How To Invest In Index Funds – Beginner’s Guide 2024

As a low-cost and diversified way to invest, index funds have become a particularly attractive option for people looking for long-term returns. Our guide on how to invest in index funds outlines several top platforms to use and will provide you with the information you need to get started.

What Are Index Funds?

The concept index fund refers to a kind of investment fund that follows the performance of an index, for example, the S&P 500 or the Nasdaq 100.

It invests money in all the companies that make up the particular index. In other words, if you put money into an index fund, you will automatically be putting it into all the companies that make up the index. This will give you a more diverse portfolio than if you were purchasing individual stocks.

Unlike individual stock holdings, index funds aim to mirror the same holdings of the index they track, which keeps them naturally diversified and lower risk. Additionally, market indexes are known for their success. For instance, over the long run, there has been a historical return of close to 10% annually for the S&P 500 Index. Nevertheless, S&P 500 performance can improve in some years, depending on the market conditions.

Index funds are generally considered to be very good investments for long-term investors by investment experts. The market tends to rise over time due to economic growth and increased corporate profits. This is where time plays a valuable role since it allows for compounding, enabling it to continue to grow over the years. However, because index funds are created based on the combined results of a large basket of assets, they may reduce the possibility of excessive gains.

The best component about them is that they are low-cost options that can be used to build a well-diversified portfolio by passively tracking an index. Prior to investing your own hard-earned money into an index fund, it’s advisable to look at the expense ratio, which tells how much you’ll have to pay in management fees.

It is easier for index investors to invest in stocks and bonds as they don’t need to manage them as closely since the funds copy a particular index instead of actively managing them.

How To Invest In Index Funds At A Glance (2024)

5 Places To Invest In Index Funds – Reviewed

1. eToro – Overall Best Index Funds Trading Platform

Our choice for the best broker to trade index funds is eToro. There are over 24 million registered clients on the platform, making it one of the larger online trading platforms in the world. As well as being regulated by top-tier financial institutions such as the FCA in the UK, the platform has a good reputation for security and customer service.

eToro offers more than 250 different ETFs, allowing you to invest in a diversified portfolio of assets, a great feature if you are trying to find a comprehensive provider. This category includes index funds, such as the Dow Jones, the FTSE 100, and the S&P 500, backed by companies such as Vanguard, iShares, and SPDR.

With eToro’s web-based platform or dedicated app, you can trade on eToro’s trading platform no matter where you are. In addition, it offers two-factor authentication to boost security, which makes it ideal if you want to invest on the go. Furthermore, eToro even has a feature called ‘eToro Academy.’ 

There is no doubt that the Copy Trading feature of eToro is one of its highlights. Using this innovative tool, you can choose a trader experienced in the eToro platform and copy their portfolio and positions. It should also be remarked that eToro is popular because it offers thousands of trades, making it so popular.

Past performance is not an indication of future results.  

A wide assortment of options is available to fund your account with eToro, such as bank transfers, and e-wallets.

Cons:

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

2. XTB 

XTB is a popular UK stock broker that offers trading on more than 2,100 shares and ETFs – all 100% commission-free. Furthermore, spreads at this broker start at just 0.015% for US-listed stocks, making it one of the cheapest options available for UK traders. XTB doesn’t require a minimum deposit to get started and the broker doesn’t charge deposit or withdrawal fees.

XTB’s custom-built stock trading platform – xStation 5, is also available for the web and mobile devices and it comes packed with research tools. You’ll find technical charts and dozens of studies to start, plus a market news feed that includes actionable trade ideas with annotated price charts. The platform also has a market sentiment gauge which allows users to easily see what other traders think about where a stock’s price is headed.

XTB’s platform also includes a stock and ETF screener, which can be really useful for traders. With this tool, users can easily scan the market for stocks that are taking off or that seem poised for a fall. Using the screener, it’s possible to create watchlists and narrow down your search to find better trading opportunities.

XTB is regulated by the UK FCA and CySEC and offers negative balance protection for all traders. In addition, the broker offers customer support by phone, email, and live chat, available 24/5.

