How to Invest in Index Funds: A Step by Step Guide

Start with the account that gives you the biggest tax benefits. You have three main choices.

401(k)

A 401(k) is a retirement plan from your employer. Many companies add a “match,” which is free money. Most matches range from 3–6% of your salary. Your contributions reduce your taxable income. The 2025 limit is $23,500, plus $7,500 if you’re 50 or older.

IRA

An IRA is a personal retirement account.

• A Traditional IRA gives you a tax deduction now.
• A Roth IRA grows tax-free: The 2025 limit is $7,000, or $8,000 if you’re 50+. Roth IRA income limits apply: $161,000 for single filers and $240,000 for married couples.

Brokerage Account

Use this for goals before retirement, or after you max out your retirement accounts. There are no limits, but gains may be taxed.

Pick a platform that makes investing easy, offers low costs, and gives you access to the index funds you want.

eToro is a strong choice for beginners. It has a simple app, no commissions on stocks or ETFs, and an easy way to buy fractional shares. The platform is designed for new investors, with clear charts, helpful tools, and a social feed where you can learn from other traders. It’s one of the fastest ways to start investing if you want a clean, friendly experience.

Other well-known brokers include Fidelity, Charles Schwab, and Vanguard. They offer large fund selections, zero-commission ETF trading, and strong research tools.

When choosing a broker, look for:

• Zero account fees
• Access to low-cost index funds (under 0.10% expense ratio)
• Fractional share investing
• A smooth mobile app
• Strong educational tools

You can compare brokers inside Financer’s comparison tool to see which one fits your needs.

Opening an account is quick. It usually takes 10–15 minutes.

1. Go to your chosen broker and click “Open Account” or “Get Started.” Pick the account type you want: IRA, Roth IRA, or a regular brokerage account.
2. Enter your personal details. You will need your full name, date of birth, address, Social Security number, and basic employment information. Brokers must ask for this to follow U.S. investing rules.
3. You will answer a few short questions about your experience with investing. These questions help the broker set up your account correctly.
4. Next, link your bank. You can do this by entering your bank’s routing and account numbers. Many brokers offer instant verification.
5. Upload a photo of your driver’s license or ID to confirm your identity.

Most accounts get approved within 1–2 business days, but many people are approved the same day. Once approved, you can add money and start investing.

Start small. Many brokers let you invest with $1 through fractional shares. If you’re new, even $50–100 is a strong first step.

If you earn a steady income, aim to invest 10–15% of what you make before taxes. This is a common target for long-term growth.

We recommend setting up automatic deposits. This is called dollar-cost averaging. It means you add money on a schedule, no matter what the market is doing. It removes emotion and keeps you consistent. In a 2025 iShares survey, 38% of investors said they prefer automated plans because they help build steady habits.

Match your deposits to your pay cycle. Every two weeks or once a month works well.

Never invest money you’ll need soon. Stocks can fall 20–50% in short periods. Keep your emergency fund separate.

Keep this step simple. Most beginners only need one broad index fund to start.

A strong place to begin is an S&P 500 fund. These funds give you instant exposure to the largest companies in the United States.

Good choices include:

• FNILX — 0.00% expense ratio (Fidelity)
• VOO — 0.03% expense ratio (Vanguard)
• SWPPX — 0.02% expense ratio (Schwab)
• IVV — 0.03% expense ratio (iShares)

If you want even more diversity, you can choose a total market fund.

• VTI — 0.03% expense ratio, holds 3,500+ U.S. stocks

For global investing, add an international fund:

• VXUS — 0.08% expense ratio, covers stocks outside the U.S.

Expense ratios matter. A fee of 0.03% vs 0.50% can grow into a difference of tens of thousands of dollars over 30–40 years on a $100,000 investment.

Start with one broad fund. You can build from there later.

Buying your first index fund takes only a few steps.

1. Log in to your broker.
2. Go to the Trade or Buy/Sell page.
3. Type the fund’s ticker symbol into the search bar (for example: VOO, VTI, SWPPX).
4. Tap the correct fund to open the order screen.
5. Choose Buy.
6. Enter the amount you want to invest: You can type a dollar amount or choose a number of shares. Fractional shares let you invest any amount you want.
7. Pick Market Order: This tells your broker to buy at the current price. ETFs trade all day during market hours. Mutual funds trade once per day at the 4 PM Eastern closing price.
8. Check your details. Make sure the ticker, price, and amount look correct.
9. Press Submit Order.

You will see a confirmation on the screen and receive an email within minutes. Most trades settle in 1–2 business days.

Automation is one of the strongest habits in investing. It keeps you consistent without thinking about it. Here are some generic steps on how to set this up (may vary by broker).

• Go to your broker’s Automatic Investments or Recurring Transfers page. Make sure your bank is linked.
• Choose how much you want to invest each time. Pick an amount that fits your budget.
• Select how often you want the money to move. Monthly is common. Bi-weekly works well if you get paid every two weeks.
• Pick the fund you want to buy with each automatic deposit.
• Choose a start date. Review the schedule. Confirm it.

That’s it. Your account will invest for you on a schedule.

Automatic investing creates dollar-cost averaging. You buy more when prices are low and fewer when prices are high. Over time, this smooths out the ups and downs and helps grow your wealth.

You can change or stop your plan anytime if your situation shifts.

Index fund investing is low-maintenance. Checking your account once a year is usually enough.

Look at three things:

• Is your balance growing over time?
• Are you still adding money regularly?
• Has your mix of funds drifted from your target?

If you use more than one fund, rebalance when things move too far from your plan.

Example: You wanted 60% U.S. stocks / 30% international / 10% bonds. Now it’s 70% / 25% / 5%. You can sell some U.S. stocks and buy more bonds or international stocks to move back toward your target.

If you own a single broad fund (like VOO or VTI), you do not need to rebalance. The fund adjusts its holdings on its own.

Avoid checking your account every day. Markets move up and down all the time. The S&P 500 has gone through many crashes yet has reached new highs over the long term. Long-term patience matters more than short-term reactions.