offered through your employer and has higher contribution limits. Most people start with a taxable account or an IRA, depending on whether they have already maxed out retirement savings.

Buying through a financial advisor

A financial advisor is a person or firm that manages your money or recommends investments. Some advisors are fiduciaries, meaning they are legally required to act in your best interest; others are not. Before hiring an advisor, ask whether they are a fiduciary at all times or only when managing retirement accounts. This matters because a non-fiduciary advisor can recommend an investment that pays them a higher commission even if it is not the best choice for you.

Advisors charge in different ways. Some charge a percentage of the money you give them to manage — typically 0.5% to 1.5% per year. Others charge a flat fee per year or per hour. Some earn commissions when you buy certain funds. The fee structure affects how much it costs you over time. A 1% annual fee on $100,000 is $1,000 per year; over 20 years, that compounds significantly. For a small account or simple strategy, the fee may outweigh the benefit of having someone else make the decisions.

An advisor can be useful if you are unsure how much risk to take, do not want to research funds yourself, or have a complex financial situation (multiple income sources, inheritance, business ownership). They can also rebalance your portfolio — selling funds that have grown too large and buying others to keep your mix steady — which many people find hard to do on their own.

Mutual funds versus ETFs

Both mutual funds and ETFs are index funds, but they work differently. A mutual fund is priced once per day, after the stock market closes. You place an order during the day, but the price you pay is set at 4 p.m. Eastern time. A mutual fund can only be bought through the fund company itself or through a brokerage that carries it.

An ETF (exchange-traded fund) trades like a stock during market hours. You can buy or sell it any time the market is open, and the price changes minute to minute. ETFs are available at every online brokerage. For most beginners, ETFs are simpler because you can see the price before you buy and you do not have to wait until the end of the day to know what you paid.

The tax treatment is slightly different. ETFs are generally more tax-efficient because of how they are structured, which matters if you hold them in a taxable account for many years. Mutual funds can trigger capital gains distributions that you owe tax on even if you did not sell. For a retirement account like an IRA or 401(k), this difference does not matter because the account is tax-sheltered anyway.

What happens after you buy

Once you own an index fund, the brokerage or advisor sends you statements showing your balance and any dividends paid. Dividends are small cash payments the fund makes to you from the stocks or bonds it holds. You can take the dividend as cash or reinvest it to buy more shares of the fund. Most people reinvest because it compounds over time.

You do not have to do anything else unless you want to. Index funds are passive — they simply track an index and rebalance themselves. You do not need to pick individual stocks or time the market. If you opened an IRA or 401(k), you will need to check the contribution limits each year and make sure you are not over-contributing, but that is straightforward.

If you work with an advisor, they typically review your account once or twice a year and rebalance if needed. If you bought through an online brokerage, you can rebalance yourself or set up automatic contributions that buy the same fund every month, which keeps your strategy on track without much effort.

Comparing costs across brokerages

The cost of buying an index fund has two parts: the brokerage fee (usually zero at major online brokerages) and the fund's expense ratio. An expense ratio is the annual cost of running the fund, expressed as a percentage of your money. A fund with a 0.03% expense ratio costs $3 per year on a $10,000 investment. A fund with a 0.50% expense ratio costs $50 on the same amount.

Index funds have low expense ratios — often between 0.03% and 0.20% — because they simply track an index and do not require active management. Actively managed funds, which try to beat the market, typically charge 0.50% to 1.50% or more. Over decades, the difference in cost compounds. A 0.20% expense ratio versus a 0.50% ratio does not sound like much, but on $100,000 over 30 years, it can mean tens of thousands of dollars in extra gains.

When comparing brokerages, look at the expense ratios of the specific index funds you want to buy, not just the brokerage's reputation. Vanguard index funds tend to be cheaper than average; Fidelity's are competitive; Charles Schwab's are reasonable. If you are buying a total market index fund, the difference between a 0.03% ratio and a 0.10% ratio is small in dollar terms, but it adds up.

Getting started with a small amount

You do not need a large sum to start. Most online brokerages have no minimum deposit. You can open an account with $100 or $1,000 and buy a single index fund. Some brokerages offer automatic investment plans that let you contribute a fixed amount every month — $50, $100, $500 — which removes the decision-making and builds the habit of saving.

If you are nervous about picking a fund yourself, many brokerages offer robo-advisors — automated services that ask you a few questions about your age and risk tolerance, then build and manage a portfolio of index funds for you. The fee is usually 0.25% to 0.50% per year, which is lower than a human advisor but higher than buying index funds on your own. Robo-advisors are a middle ground: more hands-off than doing it yourself, cheaper than hiring a person.

Frequently Asked Questions

Can I buy index funds directly from the fund company?

Yes. Vanguard, Fidelity, and other fund companies sell their own index funds directly to investors. You can open an account on their website and buy without going through a separate brokerage. However, if you want to buy index funds from multiple companies, using a brokerage that carries all of them is simpler than opening separate accounts everywhere.

Do I need a lot of money to start?

No. Most online brokerages have no minimum deposit. You can start with whatever you can afford and add more over time. Automatic monthly contributions of even $50 or $100 build wealth through compounding if you stay invested for years.

What is the difference between a brokerage account and an IRA?

A brokerage account has no contribution limits and no tax advantages — you pay tax on gains when you sell. An IRA lets you contribute a limited amount per year but offers tax benefits: a traditional IRA defers taxes until withdrawal, and a Roth IRA lets gains grow tax-free. Most people use an IRA for retirement savings and a brokerage account for other goals.

Should I use a robo-advisor or buy index funds myself?

A robo-advisor costs 0.25% to 0.50% per year but handles rebalancing and removes emotion from decisions. Buying yourself costs nothing but requires you to pick a fund and stick with it. For a simple portfolio of one or two index funds, doing it yourself is straightforward. For a complex mix or if you want someone to manage it, a robo-advisor is worth the fee.

Can I lose money in an index fund?

Yes. Index funds track the market, so if the market falls, the fund falls. However, index funds are diversified — they hold many stocks or bonds — so the risk is spread. Over long periods (10+ years), stock market index funds have historically recovered from downturns, but there is no may provide.