76% of retail CFD accounts lose money.

3. AvaTrade

AvaTrade is a UK CFD broker that offers 0% commission trading on over 600 global stocks. The platform also carries dozens of exchange-traded funds (ETFs), stock indices, commodities, and forex pairs for trading. Notably, AvaTrade also offers trading on forex options – but it doesn’t offer stock options at this time.

AvaTrade has a few different trading platforms you may use to trade stocks. Like Pepperstone, this broker gives all traders access to MetaTrader 4 and 5.

Alternatively, the AvaTrade web trading platform and AvaTradeGO platform are available on iOS and Android devices as well . You get watchlists, a market news feed, and dozens of technical studies. On mobile devices, users can access full-screen charts and enter orders with just a few taps.

AvaTrade also has its own social trading app for iOS and Android, called AvaSocial. Although this isn’t integrated into AvaTradeGO, it’s simple to switch back and forth between sharing ideas and setting up trades. AvaSocial also enables copy trading, so you have the ability to mimic the portfolios of more experienced stock traders in just a few taps.

AvaTrade is regulated by the UK FCA and Australia’s ASIC. The platform requires a $100 minimum deposit to open an account and you may pay by credit card, debit card, or bank transfer. AvaTrader offers 24/5 customer service.

Your capital is at risk.

4. FP Markets

FP Markets is a highly regarded online forex and CFD broker known for its comprehensive trading solutions and customer-centric approach. Established in 2005, FP Markets has built a reputation for providing an extensive range of trading instruments, including forex, indices, commodities, and cryptocurrencies, which cater to a diverse range of trading preferences.

One of FP Markets’ standout features is its commitment to offering competitive pricing with tight spreads, ensuring that traders can maximize their profits. The broker also supports various trading platforms, such as MetaTrader 4, MetaTrader 5, and IRESS, allowing traders to choose the platform that best suits their trading style and needs.

FP Markets strongly emphasizes education and resources, providing traders with access to a wealth of educational materials, webinars, and market analysis. This dedication to trader education helps both beginners and experienced traders enhance their trading skills and make informed decisions.

Customer support at FP Markets is highly responsive and available 24/5, ensuring that traders receive prompt assistance whenever needed. Additionally, the broker is regulated by top-tier authorities like ASIC and CySEC, providing traders with a sense of security and trust.

In summary, FP Markets stands out as a reliable and versatile broker. It offers a robust trading environment supported by competitive pricing, excellent educational resources, and top-notch customer service.

Your capital is at risk

5. Pepperstone

Pepperstone is a popular UK stock brokers for traders who want to use MetaTrader 4 or 5. These popular trading platforms offer unparalleled tools for technical analysis, including the ability to create custom technical studies. You may also backtest trading strategies against historical price data to see how they are likely to perform.

This broker also offers a few extra tools that are built specifically for MetaTrader. For example, there’s a correlation heatmap so investors will be able to see whether the stocks you’re invested in typically move at the same time. There’s also an alarm management tool that lets you create custom alerts based on price changes, trading volume, and more.

Pepperstone carries thousands of share CFDs from the US, UK, Europe, and Australia. The broker’s charges vary based on the market you’re trading – US shares trade commission-free, while UK shares carry a 0.10% commission. So, this broker can be slightly more expensive than some of its peers.

Pepperstone is regulated by the UK FCA and the Australian Securities and Investments Commission (ASIC). The platform doesn’t require a minimum deposit to open an account, which is a major plus if you’re not ready to commit hundreds of pounds to trading just yet.

Your capital is at risk.

6. Admiral Markets

Admiral Markets is a globally recognized online trading broker known for its comprehensive range of financial instruments and user-friendly platforms. With a presence in over 40 countries, the company has built a strong reputation for providing a reliable and secure trading environment for both beginner and experienced traders.

One of the standout features of Admiral Markets is its extensive selection of trading instruments, including Forex, stocks, commodities, indices, and more. This variety allows traders to diversify their portfolios and explore different markets with ease. The broker offers competitive spreads and flexible leverage options, catering to various trading styles and strategies.

