a pile of money sitting on top of a tableHow to Invest in Index Funds for Beginners

 

Index funds offer a simplified way to invest in the stock market for beginners. Here is a step--step guide on how to invest in index funds:

Choose an index fund

Index funds track and mirror the performance of market indexes like the S&P 500. Select a fund tracking a broad index like the S&P 500, Russell 2000, or Wilshire 5000 to gain diversified market exposure.

Open an investment account

To trade index funds, you need a brokerage account or IRA. Open one online with low or no minimums and fees at firms like Vanguard, Fidelity or Charles Schwab. A robo-advisor is another easy option.

Determine your investment amount

Decide how much money you want to allocate to index fund investing based on your risk tolerance and investment goals. Many index funds have low or no minimums. Make regular contributions.

Pick an investment strategy

Choose to take either a passive long-term buy-and-hold strategy or rebalance your portfolio allocation periodically. Rebalancing involves realigning your portfolio to original target asset percentages as markets shift.

Select investment frequency

Figure out how often you will invest in index funds – as a one-time lump sum, monthly, annually etc. Investing consistently over time allows you to lower your average cost per share through dollar-cost averaging.

Place your investment trades

Purchase shares of your selected index funds through your brokerage account. Most allow commission-free index fund trades. Invest the percentage you want allocated to each index fund.

Track performance

Monitor the performance of your index funds periodically. Compare to major indexes to ensure your funds are closely tracking their benchmark as expected. Revisit your allocation as needed.