Are you interested in buying index funds on Robinhood? With more than 22 million users in 2021 and an average user age of 31, Robinhood has become a very popular, easy-to-use investing platform among younger investors.
While investors on Robinhood may face negative stereotypes, not all investors on the app speculate on individual stocks. Many Robinhood investors prefer to buy index funds as a long-term strategy.
This article will provide five quick and easy steps to invest in index funds on Robinhood, the benefits of using Robinhood, and the four best index funds offered on the app.
Can You Invest in Index Funds With Robinhood?
While we already mentioned users on Robinhood investing in index funds as a long-term strategy, a common question among people who don’t use the app is if you even can.
The simple answer is yes; you can invest in index funds on Robinhood.
Robinhood carries many domestic and international index funds that are traded as ETFs. This is an effort to help investors on their platform take advantage of the wide market access and high liquidity that index funds provide.
These Index ETFs track or mirror an entire index like the Dow Jones Industrial Average or the S&P 500.
During regular trading session hours, users can buy and sell shares of these ETFs at any time.
While looking into the many index fund ETFs offered on Robinhood may take a while, you will be presented with a variety of good long-term investment opportunities.
With that said, a few of the most popular index funds on Robinhood are VOO, SPY, and SPHD, which we will discuss shortly.
How to Buy Index Funds on Robinhood
Now that you know you can invest in index funds on Robinhood, here are five quick and easy steps to do so:
Step 1. Open a Robinhood Account
To open a Robinhood account, start by downloading their mobile app. Once you open the app, there should be a “Sign Up” button located at the bottom right side of your screen.
If you’re on desktop, the “Sign Up” button will be located in the top right corner.
To sign up, you will need to submit an application. The application process will include creating your login, providing your contact information, and verifying your identity.
To verify your identity, you will need to provide your Social Security Number, Date of Birth, etc.
During the application process, you will also be asked a few questions. The questions involve things like how much investment experience you have, if you would like to enable free options trading, if you’re employed, etc.
Note: There are no fees for opening a Robinhood account.
Step 2. Link Your Bank Account
The last step in the application process is to link your bank account to your Robinhood account. To avoid transfer reversals or exceeding your monthly withdrawal limit, it’s best to use a checking account instead of a savings account.
You will also want to use a bank account that has no balance or deposit minimum and allows unlimited free transfers and deposits.
Once you have linked your account, Robinhood will send you a couple of small deposits to prove your ownership of the bank account.
Once you have received the deposits, you will need to verify them. You can do this by clicking the account icon in the Robinhood app, transfer, and then clicking verify. Here, you will need to confirm and enter the exact amounts of the deposits.
Once you have verified your ownership of the bank account, you can then transfer funds into your Robinhood account.
If you’re a new investor, I recommend you start with a small amount of money that you wouldn’t mind losing.
Step 3: Choose the Index Fund You Want to Invest In
Now that you have opened and funded your Robinhood account, you need to choose which index fund you want to invest in.
We have summarized the four best index funds on Robinhood below. However, it’s always important that you do your own research before investing.
The right index fund for you will depend on your overall investment goals and risk tolerance.
With that said, to browse index funds available on Robinhood, you have a few options.
The first is to simply click the search bar at the top of your Robinhood app and type “index funds.”
A few short seconds after clicking enter, a list of index funds will appear in your search results.
Alternatively, you can enter a ticker symbol into the search bar if you already know which index fund you’re looking for.
For instance, you might enter “VOO” into the search bar if you’re looking for the Vanguard S&P 500.
To learn more about an index fund, simply click one displayed in the search results. Whichever one you click, Robinhood will provide you with more information.
First, you will be provided with the details of the index fund. This includes:
- An overview
- People Also Invest In
You can then click into one of these sections to learn more. For example, if you click stats, you will be provided with the index fund’s statistics and market trends with data points, such as:
- Price at market open and close
- Average and daily trading volume
- 24 hour gain/loss
- 52 week low and high
- Price-earnings ratio
- Expense ratio (fees)
The second way to browse index funds available on Robinhood is to use the “Profile Page.” By clicking the “Profile Page,” you will be taken to a screen where your portfolio will be broken down into ETFs, Stocks, Options, and cryptocurrencies.
All four categories will be shown regardless if you do or don’t hold any securities in them.
With that said, if you click the ETFs icon, for example, a list of available funds will appear. The funds will be sorted by asset class: Index, Bond, Real Estate, Commodities, and so on.
If you click a specific asset class, you will be presented with all the ETFs available in the asset class.
Step 4: Pick How Many Shares You Want to Buy
To choose how many shares of an index fund you want to buy, first click the “Buy” button on the bottom left side of your screen.
Keep in mind that this won’t automatically buy shares of the index fund. Instead, it will display a calculation of your estimated cost based on the market price and the number of shares you want to buy.
Step 5: Buy the Index Fund With Money in Your Robinhood Account
After deciding how many shares you want to purchase, click the “Review” button. This will show the estimated cost of your order at the bottom of your screen.
The estimated cost is provided because the real ask price may be a slightly different amount when you execute the trade.
With that said, before finishing the review, there will be a pop-up that cautions you of this variability. The pop-up will mention how the price can vary as a result of multiple factors like market activity.
If you have sufficient funds, your order will execute, and you will have shares in the index fund you chose.
On the other hand, if you have insufficient funds, the order won’t execute because Robinhood doesn’t pull money directly from your checking account.
However, this is beneficial because you won’t have to worry about accidentally buying more shares than you can afford.
Benefits of Investing in Index Funds on Robinhood
The two major benefits of using Robinhood to invest in index funds are the streamlined process and the fee-free trading.
