You can buy index funds through a brokerage account, a retirement account, or directly from a fund company
Index funds are sold through three main routes: online brokerages (like Fidelity, Schwab, or Vanguard), retirement accounts (401(k)s, IRAs), and directly from fund companies themselves. Most people use an online brokerage because the process takes minutes, costs nothing to start, and you can buy and sell whenever the market is open. Your choice depends on whether you want a regular taxable account, tax-advantaged retirement savings, or both.
The brokerage you pick matters less than you might think — the index funds themselves are nearly identical across platforms, and most brokerages charge zero commission to buy them. What differs is the user interface, customer service quality, account minimums (many now have none), and which specific index funds each brokerage offers. A beginner usually does fine with any of the major platforms.
Key Takeaways
- Online brokerages like Fidelity, Schwab, and Vanguard let you open an account in minutes with no minimum deposit and buy index funds commission-free.
- If your employer offers a 401(k), that is often the fastest way to start because contributions come straight from your paycheck and may include an employer match.
- Individual Retirement Accounts (IRAs) let you invest up to $7,000 per year (for 2024) with tax advantages, and you can open one at any brokerage.
- Index funds cost the same whether you buy them through a brokerage, a retirement account, or directly from the fund company — the difference is convenience and account features.
- Most brokerages now offer fractional shares, meaning you can invest any dollar amount instead of having to buy whole shares.
Opening a brokerage account and buying your first index fund
Go to the website of a major brokerage — Fidelity, Charles Schwab, Vanguard, or E*TRADE are the most common — and click "Open an Account" or "get your free guide." You will enter your name, Social Security number, address, and employment information. The process takes 10 to 15 minutes. Most brokerages now require no minimum deposit, so you can fund the account with $1 if you want to start immediately.
Once your account is open and you have deposited money, search for an index fund by its ticker symbol (for example, VOO for Vanguard's S&P 500 index fund, or SPLG for Fidelity's equivalent). Click the fund name, enter the dollar amount you want to invest, and confirm the order. The purchase settles the next business day. You now own shares of that index fund and will see them in your account balance.
The main decision at this stage is whether to use a taxable brokerage account (you pay taxes on gains and dividends each year) or a tax-advantaged retirement account (taxes are deferred or eliminated). If you have no retirement account yet, many people open both: a Roth IRA for long-term retirement savings and a regular brokerage account for money they might need sooner.
Using a 401(k) or employer retirement plan
If your employer offers a 401(k), that is usually the fastest and cheapest way to start investing in index funds. You choose a percentage of your paycheck to contribute (often 3 to 15 percent), and that money is automatically deducted before taxes. Many employers also match a portion of what you contribute — for example, matching 50 cents for every dollar you put in, up to 6 percent of your salary. That match is assistance programs and a reason to contribute even if you have no other savings.
Inside the 401(k), you select from a menu of investment options provided by your plan. Most plans include at least one index fund option, often a total stock market index fund or an S&P 500 index fund. Some plans offer a "target-date fund" that automatically shifts from stocks to bonds as you approach retirement — a simple option if you do not want to pick individual funds.
The catch: you cannot withdraw 401(k) money before age 59½ without paying a 10 percent penalty (plus income tax on the withdrawal). This is why many people also open an IRA for money they might need before retirement. Contribution limits for 2024 are $23,500 per year if you are under 50, and $30,500 if you are 50 or older.
Opening an Individual Retirement Account (IRA)
An IRA is a retirement account you open yourself, not through an employer. You can open one at any brokerage — the same places you would open a regular investment account. There are two main types: a Roth IRA and a Traditional IRA. With a Roth, you contribute money that has already been taxed, and withdrawals in retirement are tax-free. With a Traditional IRA, contributions may be tax-deductible now, but you pay taxes on withdrawals later.
For 2024, you can contribute up to $7,000 per year to an IRA (or $8,000 if you are 50 or older). You can invest that money in index funds the same way you would in a regular brokerage account — search for the fund, enter the amount, and buy. The main difference is the tax treatment and the fact that you cannot withdraw the money penalty-free before age 59½ (with some exceptions for hardship).