Admiral Markets is also praised for its robust platforms, particularly MetaTrader 4 and MetaTrader 5, which are equipped with advanced charting tools, technical indicators, and automated trading capabilities. These platforms are available on both desktop and mobile devices, ensuring seamless trading experiences across all devices.

The broker places a strong emphasis on education, providing a wealth of resources such as webinars, tutorials, and market analysis to help traders make informed decisions. Additionally, Admiral Markets is regulated by several reputable financial authorities, ensuring a high level of trust and transparency.

Overall, Admiral Markets stands out as a top-tier broker, offering a comprehensive trading experience supported by excellent customer service and innovative tools.

Your capital is at risk

7. PrimeXBT

PrimeXBT is an innovative stock broker that caters to a diverse range of traders, from beginners to seasoned professionals. Known for its versatility and user-friendly interface, the platform offers an array of features designed to enhance the trading experience across multiple asset classes.

One of the standout aspects of PrimeXBT is its wide range of available markets. Users can trade in cryptocurrencies, forex, commodities, and indices all from a single account. This flexibility allows traders to diversify their portfolios and take advantage of different market opportunities without needing to switch between platforms.

PrimeXBT offers a suite of trading tools and advanced charting options to help traders make informed decisions. The platform integrates customizable indicators, drawing tools, and multiple timeframes, enabling users to tailor their charts to suit their individual trading strategies. Additionally, PrimeXBT provides leverage trading options, which can amplify potential profits for experienced traders.

The platform’s trading interface is sleek and intuitive, designed to make navigating the markets straightforward. Opening, managing, and closing trades can be done with ease, while the performance of live trades can be tracked in real-time. PrimeXBT also offers an innovative feature known as Covesting, which allows users to follow and replicate the trades of successful strategy managers, providing an educational and potentially profitable experience.

PrimeXBT also prioritizes the security and privacy of its users. The platform employs industry-standard security measures to safeguard user accounts and data, such as two-factor authentication and encryption. Customer support is available to assist traders with any queries they may have, ensuring a smooth and reliable trading experience.

In summary, PrimeXBT stands out as a comprehensive trading platform offering a variety of markets, robust tools, and an easy-to-use interface. Its emphasis on security, diverse asset offerings, and innovative features like Covesting make it an excellent choice for traders looking to explore and capitalize on global market opportunities.

Your capital is at risk.

8. Trade Nation

Trade Nation is a well-established stock broker known for its reliability and comprehensive range of services. As an FCA regulated broker, traders can trust that their investments are in safe hands. Trade Nation offers a diverse selection of trading options, including stocks, CFDs, spread betting, and forex trading. One of the standout features of Trade Nation is its commitment to providing low-cost fixed spreads, starting from an impressive 0.6 pips for CFDs, ensuring traders can navigate the markets without any surprise fees.

In addition to its impressive range of services, Trade Nation offers compatibility with popular trading platforms, including MetaTrader 4 (MT4) and TN Trader. MetaTrader 4 is renowned for its user-friendly interface and advanced charting capabilities. It is a preferred choice for many traders due to its extensive range of technical indicators, customizable charts, and automated trading options through Expert Advisors (EAs). With Trade Nation’s integration of MT4, traders can access a seamless trading experience with all the familiar features they rely on for their trading decisions.

Trade Nation has developed its proprietary trading platform, TN Trader, catering to traders who prefer a platform tailored to the broker’s offerings and user experience. TN Trader boasts a user-friendly interface and is equipped with a suite of tools, including advanced charting, analysis tools, and real-time market data. It is an excellent option for traders who prefer a platform specifically designed to complement Trade Nation’s services and trading conditions.

Trade Nation also provides regulated signals software that can be used to guide stock trading decisions. As well as this, users can also access a variety of educational resources and analysis tools that can be used to improve trading strategies and make informed stock trading decisions. Users can practice different strategies with the free demo account.

75% of retail investor accounts lose money when trading CFDs with this provider.

