We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

How do I Invest in Index Funds?

Gerelyn Terzo
By
Updated: May 17, 2024

Investing in the stock market does not require enormous sums of money or the financial expertise of a renowned portfolio manager. Those luxuries are nice, but you can generate profits simply by investing slowly into index funds while avoiding some of the more complex fee structures associated with sophisticated investment vehicles. To invest in index funds, you will need some startup capital or money and access to a stock brokerage firm. You also will need to decide on the type fund into which you want to invest.

After you settle on a type of index fund, you can retain a stock broker to help you with your options. This can be accomplished online or by going to a brokerage house. The broker will allow you to invest in index funds through either a mutual fund or an exchange traded fund (ETF). Some mutual funds allow you to invest directly, but you will have to research the individual fund to determine what your options are.

To invest in index funds offered by a mutual fund company, you might have to invest a minimum amount. That minimum requirement might be waived if you sign up for an automatic investment program, which deducts funds from your financial account on a regular basis to invest in the fund. These individual mutual funds are designed to perform similarly to another, broader index in the stock market, and you can expect to earn returns that are similar to those of the broader market index. For instance, in the U.S., an index fund might be designed to replicate performance in the Standard & Poor's (S&P) 500 index, which is a broad representation of the stock market in the country.

An ETF is similar to a mutual fund index fund because it represents many different stocks, but it also trades in the stock market on its own with an assigned value. As a result, you must purchase and sell shares of an ETF the same way that you would buy or sell individual stocks, and that is through a stock broker. You will be charged fees for each buy order or sell order that you make when you invest in index funds that are also ETFs.

Invest in index funds with the understanding that these investment vehicles are passively managed. This means that unlike in the case of actively managed funds, there is not a professional investment advisor making changes to the portfolio each day in response to market activity. Instead, the securities that comprise the index fund are changed only periodically and in response to some conditions, such as severe and sustained declines in the value of a stock. Your expectations for profits should be aligned with the historical performance of the particular index in which you choose to invest.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Gerelyn Terzo
By Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in Mass Communication/Media Studies, she crafts compelling content for multiple publications, showcasing her deep understanding of various industries and her ability to effectively communicate complex topics to target audiences.
Discussion Comments
Gerelyn Terzo
Gerelyn Terzo
Gerelyn Terzo, a journalist with over 20 years of experience, brings her expertise to her writing. With a background in...
Learn more
Share
https://www.wisegeek.net/how-do-i-invest-in-index-funds.htm
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.