What is the difference between an ETF and a mutual fund index fund?

Both can track an index. An exchange-traded fund trades during the day like a stock, while a mutual fund is usually priced once per day. Fees, taxes, and platform support can differ.

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United States & CanadaInvesting

United States & Canada · Investing

Index Funds for Beginners: How to Start Investing With $100

7 min read · Investing · Beginner

Educational information only: This article is general information for learning. It does not replace guidance from a qualified professional who can review your full situation.

You do not need thousands of dollars or specialized knowledge to start learning about investing. Index funds can be a simple tool for ordinary investors because they offer broad diversification and require little ongoing maintenance once set up.

Historically, broad stock market indexes in the United States and Canada have often rewarded long holding periods, but future returns are never guaranteed. Many investors still choose index funds because they reduce the need to pick individual stocks, keep fees low, and make diversification easier.

What Is an Index Fund?

An index fund is a type of investment that automatically buys a tiny piece of every company in a particular index. For example:

VTI (Vanguard Total Market ETF) owns a piece of many publicly traded United States companies
XEQT (iShares Core Equity ETF Portfolio) owns stocks from Canada, the United States, and international markets
S&P 500 index fund owns the 500 largest United States companies in that index

Instead of relying on one company to do well, you are spreading money across many companies. That does not remove risk, but it can reduce the damage caused by any single company performing poorly.

Why Many Beginners Choose Index Funds

Three reasons index funds can be useful for long-term investors:

1. Extremely Low Fees

An actively managed mutual fund may charge 1-2% per year in management fees. A low-cost index exchange-traded fund like VTI charges 0.03%. On a $100,000 portfolio, the difference between 2% and 0.03% is $1,970 per year before compounding. Over long periods, fee gaps can materially reduce returns.

2. Instant Diversification

When you buy a broad fund like VTI, you own small pieces of many companies instead of relying on a single business. If one company performs poorly, the impact on a diversified fund is usually smaller than it would be in a one-stock portfolio.

3. Fewer Ongoing Decisions

Index funds adjust as companies enter and leave the index. That can reduce the need to pick individual stocks or trade frequently. You still need to choose an account, choose a fund, understand risk, and decide whether the investment fits your timeline.

How to Start With $100

Step 1: Open the Right Account

United States investors: Research a Roth Individual Retirement Account (Roth IRA) at a low-cost provider such as Fidelity or Vanguard. Compare account fees, fund options, contribution rules, and whether the account fits your tax situation.

Canadian investors: Research a Tax-Free Savings Account (TFSA) at a platform such as Wealthsimple or Questrade. Compare commissions, available funds, currency conversion fees, transfer rules, and account support before choosing.

Step 2: Buy One Fund

Do not overthink this. One fund is enough to start.

United States: VTI (Vanguard Total Market) or FSKAX (Fidelity Total Market Index)
Canada: XEQT (all-in-one global exchange-traded fund) or VEQT (Vanguard equivalent) give Canadian, United States, and international exposure in one purchase

Step 3: Set Up Automatic Monthly Contributions

This is the most important step. Set up an automatic contribution on payday — even $50 or $100 per month. Use our Investment Calculator to estimate how $100/month could grow over 20 or 30 years using different return assumptions.

Example: $100/month for 30 years at a 7% assumed annual return would grow to about $121,997. You would contribute $36,000, and the rest would come from estimated growth. This is an illustration, not a promise.

One important note: index funds carry market risk. In any given year, they can drop 20–40% in value. This is normal. The investors who panic and sell during drops are the ones who lose. The investors who hold — or better yet, buy more — are the ones who build wealth. Never invest money you need within the next 3–5 years.

Research account options before investing

Before choosing a platform, compare account types, fees, available investments, transfer rules, and whether the platform fits your country.

Account checklist

Review tax-advantaged account basics before choosing where to invest.

Read account guide → 🇺🇸

WealthsimpleAffiliate

Canadian investing platform with Tax-Free Savings Account options.

Learn about Wealthsimple → 🇨🇦

Frequently Asked Questions

For long-term investors, starting earlier can be helpful because it gives compounding more time to work. Waiting for the perfect moment can mean missing months or years of potential growth. Automatic monthly investing can also reduce the pressure of trying to time the market.

Both track an index, but exchange-traded funds trade on the stock exchange like individual stocks while mutual fund index funds are priced once per day. Exchange-traded funds often have low expense ratios, but the right choice depends on your account, fees, taxes, and platform.