Most people choose a Roth IRA if they expect to be in a higher tax bracket in retirement, or if they want the flexibility of withdrawing contributions (not earnings) at any time without penalty. A Traditional IRA makes sense if you want the tax deduction now and expect lower income in retirement. If you are unsure, a Roth is simpler for beginners because the tax rules are more straightforward.
Buying index funds directly from a fund company
You can also buy index funds directly from Vanguard, Fidelity, or other fund companies without going through a separate brokerage. This route is less common now because online brokerages have made it so easy, but it can make sense if you plan to invest a large sum and want to work with a single company.
The process is similar: you open an account on the fund company's website, deposit money, and select which index funds to buy. The main advantage is that you may have access to the fund company's own index funds with slightly lower fees. The main disadvantage is that if you later want to buy index funds from a different company, you have to open a separate account there.
Comparing brokerages: what actually matters
| Brokerage | Minimum to Start | Commission on Index Funds | Best For |
|---|---|---|---|
| Fidelity | $0 | $0 | Beginners; strong customer service; wide fund selection |
| Charles Schwab | $0 | $0 | Beginners; good mobile app; strong research tools |
| Vanguard | $0 | $0 | Long-term investors; lowest-cost index funds; investor-owned structure |
| E*TRADE | $0 | $0 | Active traders; advanced tools; strong educational content |
| Robinhood | $0 | $0 | Mobile-first investors; simple interface; fractional shares |
All major brokerages now charge zero commission to buy index funds, so cost is not a differentiator. What matters is ease of use, customer service, and whether the brokerage offers the specific index funds you want. Most brokerages offer the same major index funds (S&P 500, total stock market, total bond market, international), so this rarely matters for beginners.
If you are just starting, pick whichever brokerage has the clearest website or app to you. You can always move your money later if you change your mind — it takes a few days and costs nothing. The biggest mistake is waiting for the "perfect" brokerage instead of opening an account and starting to invest.
What happens after you buy: monitoring and rebalancing
Once you own index funds, you do not need to do much. Index funds are designed to track a market index with minimal effort — you are not picking individual stocks or timing the market. Most people set up automatic monthly contributions (called "dollar-cost averaging") and then check their account once or twice a year.
Over time, different index funds in your portfolio will grow at different rates, and your original allocation will drift. For example, if you started with 60 percent stocks and 40 percent bonds, the stock portion might grow to 65 percent. Rebalancing means selling some of the winners and buying more of the losers to get back to your original mix. You can do this once a year or every few years — there is no single right answer, but most advisors suggest rebalancing when any asset class drifts more than 5 percent from your target.
Frequently Asked Questions
Do I need a lot of money to start buying index funds?
No. Most brokerages have no minimum deposit, and fractional shares mean you can invest any amount — even $10. Start with whatever you can afford and add to it over time. The key is starting early so your money has time to grow.
Should I open a brokerage account or a retirement account first?
If your employer offers a 401(k) with a match, start there — it is assistance programs. Then open an IRA if you want to save more for retirement. A regular brokerage account makes sense for money you might need before retirement or after you have maxed out your retirement accounts.
Can I move my money between brokerages later?
Yes. You can transfer money from one brokerage to another in a process called an ACAT transfer, which usually takes three to five business days and costs nothing. You can also sell your index funds and move the cash, though this may trigger taxes in a taxable account.
What if I want to buy index funds but do not have a job or employer plan?
Open a Roth IRA or Traditional IRA at any brokerage. You can contribute up to $7,000 per year (for 2024) as long as you have earned income from self-employment, freelance work, or a side job. If you have no earned income, you can still open a regular taxable brokerage account.
Are there fees I should watch out for?
Most brokerages charge no commission on index fund purchases. The only ongoing cost is the fund's expense ratio — the annual percentage you pay to the fund company to manage the fund. For index funds, this is usually 0.03 to 0.20 percent per year, which is very low. Avoid brokerages that charge account maintenance fees or trading fees.