9. Alvexo – Superb Trading Platform To Invest In Index Funds For UK Traders

Alvexo is a trading platform established in Cyprus in 2014. For this reason, it is regulated and supervised by the Cyprus Securities and Exchange Commission, better known as CySEC.

As of now, there are more than 450 financial instruments on the platform that can be traded across multiple asset classes, including cryptocurrencies, stocks, commodities, and indices.

Alvexo offers a wide selection of major indices in which to invest. It is noteworthy that the selection is widely diversified when investing in indices in countries such as Australia, France, Italy, and Japan. In addition, you can find many U.S.-based indexes. For instance, it is possible to invest in the United States Tech 100 index, which tracks the top 100 technology stocks listed on the NASDAQ exchange.

There are some trading platforms that Alvexo is compatible with, among them MetaTrader 4, one of the most popular trading software. With WebTrader, traders also have access to all the relevant desktop functionalities. Furthermore, Alvexo also offers its mobile app, which a user on the go can also access.

There are also four different types of accounts offered by Alvexo to suit the needs of both novices and advanced traders. However, you can test out the platform by using the Alvexo demo account before you use a live account.

Additionally, Alvexo offers a paid service that offers investors news, trading signals, and webinars.

10. CMC Markets – UK’s Trusted Broker To Invest In Index Funds Without Minimum Deposit

Another fascinating alternative to consider is CMC Markets. Using CMC Markets, you can trade more than 10,000 instruments, including shares and exchange-traded funds, plus you can also access up to 15 of the most prominent global stock exchanges.

As a globally trusted broker, they provide a wide array of services to active traders, including a wide range of tradable assets and competitive pricing. In addition, numerous innovative trading tools and top-quality research are packed in the company’s Next Generation trading platforms, such as powerful charting and exportable trading facilities.

It is possible to buy and sell index funds as ETFs like any other shares through the CMC Markets Invest platform. If you’re not registered yet, you can open an account on CMC Markets for only a few minutes.

Besides not having a minimum deposit requirement, the platform also accepts debit cards and wire transfers as means of payment. However, it is pertinent to note that debit card deposits are charged 2.3%.

Cons:

Your capital is at risk.

11. IUX.com – Best Forex Broker With Competitive Spreads

IUX.com is a forex broker designed to empower traders of all experience levels. They offer a comprehensive suite of trading tools, including a wide range of instruments, flexible account types, and the industry-standard MT5 platform. This combination allows you to tailor your trading experience and pursue opportunities across the forex market.

IUX.com boasts competitive spreads, a key factor for maximizing your profit potential. They also advertise high leverage, which can amplify gains (and losses) for experienced traders comfortable with calculated risks. The MT5 platform is a user-friendly and powerful tool, providing advanced charting functionalities and a robust set of technical indicators to help you make informed trading decisions.

IUX.com understands that every trader has unique needs. That’s why they offer a variety of account types, allowing you to select the option that best suits your capital and trading style. This level of flexibility ensures you can enter the market with confidence, knowing your account is set up for your specific goals.

If you’re looking for a forex broker that prioritizes your trading experience, IUX.com is definitely worth considering. Their diverse platform, competitive offerings, and focus on trader empowerment make them a compelling choice for those seeking to navigate the forex market.

Your capital is at risk.

12. Fineco Bank

Italian financial institution Fineco Bank recently entered the UK stock broker scene. It allows you to purchase and sell shares in a super-competitive manner at just £2.95 per trade. This is also the case for ETFs. If you’re looking to add some international shares to your portfolio, Fineco Bank gives you access to heaps of foreign markets.

Fineco Bank is also popular with UK investors as it allows you to get started with a small investment of £100. If you do feel comfortable investing on a DIY basis, Fineco Bank offers multiple research tools and ongoing market commentary.

