Index Funds on Robinhood: Everything You Need to Know

Can you buy index funds on Robinhood? Not only can you buy index funds on Robinhood, but you’re also encouraged to! 

Before we get into the best index funds on Robinhood, we need to provide a little context. Index funds are investment vehicles that aim to replicate the performance of a specific market index. 

An index fund tracks a financial market index, such as the S&P 500, and closely matches its components. It can be a mutual fund or an ETF.

These funds have gained significant popularity among investors due to their passive investment approach, low costs, and potential for broad market exposure. By holding a diversified portfolio of securities in the same proportions as the underlying index, index funds offer investors an opportunity to participate in the overall market performance rather than attempting to beat it.

One prominent brokerage platform that has revolutionized the investment landscape is Robinhood. 

Robinhood provides a user-friendly mobile app and web platform that allows individuals to trade a wide range of securities. These securities include stocks, ETFs (Exchange-Traded Funds), and yes, index funds. 

The platform has gained attention for its commission-free trading model, making it attractive to new and experienced investors alike.

With Robinhood, investors have the ability to explore and invest in various index funds, which are available as part of their extensive offerings. While the specific index funds available on Robinhood can vary, investors can typically find a selection of popular index funds that track well-known market indices. This includes index funds like the SPDR S&P 500 ETF Trust (SPY), the Invesco QQQ Trust (QQQ), and the iShares Russell 2000 ETF (IWM), among others.

Investing in Index Funds on Robinhood

Investing in index funds on Robinhood provides several advantages. First, the platform's commission-free trading allows investors to enter and exit positions without incurring transaction fees, making it a cost-effective option.

Second, Robinhood's user-friendly interface and educational resources make it accessible for both beginner and seasoned investors to research, select, and invest in index funds.

Furthermore, investing in index funds can offer several benefits for investors. Index funds provide broad market exposure, allowing investors to participate in the overall performance of the market or a specific sector. 

As index funds track specific indices, they offer instant diversification by holding a basket of securities, which helps spread risk. Additionally, index funds generally have lower expense ratios compared to actively managed funds since they aim to replicate the index's performance rather than relying on active stock picking.

An expense ratio is a fee that is charged by an index fund to cover the costs of managing the fund. The fund deducts the expense ratio, expressed as a percentage of assets, from daily returns.

For example, if an index fund has an expense ratio of 0.10%, then for every $1,000 you invest in the fund, you will pay $1 per year in fees.

The Differences Between ETFs and Index Funds on Robinhood

There aren’t too many differences between ETFs and index funds on Robinhood. However, it is important to note some finer details. On Robinhood, ETFs and index funds differ in structure and trading methods.

Now, here's a breakdown of the four main distinctions on the platform:

1. Structure: ETFs are structured as tradable securities that can be bought and sold on stock exchanges throughout the trading day. ETF prices fluctuate based on supply and demand in real-time, while index funds are priced at day-end based on NAV.
2. Trading Flexibility: ETFs can be traded on Robinhood throughout the trading day, allowing investors to buy or sell shares at prevailing market prices. This provides intraday trading flexibility, enabling investors to take advantage of market movements. Index funds, however, can only be traded at the end of the trading day, once the NAV is determined.
3. Cost Structure: While both ETFs and index funds can have expense ratios associated with them, ETFs on Robinhood are typically offered with a zero-commission structure. This means investors can buy and sell ETF shares on Robinhood without incurring trading fees. Index funds may have transaction fees or minimum investment requirements set by the fund provider.
4. Investment Options: Robinhood offers a wide selection of ETFs that cover various asset classes, sectors, and market indices. These ETFs allow investors to gain exposure to specific market segments or invest in broad-based indices. The platform primarily offers a diverse range of ETF options, which may result in limited availability of index funds on Robinhood.

It's worth noting that while ETFs and index funds have these differences on Robinhood, they share similar investment characteristics. In fact, most ETFs and mutual funds ARE index funds. How the fund is structured primarily determines its definition.

