In this beginner’s guide, we’ll be covering the basics of how to get started with investing using index funds and bonds. Depending on where you are financially, and what your investment goals are, you’ll probably want to take an approach to investing that fits your needs and wants. 

Even though we mainly trade currencies at Phantom Trading, some of us also actively trade the indices. The difference between trading and investing however means building positions in the market over a longer time horizon (think 10 years or more). As an investor, you won’t be actively getting into and out of positions within the same day or week the way a day trader or swing trader would. 

Understanding the distinction between passive investing and actively trading is important. Trading is a great way to build up capital and cash flow, but passive investing (also known as position trading) is meant to build wealth over a longer time horizon.

Given that markets tend to ebb and flow through periods of economic expansion (bullish markets), and economic contraction (bearish markets), historically, the index funds we’re going to cover today have a track record of producing returns of around 7-10% per year on average. While that doesn’t seem like a huge gain, with compound interest and by employing a consistent investment strategy, you can grow your capital substantially over a long period of time.

Alternatively, if you have a lower appetite for risk, there is always the option of buying treasury bonds and notes. This is a great option for those of you who have a lot of capital and are looking for the closest thing to a “risk-free” return on their investment. Your other option is also doing a hybrid approach by investing in a mix of indices and treasury bonds or notes so you get the best of both worlds.

That being said, there really is no such thing as a “risk-free” investment. Remember that anything can happen, and there will always be a very real risk of losing money in the market. That means for most of you reading this, you should stay away from leverage and just invest cash you have on hand so you don’t amplify your risk by investing borrowed money!

How To Invest In Index Funds

The easiest way to get started with investing in index funds or bonds is to simply open an account with either a regulated bank or broker (it’s important to do your own research here), pick the indices or bonds you want to invest in, find some exchange-traded funds (also known as ETFs) that track those indices/bonds, and start buying shares.

Now, of course, that is a grossly oversimplified overview of how to invest in index funds or bonds, so we’ll cover each of the steps in greater detail below.

Mutual Funds & Investing Apps

Alternatively, if you’re looking for an even more convenient and hands-off approach to investing, you can simply invest in a mutual fund that is managed by a bank at a relatively low cost, but that doesn’t necessarily mean it’s the best option for investing in the long run.

Again, using an investing app is another convenient and easy way to get started with investing, but consider whether or not the broker behind the app is trustworthy, or if there are hidden fees in the form of spreads or commissions that may add up if you’re regularly buying shares of funds that track indices you want to invest in.

Opening A Trading Account

The first step you’ll need to take to get started with investing is to open an account with a trading broker or bank of your choice. Your options for opening a trading account will depend heavily upon what country you are from and where you live. If you’re located in the U.S. or Canada, we highly recommend opening an account that is insured with the FDIC (in the US), or CDIC (in Canada). This means you’ll be opening an account that is insured in the event that the institution or brokerage you’re investing with fails or runs out of money for whatever reason.

In terms of finding brokers that are regulated, it’s best to do your research and find a broker or financial institution that is regulated by a trustworthy regulatory authority. While this is especially important when hunting for Forex brokers, which as an industry is notorious for having shady brokers, opening a trading account with a major bank or reputable broker in your country is generally safe so long as they are regulated.

The reason we’re covering these important steps is that we want to minimize the risk of doing business with untrustworthy brokers and we want to ensure we are protected in the event that something causes that broker to fail. This way we can invest with peace of mind and focus solely on our investment strategy!

Picking Index Funds Or Bonds To Invest In

The second step to getting started with investing is to start picking index funds or bonds you’re interested in, and to look for ETFs or equities through your broker of choice that tracks those indices or bonds. 

If you’re looking for a more aggressive approach to investing we suggest sticking with the major U.S. indices, but if you’re looking for a very low-risk investment strategy, stick to only investing in bonds. Alternatively, you can do a mix of investing in both if you’re looking for a balanced strategy. Later in this article, we’ll cover our favourite indices and bonds to invest in.

How To Place Orders In The Market

Finally, the last step is to decide how much you are willing to invest and to start placing orders in the market. As an investor, it’s up to you whether or not you want to place a stop loss, but most investors don’t use stop losses, but rather ride out bearish markets and pullbacks.