When it comes to safety, Fineco Bank is heavily regulated. Your funds are protected by the FSCS and the broker holds that all-important FCA license

Your capital is at risk

13. Fidelity – First Class Investment Platform With Low-Expense Ratio Index Funds

Finally, Fidelity takes the fifth spot on our list of the best trading platforms to invest in index funds. As one of the market’s most trusted investment apps, you can access several financial instruments. Its range of products consists of stocks, ETFs, indexes, securities, futures, derivatives, and many others.

However, Fidelity stands out among its competitors because it offers thousands of mutual funds without transaction fees and a wide range of low-expense ratio index funds. As well as being a nice extra for beginners, these funds are also an excellent way to get started in the market, be it with low levels of risk and at an affordable price.

Beginner investors and active traders will find Fidelity’s educational resources and research options impressive. Throughout the day, Fidelity’s analysts offer unique investment strategies and solutions. As further information about the market is collected, it can also be combined with tools such as price alerts to get the most comprehensive results.

Moreover, managing your investments while you are on the go is easy with Fidelity. A free app is available for Android and iOS devices that can be downloaded for your convenience.

Cons:

Your capital is at risk.

Tutorial – How To Invest In Index Funds With eToro

As part of our guide, we are going to explain how to invest in index funds using eToro, our recommended platform. We will say a few things about eToro below. By following the steps described below, you can get started as soon as possible.

Download the mobile app or open the desktop website

Investing in index funds on eToro is fairly straightforward.

The first step is to head to its official website on your preferred web browser. Alternatively, you can download its mobile app, which is available for Android and iOS devices.

Create an eToro account

Getting started requires a few steps. As with all online index fund brokers, the initial step is to open an account with eToro. Clicking on the ‘Join Now’ button will bring up a registration form that will look similar to the following image on your screen.

For your account login credentials, you will be required to choose a username and a password that will be used for your account. You will also have to enter your email address in the form.

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Once you click on the link that says ‘Create Account,’ you will be asked to provide eToro with some additional information about yourself. You will be asked to provide this data as well as your first and last names, nationality, residential address, and date of birth.

As part of eToro’s registration process, you will also be asked to enter your phone number. As soon as you have done this, eToro will send you a unique code via SMS to your phone, which you will need to enter to complete the registration process on the website.

Verify ID

All brokers that are regulated to operate in the UK must implement the Know Your Customer (KYC) process. For brokers like eToro, it’s a way to verify that you are who you say you are and keep in compliance with the laws regarding anti-money laundering practices.

There are two documents that you will need to provide to eToro. As a first step in proving your identity, you must upload one of the following three documents: your passport, ID, or driver’s license. The identity document you choose must still be valid at the time of your application.

For the second step, you will need to upload one of the following documents to prove your stated residential address: a statement issued by your bank, a utility bill, or a tax letter or bill. Nevertheless, other documents may also be accepted in addition to those mentioned. As a result, it is crucial to make sure that the proof of address you uploaded has been dated within the last three months.

eToro usually verifies your identity within a few minutes once you upload the two documents it requires.

Fund your account

When investing in index funds in the UK, one of the best things about eToro is that it offers clients the option of depositing and withdrawing funds.

A first step needs to be taken to deposit money – you will need to fill out the amount from $50 upwards. Then, in the currency tab, ensure that you choose ‘GBP’ as the currency to be used.

Once you have chosen a payment method from the drop-down box, you can proceed with the payment process. Several ways are available to you. Also, there are other options you may choose from, such as bank wires.

Search for Index Funds

Once you have completed your initial registering setup, you are ready to use eToro’s dashboard to search for the index fund you wish to buy. There is an effortless way to do this by simply typing the name of the index into the search bar at the top of the screen.

Place an order

As soon as you have selected the fund you wish to invest in, you must place a purchase order by clicking ‘Open Trade’ button to complete the investment process.

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Why Invest In Index Funds?

Investors may choose to add index funds to their portfolio because they promise better diversification, lower risk, and ownership of many stocks. For instance, index funds are a good way to gain access to a wide range of stocks, bonds, and other types of securities as a whole.

Moreover, they offer these benefits at a relatively low cost. Therefore, many people, especially those new to investing, find index funds more attractive than individual stocks.

