You need a brokerage account, money to invest, and about 15 minutes to place your first order

An S&P 500 index fund tracks 500 large U.S. companies by holding a small piece of each one. You buy shares through a brokerage — a company that holds your money and executes trades. The process is: open an account at a brokerage, deposit cash, search for an S&P 500 fund by its ticker symbol, and buy shares. Most brokerages charge nothing to open an account or buy index funds. The whole thing takes less than an hour from start to finish.

You do not need a financial advisor, a large sum of money, or special knowledge. You can start with $1 if the brokerage allows it. The fund itself does the work of buying and selling the 500 stocks inside it — you just own a piece of the fund.

Key Takeaways

  • Open a brokerage account online at firms like Fidelity, Vanguard, Charles Schwab, or Robinhood, which all charge zero commission on index fund purchases.
  • Deposit money into your account by linking a bank account or transferring funds, which usually takes one to three business days to settle.
  • Search for an S&P 500 fund using its ticker symbol — common ones are VOO, IVV, or SPLG — and place a buy order for as many shares as your cash allows.
  • Your shares are held in the account and you own them until you sell; you can add money and buy more shares whenever you want.
  • Index funds charge a small annual fee (called an expense ratio) that ranges from 0.03% to 0.20%, meaning you pay $3 to $20 per year on every $10,000 invested.

Choosing a brokerage where you will open your account

A brokerage is a company licensed to hold your money and buy and sell investments on your behalf. The major brokerages that offer S&P 500 index funds with no commission are Fidelity, Vanguard, Charles Schwab, E*TRADE, and Robinhood. Smaller brokerages like Webull and Tastytrade also offer index funds at no cost. All of them let you open an account online in about 10 minutes.

The differences between them are small for someone buying an index fund. Vanguard is known for low fees and is itself a mutual company owned by its investors. Fidelity and Schwab offer more research tools and educational content. Robinhood has a simpler interface but fewer features. Pick one based on which website feels easiest to use — you can always move your money later if you change your mind.

You will need a Social Security number, a valid ID, and a bank account to link for deposits. The brokerage will verify your identity online and usually approve you within minutes.

Depositing money into your new account

After your account opens, you must move money from your bank into the brokerage account before you can buy anything. Most brokerages let you link your checking or savings account and transfer money electronically. The transfer usually takes one to three business days to settle, meaning the cash shows up in your brokerage account and is ready to invest.

Some brokerages also accept wire transfers, which settle faster (same day or next day) but may charge a fee. A few accept checks mailed in, though this is slower. Start with an electronic transfer from your bank — it is free and straightforward.

You can deposit as much or as little as you want. There is no minimum to start, though some brokerages have a minimum for certain account types. Once the money lands in your brokerage account, it sits there until you tell the brokerage to buy something.

Finding and buying an S&P 500 index fund

S&P 500 index funds come from different companies and have different ticker symbols. The most common ones are VOO (Vanguard S&P 500 ETF), IVV (iShares Core S&P 500 ETF), and SPLG (SPDR Portfolio S&P 500 ETF). All three track the same 500 companies and charge very low fees — between 0.03% and 0.04% per year. The differences between them are so small that picking one over another makes almost no difference to your returns.

Log into your brokerage account and look for a search box or a "buy" button. Type the ticker symbol (for example, VOO) into the search box. The fund will appear with its current price per share. Enter the number of shares you want to buy, or the dollar amount you want to spend, and the brokerage will calculate how many shares that buys. Review the order and click confirm. The trade executes immediately during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays), or at the market open if you place it after hours.

Your shares appear in your account within seconds. You now own a piece of 500 companies.

Understanding the annual fee and how it affects your money

Every index fund charges a small annual fee called an expense ratio, which is a percentage of the money you have invested. For S&P 500 index funds, this fee ranges from 0.03% to 0.20% per year depending on which fund you choose. On $10,000 invested, that is $3 to $20 per year. The fee is taken automatically from your account and you do not see a separate bill — it is built into the fund's price.

Lower fees are better because they compound over decades. A fund charging 0.03% versus 0.20% will leave you with thousands of dollars more after 30 years, all else equal. Vanguard's VOO, iShares' IVV, and SPDR's SPLG all charge 0.03% or 0.04%, making them among the cheapest options. Avoid funds charging more than 0.20% for an S&P 500 index fund — there is no reason to pay extra.

What happens after you buy: holding and adding to your investment

Once you own shares, you do not have to do anything. The fund automatically rebalances itself to stay aligned with the S&P 500 as companies are added or removed from the index. You do not receive stock certificates or papers — your shares exist as a digital record in your brokerage account.

You can add money to your account and buy more shares whenever you want. Many people set up automatic monthly transfers from their bank to their brokerage, then buy more shares on a set schedule. This is called dollar-cost averaging and it removes the pressure of trying to time the market perfectly.

You can also sell your shares at any time during market hours. When you sell, the cash goes back into your brokerage account and you can withdraw it to your bank or use it to buy something else. There is no penalty for selling, though you may owe taxes on any profit if the fund is in a regular taxable account (not a retirement account like an IRA or 401k).

Tax considerations for different account types

If you buy an S&P 500 index fund in a regular taxable brokerage account, you will owe federal income tax on any profit when you sell. You will also owe tax on any dividends the fund pays out each year, even if you do not sell. The tax rate depends on how long you held the shares and your income level.

If you buy the fund inside a retirement account like a traditional IRA or Roth IRA, you do not owe taxes on profits or dividends until you withdraw the money in retirement (or never, in the case of a Roth). This makes retirement accounts much more powerful for long-term investing. If your employer offers a 401k, you can often buy S&P 500 index funds inside it as well.

For most people starting out, a Roth IRA is the simplest choice because contributions are tax-free going in, growth is tax-free, and withdrawals in retirement are tax-free. You can open a Roth IRA at any brokerage and buy an S&P 500 index fund inside it using the same steps described above.

Frequently Asked Questions

Can I buy a fraction of a share?

Yes. Most brokerages now allow you to buy fractional shares, meaning if a share costs $400 and you have $100, you can buy 0.25 of a share. This makes it possible to invest any amount of money, no matter how small. Fractional shares are held in your account just like whole shares and can be sold anytime.

What is the difference between an ETF and a mutual fund version of the S&P 500?

Both track the same 500 companies and charge similar fees. ETFs (like VOO) trade like stocks during market hours and you see the price change throughout the day. Mutual funds (like VFIAX) trade once per day at the closing price. For a long-term investor, the difference does not matter. ETFs are slightly more tax-efficient in taxable accounts, but the advantage is small.

Do I need to rebalance my S&P 500 index fund?

No. The fund rebalances itself automatically to match the index. You do not need to buy or sell anything. If you own other investments outside the fund, you may want to rebalance your overall portfolio once a year, but the index fund itself requires no action from you.

What if the market drops after I buy?

Your shares will be worth less on paper, but you still own them. If you sell during a downturn, you lock in the loss. Most investors who hold index funds for 10 years or longer ignore short-term price drops and continue buying. Historically, the S&P 500 has recovered from every decline and reached new highs.

Can I set up automatic monthly purchases?

Yes. Most brokerages offer automatic investment plans where you can schedule a monthly transfer from your bank and an automatic purchase of your chosen index fund. This removes emotion from investing and builds wealth steadily over time.