After downloading the app, opening an account, and adding funds, you can invest in index funds within a few short minutes.
Robinhood also has no account minimum, no annual fee, and no transfer fee.
However, if you upgrade to a Robinhood Gold account, which has additional benefits like the ability to invest on margin, instant deposits, Level ll Market Data provided by Nasdaq, and professional research by MorningStar, you will incur fees.
With that said, Robinhood Gold is a premium option that may not be necessary.
4 Best Index Funds on Robinhood
Now that you know how to invest in index funds on Robinhood, let’s discuss the best ones.
According to The Motley Fool, the four best index funds on Robinhood are Vanguard S&P 500 (VOO), SPDR S&P 500 (SPY), Invesco S&P 500 High Dividend Low Volatility (SPHD), and Vanguard Total Stock Market (VTI).
The index funds were ranked based on historical performance, dividend yield, expense ratio, holdings, and minimum investment. The four funds also have relatively lower risk when compared to others.
Here is a summary of each:
Note: Summaries and data as of 5/6/2022.
As its name suggests, VOO is a Vanguard S&P 500 exchange-traded fund that represents the 500 largest U.S. companies that are publicly traded.
As a well-diversified fund with stocks across all sectors, VOO is an attractive long-term investment to many investors.
VOO also offers low fees because it’s not actively traded by its management team. Instead, it mirrors the S&P 500.
Generally speaking, the performance of the S&P has tracked with the overall market.
- 5 Year Annualized Return: 95.83%
- Expense Ratio: 0.03%
- Dividend Yield: 1.34%
- Top 6 Holdings: Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, Alphabet Inc Class A, Alphabet Inc Class C
The SPDR S&P 500 ETF Trust, commonly known as SPY, is an index fund that was created by SPDR and is sponsored by State Street Global Advisors.
Founded in January 1993, SPY is the grandfather of ETFs. It was the first exchange-traded funded in the U.S. and gave rise to ETF investing that is so popular today. It is also the largest fund.
According to the fund’s official website, its objective is to “provide investment results that, before expenses, generally correspond to the price and yield performance of the S&P 500 Index.”
- 5 Year Annualized Return: 95.52%
- Expense Ratio: 0.09%
- Dividend Yield: 1.30%
- Top 6 Holdings: Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc A, Alphabet Inc A, Alphabet Inc Class C
SPHD is an ETF index fund offered by Invesco that is based on the S&P 500 Low Volatility High Dividend Index.
Instead of delivering the 500 largest companies that are publicly traded, SPHD cherry-picks the United States equity market.
According to Invesco’s website, “The Fund will invest at least 90% of its total assets in common stocks that comprise the Index. Standard & Poor’s compiles, maintains and calculates the Index, which is composed of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility.”
The website also states that the fund is reconstituted and rebalanced twice a year in January and July.
- 5 Year Annualized Return: 41.06%
- Expense Ratio: 0.30%
- Dividend Yield: 3.71%
- Top 6 Holdings: Iron Mountain Inc, Altria Group Inc, PPL Corp, Williams Companies Inc, AT&T Inc, Kinder Morgan Inc
VTI is a fund that is also offered by Vanguard and is an alternative to the Vanguard S&P 500 (VOO).
This fund effectively covers the entire United States market of publicly traded companies. In other words, the Vanguard Total Stock Market ETF is partially compromised of every single publicly listed company.
VTI consists of small, mid, and large-cap equities diversified across sectors, value, growth, economic cycles, etc.
The investment strategy and goal of the Vanguard Total Stock Market ETF is to track the CRSP United States Total Market Index’s performance.
- 5 Year Annualized Return: 93.50%
- Expense Ratio: 0.03%
- Dividend Yield: 1.26%
- Top 6 Holdings: Apple Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc Class A, Alphabet Inc Class A, Tesla Inc
More Index Funds on Robinhood
Here are several other noteworthy index funds you can invest in on Robinhood that didn’t make our list above:
- iShares Core S&P 500 ETF (IVV)
- ARK Innovation ETF (ARKK)
- Schwab U.S. Large-Cap ETF (SCHX)
- SPDR Dow Jones Industrial Average ETF Trust (DIA)
- Vanguard Total World Stock (VT)
- iShares Russell 2000 Value ETF (IWN)
- Vanguard Developed Markets (VEA)
- Invesco QQQ Trust (QQQ)
Buying Index Funds on Robinhood FAQs
Here are a few frequently asked questions about buying index funds on Robinhood:
Can You Buy the S&P Index on Robinhood?
Yes, you absolutely can buy the S&P index on Robinhood. On the platform, you will find many ETFs that allow you to invest in the widely popular S&P 500 index of small, mid, and large-cap publicly traded companies in the United States.
While Robinhood doesn’t charge trading fees, if you invest in the S&P index, you will be charged a standard management fee by the specific fund itself. You may even be charged some other minor fees by the fund.
What Are the Best Index Funds on Robinhood?
The best index funds on Robinhood are Vanguard S&P 500 (VOO), SPDR S&P 500 (SPY), Invesco S&P 500 High Dividend Low Volatility (SPHD), and Vanguard Total Stock Market (VTI).
Final Words on Buying Index Funds on Robinhood
The process of buying index funds on Robinhood is simple: open an account, choose the index fund you want to invest in, determine how many shares you want to buy, and then make your purchase.
The two major benefits of using Robinhood to invest in index funds is the quick and easy process and fee-free trading. There is also no account minimum, no annual fee, and no transfer fee.
According to The Motley Fool, the four best index funds on Robinhood are VOO, SPY, SPHD, and VTI. However, there are several other noteworthy index funds offered on Robinhood that you should look into.