Index Funds

Key points

• Index funds track market indexes like the S&P 500 or the NASDAQ.
• You can buy mutual funds or exchange-traded funds (ETFs) that track market indexes.
• Look for options with < 0.1% expense ratios.

How to buy index funds

Every brokerage firm offers a similar process to buy index funds. In the Vanguard portal, find the top navigation bar. Then follow the steps below. See the image carousel at the bottom of the page for screenshots of each step.

To buy an ETF

1. In the navigation bar, find Transact > Buy & sell
2. Enter a ticker symbol (short name of the fund). For this example, we'll use VTI (Vanguard Total Stock Market ETF).
3. Select the proper account at the top of the Trade ETFs or Stocks page.
4. Select Buy.
5. Enter a share or dollar amount (minimum $1 for VTI, may vary for other ETFs).
6. Click "Preview order."
7. On the following page, click "Submit order."

To invest in a mutual fund

1. In the navigation bar, find Transact > Buy & sell
2. Enter a ticker symbol (short name of the fund). For this example, we'll use VTSAX (Vanguard Total Stock Market Mutual Fund).
3. Select the proper account when prompted.
4. Enter the amount to buy (minimum $3,000 for VTSAX).
5. Click "Continue order"
6. If needed, contribute the amount needed to cover the purchase and select a bank account.
7. Select the appropriate tax year (typically the current calendar year).
8. Click "Preview order"
9. On the following page, click "Submit order."

Index ETF vs index mutual fund: which do I choose?

The key word here is index. When investing in an index fund, you can either buy an ETF or a mutual fund.

ETF details

ETFs trade like stocks and can be bought or sold anytime during trading hours (9:30 AM to 4:00 PM Monday to Friday). They can also be bought and sold multiple times within the same day.

ETFs typically have a much lower buy-in as you can either buy single shares or fractions of a share as low as $1 for certain funds at some brokerages.

If your initial investment is low or you want to actively trade your index investments, ETFs may be right for you.

Mutual fund details

Mutual funds only trade once per day and all investors receive the same price at the close of trading hours. Mutual funds typically allow for greater flexibility with fixed dollar amount investments AND automatic investing.

If you prefer adding a fixed amount of money on a regular schedule and don't need to sell investments often, mutual funds may be better suited to your goals.

Congratulations

That's it - your order may take up to a few days to process if you selected a mutual fund and/or placed a trade order on a weekend or US federal holiday.

Once it executes, you now own shares of your selected ETF or mutual fund!