As for placing orders, either you’ll want to place limit orders if you’re expecting prices to drop, or you can simply execute market orders to get into the market at the current price (accounting for the spread between buyers and sellers). Both are viable ways to get into the market, but be aware that if you set your limit buy order too far away, there is a chance that prices may not fall deep enough to tag you into your long (buy) position.

The Best U.S. Index Funds To Invest In

The first market we’re going to look at is widely considered the largest, best performing, and most liquid market in the world (aside from the currency market of course), and that’s the U.S. equities market. This particular market attracts foreign investment from around the world because of it’s amazing track record for producing consistent returns over the long term.

S&P 500® Index (SPX)

The first on our list is the S&P 500, also known as the Standard and Poor’s 500 which is considered the most popular index fund in the world. The S&P is often used to measure the U.S. economy’s health as it consists of 500 companies and covers 11 industries including healthcare, materials, real-estate, consumer staples, consumer discretionary, industrials, utilities, energy, consumer services, financials, and tech companies. 

The average annualized rate of return of the S&P 500 index over the last 20 years is 9.87%, making it a great option for novice investors to get started in the markets with something that has good diversification across several different sectors.

The S&P 500 index is a market capitalization weighted index, meaning that the index uses each company’s market cap and a special mathematical formula in order to determine how much each company affects the price of the index. Essentially, the larger the market cap of a company, the more it will affect the movement of the index.

NASDAQ 100® Index (NDX)

Next on our list is the NASDAQ 100 which consists of 102 equity securities which are issued by 101 of the largest companies listed on the NASDAQ exchange. This particular index is comprised primarily of technology-based companies, but also contains companies in other industries as well including ones in the industrial, financial, and consumer sectors.

The average annualized rate of return of the NASDAQ 100 over the last 15 years is 15.59% per year, which again makes it another great choice for investors who are looking to get their feet wet in the market.

It should also be noted that the NASDAQ 100 is a modified capitalization weighted index, as opposed to a standard market cap weighted one like the S&P 500 index.

Dow Jones Industrial Average Index® (DJI)

Next we have the Dow Jones Industrial Average Index which consists of 30 large U.S. companies that are publicly traded in the U.S. stock market. This particular index comprises what would be considered “blue-chip” stocks with the majority of the companies listed being ones that produce consumer and industrial goods (about two thirds), and 1 third being a mix of entertainment, technology, and financial services companies.

The average annualized rate of return of the Dow Jones index over the last 15 years is 9.41%% per year, which is about on par with the S&P and Russell Indicies. It should be noted that there is much less diversification with this index because it only consists of 30 companies. However, the 30 companies in the index are companies that have been around for a long time and have historically performed well.

The Dow Jones index is actually a price-weighted index as opposed to a market cap weighted index. The index is calculated by adding the price of all of the companies together and dividing it by the number of companies.

Russell Indices (Russell 1000®, Russell 2000®, Russell 3000®)

Lastly, we have the Russel indices which comprise of small to mid-cap companies traded on the U.S. Stock market. This index has historically performed similarly to the aforementioned indices. There are three indices to choose from including the Russell 1000, Russell 2000, and Russell 3000.

The average annualized rate of return of the Russell 2000 index over the last 17 years is 9.61%% per year, but has far more diversification compared to the other 3 indices listed.

Similar to the S&P 500 index, the Russel indices are all market cap weighted indices.

The Best Canadian Index Funds To Invest In

If you’re a Canadian looking to invest in index funds, the U.S. indices listed above are a great way to get into the market since they’re easily accessible through ETFs on almost every bank’s trading app, or if you want to invest in the Canadian economy, we’ll show you how you can do that too.

S&P/TSX® Composite Index

If you’re looking to invest specifically in an index that tracks the Canadian economy, the S&P/TSX Composite index is a great choice with it contains Canada’s largest companies and has a market capitalization of about 70% of the entire TSX (Toronto Stock Exchange). This particular index is market cap weighted similar to a few of the U.S. indices we mentioned above.

Recommended Canadian ETFs

As a Canadian, you have a few options to choose from when it comes to ETFs that have a mix of underlying assets with exposure to the U.S. and Canadian markets. We recommend looking at ETFs from BMO (Bank of Montreal), Vanguard, or BlackRock (iShares).

The Best European Index Funds To Invest In

If you’re located in Europe or the UK, or you want to invest in these advanced economies, there are plenty of great options for you to choose from ranging from index funds to treasury bonds. If you’re already invested in the U.S. markets, investing in European indices is a great way to further diversify your portfolio and reduce the risk of being overexposed to just one market. With that said, let’s dive into the best index funds in the EU and UK.