Investing in index funds is also a great way for individuals who don’t have the time or desire to actively manage their investment portfolios or worry over the daily fluctuations in the value of individual stocks to manage their investments. As a result, index funds are the most suitable option for those who prefer a passive investment approach. Additionally, with more and more financial institutions offering index products, these funds are gaining popularity.

Here are a few additional reasons that make this type of investment so attractive, so let’s explore them in more detail.

Long term gains

There are no surprises that these funds can anticipate beyond those that the market itself may cause.  In the short term, the indices may fluctuate due to various factors such as geopolitical situations, economic circumstances, sector-specific factors, etc.

Using these indexes, investors can get a more accurate sense of how an index performs without worrying about an active manager’s short-term operations. No matter whether individual companies outperform or underperform the market, the stock market generally increases in value over time. Due to their low costs, index funds are excellent investments because they offer high returns. Considering how many returns an index fund offers, it is likely that the longer you remain in the fund, the more gains you can expect to make.

This reason makes index funds usually more likely to perform well than actively managed funds, making them a wise option for those investing for retirement. After all, the art of picking stocks that are likely to beat the market over decades can be extremely challenging for a person who doesn’t have any previous experience in this area.

However, it is extremely important that you keep track of the long-term performance of the index fund so that you can estimate what possible future returns you may receive. There may be a different index tracked by each fund, or some funds may outperform other funds over the long term. It may be your best gauge as to what you might expect to see in the future based on the long-term performance, but that is not a guarantee.

Low fees

An additional benefit of investing in index funds is that they may be more affordable than other types of investment funds as far as costs, such as taxes and management fees, are concerned. Therefore, when commissions are charged less, a greater investment can be made, thereby generating higher profits.

Index funds have a lower management expense ratio than their actively managed counterparts. In addition to fees paid to advisors and managers, transaction fees, taxes, and accounting fees are included in a fund’s expense ratio.

Since index fund managers are simply reproducing the performance of a benchmark index, they do not require the services of research analysts or other individuals. Instead, they work to assist them in the process of selecting stocks for their portfolios. There is less trading activity between index funds, meaning commissions and transaction fees are lower for index fund managers. However, their larger staff and increased transactions make actively managed funds more expensive.

A fund’s expense ratio reflects the additional costs of managing the fund, which is passed on to investors. An investment fund’s expense ratio directly impacts the fund’s performance as a whole. There is no doubt that actively managed funds are at a disadvantage compared to index funds due to their often high expense ratios and struggle to keep up with their benchmarks on an overall basis in terms of performance.

Low risk

Index funds are less risky than owning individual stocks because they’re diversified. As a result, the index will experience much less fluctuation than an individual stock or a bond, but that does not mean you cannot lose money, for example.

The overall stock market is another reason index funds are relatively low-risk investments. There is usually at least one sector or portion of the overall market represented by index funds. Over the long term, there is a very high chance that the market will produce tangible value for investors. In other words, over the long run, it is expected that the book value of all the underlying stocks included in an index will go up as a result. Therefore, given a long time horizon, it is likely that an index fund with a well-diversified portfolio would not lose its value significantly.

On the other hand, it is noteworthy to note that index fund investors won’t lose their entire investment if they purchase index funds. This is due to the fact that they are investments supported by hundreds or thousands of underlying securities. In this regard, they are highly diversified, and as a result, are very unlikely to reach a value of zero.

Suppose all of the companies that issued the shares went bankrupt simultaneously. In that case, investors will likely recover some money based on the book value as the firm’s assets are sold off in liquidation.

How To Invest In Index Funds – Conclusion

Investing in index funds is accessible to all investors regardless of their skill level. They are also quite suitable for those who want to own a wide variety of stocks at a low cost. Similarly, they still benefit from diversification and reduced risk.

eToro is a simple and quick way to invest in index funds if you are ready to buy them right now. The investment process takes under five minutes. Its user-friendly platform makes this popular broker an excellent choice. With just $50, you can invest in some of the best index funds on the market.

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

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