Can you buy index funds in a brokerage account?
You can buy index funds through your brokerage account or directly from an index-fund provider, such as Fidelity. When you buy an index fund, you get a diversified selection of securities in one easy, low-cost investment.
Index funds are popular with investors because they promise ownership of a wide variety of stocks, greater diversification and lower risk – usually all at a low cost. That's why many investors, especially beginners, find index funds to be superior investments to individual stocks.
The easiest way to invest in the S&P 500
You can purchase these in a taxable brokerage account, or if you're investing for retirement, in a 401(k) or IRA, which come with added tax benefits. You can also invest in the individual companies found in the S&P 500.
Best for Research and Tools: TD Ameritrade
If you're looking to flip index funds based on economic trends and technical signals, TD Ameritrade is the broker for you. Research reports from Morningstar, Dow Jones, Argus and Market Edge are available to Ameritrade clients.
In order to purchase shares of an index fund, you'll need to open an investment account. A brokerage account, individual retirement account (IRA) or Roth IRA will all work. You can then buy the fund in the account.
The benefits of index investing include low cost, requires little financial knowledge, convenience, and provides diversification. Disadvantages include the lack of downside protection, no choice in index composition, and it cannot beat the market (by definition).
There are many ways to start investing, but one that's worked for billionaires like Warren Buffett is investing in low-cost index funds.
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Fidelity Investments | Best Overall, Best for Low Costs, Best for ETFs | 4.8 |
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Our recommendation for the best overall S&P 500 index fund is the Fidelity 500 Index Fund. With a 0.015% expense ratio, it's the cheapest on our list. And it doesn't have a minimum initial investment requirement, sales loads or trading fees. Over the last 10 years, FXAIX has returned an annualized 12.02%.
The best way to invest in the S&P 500 is to buy exchange-traded funds (ETFs) or index funds that track the index. There are differences between these two approaches that we'll examine below, but in either case, these funds offer extremely low costs and superior diversification.
What index fund does Warren Buffett use?
Buffett's favorite fund
Buffett's Berkshire Hathaway owns only two index funds. The conglomerate holds positions in the SPDR S&P 500 ETF Trust and the Vanguard S&P 500 ETF (VOO 0.35%).
Bottom Line. If you want to actively trade within your accounts, Fidelity might be the better option. However, if you want to focus more on index investing, or you want to use a robo-advisor, Vanguard has a slight edge.
Exchange-traded funds (ETFs) and index funds are similar in many ways but ETFs are considered to be more convenient to enter or exit. They can be traded more easily than index funds and traditional mutual funds, similar to how common stocks are traded on a stock exchange.
How can I directly invest in index funds? You can directly invest in index funds by opening and funding a brokerage account. All brokers allow you to directly buy shares of ETFs on the open market, and most allow you to directly invest in mutual funds if you prefer to use those.
- Vanguard S&P Small-Cap 600 Value Index VSMVX.
- Vanguard Small-Cap Growth ETF/Index VBK VSGAX.
- Vanguard Small-Cap ETF/Index VB VSCIX.
- Vanguard Small-Cap Value ETF/Index VBR VSIAX.
- Vanguard Total Stock Market ETF/Index VTI VITSX.
- Vanguard Value ETF/Index VTV VVIAX.
Since index funds usually have no minimum required for investment, you can spread a relatively small amount of money across several different funds.
Another reason some investors don't invest in index funds is that they may have a preference for investing in a particular industry or sector. Index funds are designed to provide exposure to broad market indices, which may not align with an investor's specific interests or values.
The important thing to remember about index funds is that they should be long-term holds. This means that a short-term recession should not affect your investments.
Indexes are set portfolios. If an investor buys an index fund, they have no control over the individual holdings in the portfolio. You may have specific companies that you like and want to own, such as a favorite bank or food company that you have researched and want to buy.
Berkshire Hathaway CEO Warren Buffett has regularly recommended an S&P 500 index fund. The S&P 500 has been a profitable investment over every rolling 20-year period in history. The S&P 500 returned 1,800% over the last three decades, compounding at a pace that would have turned $450 per month into $983,800.
What is Warren Buffett's rate of return?
Warren Buffett has attained legendary status in the investment world, thanks to the incredible returns he has racked up over the past nearly-60 years at Berkshire Hathaway (BRK.B) . Buffett has generated average annual returns of 22%, doubling the S&P 500, since he got started in 1965, according to Yahoo Finance.
Lauren and Steven Keys built a net worth of over $1 million primarily through index fund investing. They diversified their portfolio with real estate, bond market index funds, and alternative assets. They prioritized a taxable brokerage account for flexibility and used retirement accounts and an HSA.
The two investments held in Berkshire Hathaway's portfolio that Buffett recommends more than anything else are two S&P 500 index funds. The SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard S&P 500 ETF (NYSEMKT: VOO).
Overall Appeal. Fidelity and Schwab are both excellent choices. These investment firms offer thousands of funds. There are some nuances, such as Fidelity being better for crypto traders and Schwab being more optimal for futures traders.
U.S. stock index funds are some of the best investments for a Roth IRA. S&P 500 index funds are popular choices. “By doing the S&P, you're getting a piece of all 500 companies (in the index),” said Myles Clements, a certified financial planner and financial advisor with Fort Pitt Capital Group.
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