DAX® Index (Deutscher Aktienindex / Frankfurt Stock Exchange)

First on our list is the DAX Index which is one of our favourite European indices because of it’s strong historic performance year over year. The DAX consists of 40 of the largest publicly traded companies in Germany on the Frankfurt Stock Exchange, and the index itself is weighted based on market capitalization. It has seen an average annual return of 7.5% since its inception in 1988.

FTSE® 100 Index (Financial Times Stock Exchange Index)

Second on our list is the FTSE 100 index, which is a market capitalization weighted stock index based on the top 100 companies listed on the London Stock Exchange (LSE). This particular index has an average rate of return of 6.8% since its inception in 1984, but unlike its U.S. counterparts sees periods of rapid growth and rapid drawdown. That being said, if you’re looking to diversify your portfolio this is still a decent way to get exposure to the UK’s markets.

SMI Index® (Swiss Market Index)

Last but not least we have the SMI® Index, which is made up of 20 of the largest publicly traded Swiss companies on the SIX Swiss Exchange. The SMI covers roughly 80% of the total market capitalization of the Swiss equity market and has had a yearly return of 6.92% over the last 23 years. The companies on this index are considered blue-chip, and can be thought of the Swiss equivalent of the Dow Jones®.

The Best Asia / Pacific Index Funds To Invest In

Last but not least we have the Asia / Pacific markets and indices, which are again another great way to invest in companies overseas in order to diversify your portfolio which can help to hedge risk. Much like the other indices discussed in previous sections of this article, the two indices we’ll mention below will allow you to expose yourself to companies that cover a wide range of industries ranging from materials, financials, energy, consumer staples, consumer discretionary, communication services, industrials, and more.

Nikkei® 225

First on our list is the Nikkei® 225 which is widely regarded as Japan’s version of the Dow Jones® index. Unlike most of the other major indices we’ve mentioned in this article, this particular index is price weighted and tends to be highly influenced by stocks which are high in price. Nikkei® 225 consists of several Japanese companies you may have heard of including Honda, Toyota, Mitsubishi, Panasonic, and Sony. 

S&P/ASX 200®

Lastly, we have the S&P/ASX 200® which tracks the 200 largest Australian companies on the ASX (Australian Securities Exchange), and is a market capitalization weighted index like most of the aforementioned indices. This index provides the opportunity to invest in Australia’s economy to further diversify your portfolio if you so choose.

Why Index Funds Are A Great Tool For Investing In The Markets

In general, most index funds tend to trend up and are long biased because investors use them as an investment tool, or “wealth vehicle” in order to grow their capital in a somewhat predictable way. While there is of course the risk of losing money, historically most of the indices mentioned in this article tend to perform well in the long run and have proven over the past few decades to be great for growing your wealth.

A Basic Investment Strategy For Building Wealth In The Long-Term

The most basic strategy you can use for building wealth is to simply start buying shares of ETFs that track the indices and or bonds you want to invest in on a regular basis to dollar cost average in. This is generally the best advice for those who don’t have any experience with technical analysis or supply and demand. The down side to this strategy is that you will inevitably play 

Alternatively, you can try to time the market by waiting for pull backs (lower prices) to enter, but you run the risk of prices not falling deep enough to get you into the market, and you’ll potentially miss out on any upward movement of the index you’re trading. The plus side to this approach is that if and when there is a deep pull back or economic recession, you can get into the indices at a better price and stand to gain more.

Risk Disclosure

This is not financial advice. Trade at your own risk. The information provided here on YouTube and on our website ( are purely for educational purposes. Past performance does not guarantee future results. All trading performance displayed is purely hypothetical. 

There are risks associated with investing in securities. Investing in currencies, stocks, bonds, exchange traded funds, mutual funds, and money market funds involve risk of loss. Loss of principal is possible. Some high risk investments may use leverage, which will accentuate gains & losses. Nothing on our website or YouTube Channel constitutes professional and or financial advice. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information provided by Phantom Trading.

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Robert Castillo
FX Trader & Analyst
Writer & Editor

Rob is a funded trader from Toronto, Canada, and has been trading currencies, commodities, stocks, and cryptocurrencies for over 7 years. Outside of trading, he enjoys making music, boxing, and riding motorcycles.