Index funds are the simplest, lowest-cost, and most proven way for ordinary people to build long-term wealth. Warren Buffett has publicly recommended them for most investors. They have outperformed the vast majority of actively managed funds over 10+ year periods. And you can start investing in them today with as little as $100 — or even $1 on some platforms.
Here is exactly how to invest in index funds as a complete beginner.
What Is an Index Fund?
An index fund is a type of investment fund that tracks a market index — like the S&P 500 (the 500 largest US companies) or the total US stock market. Instead of a fund manager trying to pick winning stocks, the fund simply holds all the stocks in the index in proportion to their size. This means lower costs, less trading, and historically better long-term returns than most actively managed funds.
When you invest in an S&P 500 index fund, you own a tiny piece of 500 companies — Apple, Microsoft, Amazon, Google, Berkshire Hathaway, and 495 more — in one simple investment.
Step 1: Open a Brokerage Account
You need an account to buy index funds. The best options for beginners in 2025 are Fidelity (zero-expense-ratio index funds, no account minimum), Vanguard (the inventor of index fund investing, best for long-term buy-and-hold), and Charles Schwab (no minimums, excellent customer service). All three are free to open and charge no trading commissions.
If you want to start with very small amounts, Robinhood, SoFi Invest, and M1 Finance all allow fractional shares — so you can buy $10 worth of an index fund regardless of its price per share.
Step 2: Choose the Right Account Type
Roth IRA: Contributions are post-tax, but growth and withdrawals in retirement are completely tax-free. Best for most young people. Contribution limit: $7,000/year in 2025 ($8,000 if you are 50+).
Traditional IRA: Contributions may be tax-deductible, but withdrawals in retirement are taxed as income. Best if you expect to be in a lower tax bracket in retirement.
401(k): Employer-sponsored account with a $23,500/year contribution limit. Always contribute at least enough to get your full employer match — that is free money with an instant 50–100% return.
Taxable brokerage account: No contribution limits, no restrictions on withdrawals, but investment gains are taxed. Use this after maxing out tax-advantaged accounts.
Step 3: Pick Your Index Funds
For most beginners, a simple two-fund or three-fund portfolio is all you need:
- US Total Stock Market: Fidelity FZROX (0% expense ratio), Vanguard VTI (0.03%), Schwab SCHB (0.03%)
- International Stocks: Fidelity FZILX (0%), Vanguard VXUS (0.07%), Schwab SCHF (0.06%)
- US Bonds: Vanguard BND (0.03%), Fidelity FXNAX (0.025%) — add this as you get closer to retirement
Expense ratios are the annual fee, expressed as a percentage. At 0.03%, you pay $3 per year on a $10,000 investment. Compare that to actively managed funds that charge 0.5–1.5% — $50 to $150 on the same investment, for worse average performance.
Step 4: Invest Consistently
The secret to building wealth with index funds is not market timing — it is time in the market and consistency. Set up automatic monthly contributions, even if it is just $50 or $100. Reinvest dividends automatically. Do not sell when the market drops. History shows that over any 20-year period, the US stock market has always delivered positive returns.
$300/month invested for 30 years at 7% average annual return grows to over $340,000. Double it to $600/month and it reaches $680,000. Start as early as possible — time is your greatest advantage.
Final Thoughts
Index fund investing is not exciting. That is exactly why it works — it removes the temptation to make emotional decisions, eliminates the cost of active management, and forces you to participate in the long-term growth of the global economy. Open an account today, choose a simple fund, set up automatic contributions, and check back in 10 years. Your future self will thank you.
Are you already investing in index funds? What is your favorite fund? Share in the comments!