The Best Index Funds on Robinhood

• Vanguard Total Stock Market Index Fund (VTI)

• SPDR S&P 500 ETF (SPY)

• iShares Core S&P 500 ETF (IVV)

• Vanguard Total International Stock Index Fund (VXUS)

• iShares Core MSCI Emerging Markets ETF (IEMG)

• Vanguard Total Bond Market Index Fund (BND)

• iShares Core US Aggregate Bond ETF (AGG)

• Vanguard Total International Bond Index Fund (BNDX)

• iShares Core Total USD Bond Market ETF (IUSB)

• Schwab US Aggregate Bond ETF (SCHZ)

• Vanguard Growth Index Fund (VUG)

• SPDR S&P 500 Growth ETF (SPYG)

• iShares International Dividend Growth ETF (IGRO)

• Vanguard Value Index Fund (VTV)

Please refer to the chart below to see the YTD performance of the first seven funds on our list. 

As you can see, the funds all follow the same basic patterns. Difficult to distinguish from one another. But, if you look at the yields, you'll see that choosing the right fund can be the difference between 1% or 20%. 

Vanguard Total Stock Market Index Fund (VTI) is a broad-based index fund that tracks the entire US stock market. It is a good choice for investors who want to get broad exposure to the US stock market. VTI holds over 3,600 stocks, including large-cap, mid-cap, and small-cap stocks. It has an expense ratio of 0.03%. 

SPDR S&P 500 ETF (SPY) is an ETF that tracks the S&P 500 index, which is a benchmark index that tracks the performance of the 500 largest companies in the US. SPY is a good choice for investors who want to get exposure to the largest companies in the US. It holds 500 stocks, all of which are large-cap stocks. SPY has an expense ratio of 0.09%. 

iShares Core S&P 500 ETF (IVV) is another ETF that tracks the S&P 500 index. It is a good alternative to SPY, and it offers a lower expense ratio. IVV holds 500 stocks, all of which are large-cap stocks. IVV has an expense ratio of 0.04%. 

Vanguard Total International Stock Index Fund (VXUS) is a broad-based index fund that tracks the entire international stock market. It is a good choice for investors who want to get exposure to international stocks. VXUS holds over 7,000 stocks, including large-cap, mid-cap, and small-cap stocks from developed and emerging markets. It has an expense ratio of 0.07%.

iShares Core MSCI Emerging Markets ETF (IEMG) is an ETF that tracks the MSCI Emerging Markets index, which is a benchmark index that tracks the performance of emerging market stocks. IEMG is a good choice for investors who want to get exposure to emerging market stocks. It holds over 2,000 stocks from emerging markets. IEMG has an expense ratio of 0.13%.  

Before we get into the second half of the top index funds on Robinhood, let's look at the chart:

As you can see again, it's a similar story to the first chart. The funds all dip and rise in a consistent manner, but one thing is certain. Not all index funds on Robinhood give the same results. 

Vanguard Total Bond Market Index Fund (BND) is a broad-based index fund that tracks the entire US bond market. It is a good choice for investors who want to get exposure to the US bond market. It is the best-performing index fund on our list, by almost 10%. BND holds over 10,000 bonds, including government bonds, corporate bonds, and municipal bonds. It has an expense ratio of 0.07%. 

iShares Core US Aggregate Bond ETF (AGG) is another ETF that tracks the US bond market. It is a good alternative to BND, and it offers a lower expense ratio. AGG holds over 10,000 bonds, including government bonds, corporate bonds, and municipal bonds. AGG has an expense ratio of 0.04%. 

Vanguard Total International Bond Index Fund (BNDX) is a broad-based index fund that tracks the entire international bond market. It is a good choice for investors who want to get exposure to international bonds. BNDX holds over 5,000 bonds from developed and emerging markets. BNDX has an expense ratio of 0.09%. 

iShares Core Total USD Bond Market ETF (IUSB) is an ETF that tracks the US dollar-denominated bond market. It is a good choice for investors who want to get exposure to the US dollar-denominated bond market. USDA holds over 10,000 bonds, including government bonds, corporate bonds, and municipal bonds. USDA has an expense ratio of 0.05%. 

