If someone told you there was a way to invest in hundreds of companies at once, pay almost nothing in fees, and beat most professional investors over time — you’d probably think they were selling something.
They’re not. It’s called an index fund, and it’s the single best investment most beginners can make.
If you’re just getting started, read our guide on how to start investing with little money first.
What Is an Index Fund?
An index fund is a type of investment that tracks a market index — like the S&P 500, which represents the 500 largest companies in America.
When you buy one share of an S&P 500 index fund, you’re instantly invested in all 500 companies — Apple, Microsoft, Amazon, Google, and 496 others — in one single purchase. In other words, instead of trying to pick winning stocks, you’re buying the whole market. And historically, the whole market goes up over time, which is exactly why index funds work so well for beginners.
Why Index Funds Beat Most Professional Investors
This sounds too simple to work. If it were this easy, wouldn’t Wall Street professionals do better? The answer might surprise you.
Here’s the uncomfortable truth: most of them don’t beat the index. Over any 15-year period, roughly 90% of actively managed funds underperform a simple S&P 500 index fund. Professional fund managers charge high fees and make emotional decisions, yet they still lose to the index. Furthermore, the reason is straightforward — no one can consistently predict the market. As a result, index funds don’t try to. Instead, they just own everything and let time do the work.
The Two Numbers That Matter Most
When evaluating any index fund, focus on two things.
First, look at the expense ratio — this is the annual fee you pay, expressed as a percentage. A good index fund charges 0.03% to 0.20% per year. Actively managed funds, however, often charge 1% or more. That difference compounds dramatically over decades, so keeping fees low matters more than most beginners realize.
Second, consider the index it tracks. The S&P 500 is the most popular for a reason — it represents the largest, most established American companies. A total market index fund is also excellent because it includes small and mid-size companies too, giving you even broader exposure.
The Best Index Funds for Beginners
You don’t need to research hundreds of funds to get started. In fact, these three options are where most beginners should focus:
- VOO — Vanguard S&P 500 ETF. Expense ratio of 0.03%. One of the most widely held index funds in the world.
- VTI — Vanguard Total Stock Market ETF. Expense ratio of 0.03%. This one covers the entire US stock market.
- FZROX — Fidelity Zero Total Market Index Fund. Expense ratio of 0.00%. Yes, completely free.
Any of these three is an excellent starting point, so don’t overthink it.
How to Buy Your First Index Fund
Buying your first index fund is simpler than most people expect. You can purchase index funds through any brokerage account, and many platforms make it easy to start with very little money. Webull, for example, lets you buy fractional shares of ETFs like VOO or VTI starting at just $1 — no minimum account balance required.
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Once your account is open, search for VOO or VTI and buy whatever amount you can afford. Then set up automatic monthly purchases and leave it alone. Consistency matters far more than the size of your initial investment.
The Bottom Line
Index funds are the closest thing to a guaranteed wealth-building strategy that exists — not because they’re guaranteed to go up every year, but because over long periods of time, the market always has.
You don’t need to be a financial expert to make this work. You don’t need to follow the news or watch the market either. Instead, you just need to buy consistently and wait. That’s the whole strategy.
Start with $50. Buy VOO. Set up automatic monthly purchases. Come back in 10 years.
This article is for informational purposes only and does not constitute financial advice.