There are things that online financial guides, YouTube videos and AI will not give you, personalized experience. Even professional financial planners and advisors will not have the breadth of experience if they don’t do this for themselves.
Investing in index funds is one of the best ways to build additional funds outside your main retirement accounts such as a 401(k), IRA, Roth IRA and especially cash. Index funds became available to the public in August 1976, but it wasn’t until after the great financial crisis (2007-2009) that they became widely prevalent to the retail self-directed investor (you) instead of only to institutional investors.
My husband and I opened a joint Vanguard brokerage account in 2018, when they moved to a singular brokerage platform that streamlined services to retail investors with lower costs. We wanted to invest in something other than retirement accounts or rolled over IRAs and had built enough of a cash balance to do it.
High-yield savings accounts are necessary, but they have limitations and the criteria for maintaining the high-yield can change often. This happened to two of our cash accounts recently where we no longer met the criteria, so we were earning a negligible 1% return, not even enough to cover inflation. I’ve since set-up a new one in our trust name that currently earns 3.65%. We’ll see how long that rate lasts.
This, however, pales in comparison to what we have earned in our Vanguard account invested in index funds since 2018. We started out with some bonus funds invested and then set-up automated deposits into our brokerage account that were automatically invested into index funds each month. There is a great deal of flexibility as to how much you want to invest each month. We changed it often from several thousand to a thousand to $200.
There may be a minimum dollar amount to invest in certain index funds but there is no set amount that you must adhere to perpetually invest in each month. The brokerage platform makes it straightforward to change or even halt the automated investing as needed. If you halt the automated investing be sure to also halt the automated deposits from your bank account to the brokerage account.
Here are some other things you should know about investing in index funds.
• It provides fund growth and access outside retirement accounts, especially if you retire early whether you plan to or not.
• There is no requirement or penalty for selling shares unlike retirement funds that usually require you to be 59 ½, unless you have a 401(k) with the Rule of 55.
• Retirement funds are invested pre-tax, so you will be taxed at your ordinary income tax rate when funds are withdrawn. Index funds invested outside retirement accounts are funded post-tax, after payroll taxes have been deducted from your pay or you have paid your quarterly estimated taxes if self-employed. When shares are sold, the gain on those shares will be taxed at the capital gains tax rate which is significantly lower than your ordinary income tax rate.
• Once you have a brokerage account and the automatic deposits from your bank account set-up, be sure to select the funds you wish to invest in. We missed setting this up in either the Fidelity or Schwab brokerage account we set-up later. Each platform is different and should be closely monitored the first several months to ensure everything transacts accordingly.
• The funds that are automatically transferred from your bank account to the brokerage account must settle or finalize in the brokerage account before they can be invested. Set-up the investment or “Buy Shares” a few days after the funds are transferred into the brokerage account.
• ETFs (Exchange Traded Funds) may often require you to purchase full shares while mutual funds generally allow for fractional shares. This is important when you are setting up or changing your automatic funds to invest.
• ETFs have intra-day pricing, like stocks, whereas mutual funds only have end-of-day pricing.
• Not all funds track the same indexes. Be sure to understand what index the fund tracks whether it is broad like the S&P 500 Index or very narrow like an Energy Sector Index.
• Always check the fees on the fund information page.
• Be careful what set-up guide you follow. Many of the YouTube videos are out-of-date as Vanguard, Fidelity and Schwab are continually updating their brokerage platforms.
• Index funds provide far more diversification than individual stock purchases with much less research and effort for when to buy and sell. Realistically, you only need a few funds, a broad indexed one like the S&P 500, an International one and maybe a bond one. We have too many in Vanguard and will eventually reduce the number to simplify.
I once viewed them as secondary emergency funds if we had needed the funds for some future, unknown expense. Now I view them as secondary resources for larger expenses such as the higher health insurance premiums we will pay until Medicare and supplemental plans become available at age 65 or a disaster relief fund because insurance never pays out 100%.
Vanguard has been our best experience. It has the most straightforward brokerage platform, and the funds have performed very well over the last 7 years. We stopped contributing to them last year because the contributions had less effect than the compounding returns (a future post).
Index Funds: How to Invest | Vanguard
How automatic investing could help you save more | Vanguard
Fidelity follows because their brokerage platform and guide are more convoluted with the underlying intent to get you to hire one of their financial professionals which you can do but isn’t necessary if you only want to invest in Index Funds. If you have other accounts with them like a 401(k) or IRA, you may be able to hire a professional without any additional fee since you may have enough funds to meet their threshold.
How to invest in index funds | Fidelity
Investing in Index Funds: What Every Investor Should Know
Featured Image taken 01.01.2026 – For 2026, I’m investing in the “Sunrise Index” by focusing on how many sunrises I can capture instead of the number of cold, dark, cloudy, snowy, rainy days. After moving from California, it took me an entire year to wear a coat and 4 years to actually buy “real” snow boots as opposed to my “fashion” ones.
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