How to Invest in Index Funds
By Brittany St. Julian · SB Advisors Academy · Published March 29, 2026
A beginner-friendly walkthrough of index funds, expense ratios, and how to build a simple long-term portfolio.
What is the difference between an index fund and an ETF?
An index fund is a type of investment that tracks an index. An ETF is a structure that allows that fund to trade on an exchange like a stock. Most ETFs are index funds, but not all index funds are ETFs. The performance is essentially identical. ETFs offer intraday trading and slight tax advantages in taxable accounts.
How much should I invest in index funds each month?
A common starting target is 15 percent of gross income across all retirement and investment accounts combined. If that is not yet realistic, start with 5 percent and increase by 1 percent every 3 months. Consistency over decades matters more than the starting amount.
Are index funds really better than picking stocks?
For the vast majority of investors, including most professionals, yes. Decades of academic research show that low cost index funds outperform actively managed funds over 10 plus year horizons roughly 80 to 90 percent of the time after fees. The mathematics of fees and diversification are simply too strong to fight.
What is the best index fund for a complete beginner?
A total US stock market fund such as VTI, FZROX, or SWTSX, or an S&P 500 fund such as VOO, IVV, or FXAIX. All are extremely low cost, broadly diversified, and well suited as a first investment. Pick the lowest cost option available in your brokerage.
Can I lose money in index funds?
Yes in the short term. Index funds reflect the performance of the market they track. When the broad market drops, the fund drops with it. Over long horizons of 10 plus years, broadly diversified index funds have historically delivered positive returns despite shorter term drawdowns.
What Is an Index Fund?
An index fund is a type of investment fund designed to mirror the performance of a specific market index. An index is simply a list of investments grouped by some rule, such as the 500 largest US companies or the entire US bond market. Buying one share of an index fund gives you a tiny ownership slice of every investment inside that index, in the same proportions the index uses.
Index Fund vs ETF vs Mutual Fund (What Is the Difference?)
A mutual fund is a pool of money managed under one structure that trades once per day at market close. An ETF is a similar pool that trades on an exchange like a stock all day long. An index fund is a fund of either type that follows an index instead of being actively managed by a stock picker. Most beginners encounter index ETFs first because they are easier to buy in modern brokerages and offer slight tax advantages in taxable accounts.
Why Index Funds Work for Beginners
Three reasons. First, instant diversification: one purchase gives you exposure to hundreds or thousands of companies. Second, dramatically lower fees: index funds typically charge 0.03 to 0.10 percent per year compared to 0.50 to 1.5 percent for actively managed funds. Third, simplicity: there is nothing to research, time, or trade. You buy and hold. The strategy that requires the least skill is also the strategy that wins for most beginners over long horizons.
How to Choose Your First Index Fund
For US stock exposure, look at total market funds (VTI, SWTSX, FZROX) or S&P 500 funds (VOO, IVV, FXAIX). For international exposure, look at total international stock funds (VXUS, FZILX). For bonds as you near retirement, look at total bond market funds (BND, FXNAX). The ideal beginner often holds just one or two of these and adds others over time. See the dedicated guide on <Link to="/blog/how-to-invest-in-sp500" class="underline text-accent">how to invest in the S&P 500</Link> for a focused walkthrough on that single choice.
Step by Step: Buying Your First Index Fund
Open a brokerage account with Fidelity, Schwab, or Vanguard. Connect your bank account and transfer your initial deposit. Search for the fund ticker, for example VTI. Enter the dollar amount you want to invest. Confirm the buy order. The trade settles within one to two business days, and you are officially an index fund investor. Repeat the same process every month, ideally automated.
How Much to Invest and How Often
Aim for 15 percent of gross income across all retirement and investment accounts combined as a long term target. Start where you are even if that means $25 a month, and increase by 1 percent every 3 months. The most powerful action is automation. Money that moves to your brokerage on the same day every month, before discretionary spending happens, is the only contribution plan that survives a busy life.
How to Invest in Index Funds for Beginners | Complete Guide | SB Advisors Academy
Index funds are the lowest cost, lowest stress way for beginners to start investing. Learn what they are, how they work, and how to buy your first one today.