How do you invest in index funds?


Quick Answer

Interested parties can invest in index funds by opening a brokerage account and purchasing shares of index-based mutual funds or exchange-traded funds through the stock market, as explained by The Motley Fool. Alternatively, a person can invest in the index-based mutual fund family directly through the fund operator.

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Full Answer

An index fund is a special type of mutual fund that makes stock purchases based on a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. A market index tracks a collection of leading public companies that are chosen to represent the performance of a category of the stock market, such as the technology industry, according to Forbes. Index funds are not managed by a fund manager; instead, a computer simply makes stock purchases based on the market index the fund follows.

Mutual funds and ETFs that are index-based have stock ticker symbols, so an interested investor can simply open a brokerage account at a financial institution, such as Fidelity Investments or Charles Schwab, or at an online discount broker, such as TradeKing or eTrade, and purchase shares in any of the available index funds, according to The Motley Fool. Alternatively, an investor can contact the brokerage firm that operates a specific index fund and invest in it directly. For example, Charles Schwab operates the Schwab Equity Index Fund, Fidelity operates the Spartan 500 Index Fund, and Vanguard operates the Vanguard Index Funds 500.

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