If you're looking for a low-cost investment option, index funds are the way to go.Since index funds track the performance of a stock index, they're diversified by default.You can invest through a broker or investment firm.Make an initial deposit and use it to invest in your chosen fund if you set up a brokerage account with the firm or broker.You'll be ready to start earning returns on your investment in a matter of minutes.
Step 1: Funds can be found on the websites of firms and market trackers.
You can find mutual funds on the websites of investment firms.You can find index funds on the websites of the brokers.You can find impartial reviews on market tracker websites if you check out index funds.Information about the fund's cost and performance will help you make a decision.You can find a "Browse Funds" link when you visit the sites of firms.You can browse funds on firms' sites, then look for reviews on Morningstar.
Step 2: The easiest option is a basic broad-based fund.
If you don't have a lot of experience with investments, a fund that tracks large and mid-sized company stocks is your best bet.An index fund that tracks the performance of the S&P 500 is a good choice for beginners.An index fund holds the same stocks as the index it tracks.A fund that tracks the S&P 500 holds stock in all of the companies.By default, an index fund is diversified and less risky than other investment products.
Step 3: You can choose an international fund to invest in.
You can find funds that track companies based in the U.S., as well as options tied to the performance of international markets.There are either domestic and foreign index funds or a single global fund that combines both U.S. and international indexes.It's important to keep in mind that developed nations are less risky investments.EAFE stands for Europe Australasia and Far East and is a good developed-nation fund.Market tracking sites can be used to research funds.You can find funds on the websites of major mutual fund companies.
Step 4: The fund should have an expense ratio of less than 0.25.
The main cost subtracted from a fund's returns is the expense ratio.The average expense ratio for actively managed investment products is 1%, while the average for index funds is 0.05%.You can find funds' expense ratios listed on the websites of mutual fund companies.The SEC's calculator can be used to compare the costs of multiple funds over time.
Step 5: The performance of the underlying index can be compared with the fund's returns.
Funds' quotes can be found on the websites of mutual fund firms.Before investing in a fund, make sure that its returns are in line with the performance of the index it tracks.If the S&P 500 gained 3% last quarter, a fund that tracks it should've made 3%.Costs and taxes affect the results, so it's okay if the returns aren't identical to the underlying index.Don't invest in a fund that lags behind its index by more than its expense ratio.
Step 6: Funds' tax-cost ratios can be checked with an online tool.
Before making an investment, make sure the fund is tax efficient.Tax calculators can be found on the websites of mutual fund firms.You can check the tax efficiency analysis of the fund you are searching for.Unless you're investing in a tax-advantaged account, such as a 401(k) or IRA, you might find a surprise when you open your tax statement in January.Go with the more efficient option if you want to prevent this.
Step 7: If you make frequent transactions, use a major mutual fund firm.
There is a smaller selection of index funds.If you're just looking to invest in something basic, you don't need a lot of choices.If you want to make regular contributions to your investment, you can buy directly through a mutual fund company.Higher minimum initial deposits are one of the drawbacks to mutual fund firms.You will need between $1,000 and $3,000 to open an account.State Street Global and Fidelity are mutual fund firms.
Step 8: You can open a brokerage account by visiting the firm's website.
There is a link to open an account on the main page.Select the type of account you'd like to open.It takes about 10 or 15 minutes to open an account.The application process is the same for each firm.
Step 9: Personal information and bank account numbers should be submitted.
You'll be prompted to enter your name, Social Security number, date of birth, street address, and email address after you navigate to the account application.You will need to submit the account numbers for the bank account that you will use to make your initial deposit.You have to give your occupation, employer and employer's address.
Step 10: The minimum initial deposit should be paid.
You will be asked to enter your initial deposit amount after entering your information.A minimum deposit of $1,000 to $3,000 is required by most mutual fund firms.You can fund your account by making a wire transfer.Your account numbers will be used by the firm to withdraw the minimum deposit.Most companies will allow you to send a check with your deposit amount by mail.It may take at least 5 days for your deposit to clear.
Step 11: Once your deposit clears, select your investment fund.
Within a few business days, you'll receive a confirmation email.It will let you know that your account has been created.To find funds after your account is active, go to the "Investments" or "Products" page.The amount of money you want to spend will be deducted from your initial deposit after you select the fund.You might have to pay an upfront fee when you make a purchase.There are plenty of non-transaction fee and commission-free funds at major mutual fund firms.If fees can be waived, be sure to sign up for electronic correspondence instead of standard mail.
Step 12: To avoid high minimum deposits, go with a broker.
If you don't have $1,000 to invest right away, go with this option.E*Trade is a popular broker.
Step 13: A broker with low or no fees is a good choice.
Major mutual fund firms charge lower transaction fees than most brokers.With a little research, you should be able to find commission-free and no-transaction fee funds.Ally Invest is the best broker for cost-conscious investors because it has the widest selection of no-transaction fee index funds.
Step 14: To open an account, go to the broker's website.
It is similar to opening a mutual fund account at a broker's website.You should have your Social Security number, employer's information, and your bank account numbers.The amount of your initial deposit will be entered.All transaction fees, commissions, and other upfront costs are included in the amount of money you want to invest.You can send a check with your deposit by mail.
Step 15: Make your first deposit and invest in an index fund.
You'll get a confirmation notification after a few days, letting you know that you're ready to make your investment.Use the money you deposited into your account to invest in the fund and pay the upfront fees.It will take longer for your deposit to clear if you mail a physical check.