Schwab US Aggregate Bond ETF (SCHZ) is an ETF that tracks the US bond market. It is a good choice for investors who want to get exposure to the US bond market, and it offers a lower expense ratio than BND. SCHZ holds over 10,000 bonds. 

Vanguard Growth Index Fund (VUG) is a passive investment that tracks the performance of the CRSP US Large Cap Growth Index. The index comprises the largest U.S.-listed growth stocks, which are projected to have earnings growth exceeding the market average. VUG has 3,141 stocks in its portfolio and an expense ratio of 0.08%. This means that for every $1,000 you invest in VUG, you will pay $8 per year in fees.

SPDR S&P 500 Growth ETF (SPYG) is an ETF that tracks the performance of the S&P 500 Growth Index. This index is also made up of the largest U.S.-listed growth stocks. SPYG has 370 stocks in its portfolio and an expense ratio of 0.09%. 

iShares International Dividend Growth ETF (IGRO) is an ETF that tracks the performance of the MSCI World ex-US Dividend Growth Index. This index is made up of international stocks that have a history of dividend growth. IGRO has 1,625 stocks in its portfolio and an expense ratio of 0.42%. 

Vanguard Value Index Fund (VTV) is a passive investment that tracks the performance of the CRSP US Large Cap Value Index. The index consists of the largest U.S.-listed value stocks, currently trading below their intrinsic value. VTV has 1,898 stocks in its portfolio and an expense ratio of 0.04%.

Buying Index Funds on Robinhood in 12 Easy Steps

To buy index funds on Robinhood, follow these steps:

1. Open the Robinhood app or website and log in to your account. If you don't have an account you will need to create one. 
2. Navigate to the search or explore function within the app.
3. Search for the specific index fund you want to buy by its ticker symbol or name.
4. Review the available options and select the desired index fund from the search results.
5. Click on the "Trade" or "Buy" button associated with the selected index fund.
6. Specify the number of shares or the dollar amount you wish to invest in the index fund.
7. Choose the order type (market or limit) based on your preference and the current market conditions.
8. Review the order details, including the estimated cost and any associated fees.
9. If everything is accurate, click the "Review" or "Confirm" button to submit your order.
10. Wait for the order to be executed. Robinhood will provide real-time updates on the status of your order.
11. Once the order is completed, you will receive a confirmation notification.
12. You can find your purchased index fund in your portfolio, where you can track its performance over time.

Although 12 steps may sound like a lot, as you will see, it's incredibly simple to buy index funds on Robinhood. 

The Final Say: Index Funds on Robinhood

There you have it. Yes, index funds are on Robinhood. The index funds and ETFs listed above are considered the best on the platform. 

Index funds are a great way to invest in the stock market without having to worry about picking individual stocks. They are also a low-cost way to invest, as they typically have very low expense ratios.

Robinhood offers a number of index funds that are available to its users (please see the list above). If you are looking for a low-cost, passive way to invest in the stock market, then index funds on Robinhood are a great option.

To recap, here are some of the benefits of investing in index funds on Robinhood:

• Low cost: Index funds on Robinhood have very low expense ratios, which means that you keep more of your investment earnings.
• Diversification: Index funds are diversified, which means that your investment is spread across a variety of stocks. This can help to reduce your risk.
• Passive management: Index funds are passively managed, which means that they do not try to beat the market. This can reduce your fees and volatility.

Now, if you are considering investing in index funds on Robinhood, I recommend that you do your research and understand the risks involved. However, index funds can be a great way to invest in the stock market for the long term.

If you’re ready to take your investment journey to the next step, get access to our latest FREE report: “Why You Need to Fire Your Money Manager.” Inside we outline just how easy it is for you to meet your financial goals, without the burdens of a financial advisor who may (or may not) have your best interest in mind.

Be sure to visit our investment opportunities page to stay on top of the latest here at Wealth Daily. Happy investing, and good luck on your journey with index funds on Robinhood.