How to Buy Index Funds

Index funds are "buy and hold" mutual fund investments. These are not actively managed funds. They are funds that simply try to match the return performance of a designated stock market index. Index funds are a perennial favorite of many investors.

Difficulty: Moderate

Instructions

1. Learn about the indexes. Index fund predominately try to match the performance and returns from the Standard and Poor 500, otherwise known as the "S&P 500."

2. Choose index funds if you want to save a little money. Actively managed mutual funds come with high expense ratios, leaving less money in your investment. Index funds carry significantly lower expense ratios.

3. Hire a broker. If you know you want to invest in index funds, but don't have the time or energy, hire an investment broker. Speak to her about your financial goals and let her determine the best investment for you.

4. Open a trading and investment account online. These accounts will give you the opportunity to invest in all types of securities, including index funds.

5. Go to a local bank. Many larger banks have personal financial advisors that can guide you through the process of investing in index funds.

Tips & Warnings

• If you seek a trading account online, be sure to check the minimum required deposit.
• Assess your financial need thoroughly. Index funds are meant to be bought and held for a period of years, not weeks or months.
• Consider index funds as a way to diversify you portfolio.
• Don't invest all of your available money in index funds. The key to a portfolio with decent returns is diversification.
• Don't try to invest without help if you aren't comfortable doing the research or don't understand the investment lingo. Not all index funds are winners.

Resources

• Open a trading and investment account at Etrade.
• Get easy-to-read index fund information at Motley Fool.