Here’s your action plan for building wealth without getting fancy or complicated. Index funds and ETFs (exchange-traded funds) are two of the most straightforward tools for growing your money over time.

Think of index funds and ETFs like buying a slice of the entire stock market instead of trying to pick individual winners. When you invest in an index fund that tracks the S&P 500, you’re essentially buying tiny pieces of 500 different companies at once. That’s instant diversification without the headache of researching hundreds of stocks.

The Difference Between Index Funds and ETFs

Both index funds and ETFs do the same basic job, but they work slightly differently. Index funds are mutual funds that you can only buy or sell once per day after the market closes. ETFs trade like individual stocks throughout the day, so you can buy and sell them anytime the market’s open.

For most people getting started, this difference doesn’t matter much. What matters is finding low-cost options that track broad market indexes.

Start with These Core Holdings

Here’s your action plan: focus on three main categories that cover your bases without overcomplicating things.

Total Stock Market Funds give you exposure to essentially every publicly traded company in the U.S., from Apple to small companies you’ve never heard of. Popular options include Vanguard Total Stock Market ETF (VTI) and Schwab Total Stock Market Index Fund (SWTSX).

Expense ratios are the annual fees funds charge, shown as a percentage of your investment. These funds typically charge expense ratios around 0.03%, meaning you pay just $3 annually for every $10,000 invested. Even if you’re investing smaller amounts, these low fees still matter. On a $1,000 investment, you’d pay just 30 cents per year in fees.

International Stock Funds spread your risk beyond U.S. borders. Consider Vanguard Total International Stock ETF (VTIAX) or Fidelity Total International Index Fund (FTIHX). International markets don’t always move in sync with U.S. markets, which helps smooth out your overall returns.

Bond Funds provide stability and income. Vanguard Total Bond Market ETF (BND) or iShares Core U.S. Aggregate Bond ETF (AGG) give you exposure to thousands of government and corporate bonds.

How Much to Invest in Each

A simple starting allocation might look like this: 60% total stock market, 20% international stocks, and 20% bonds. If you’re in your 40s or 50s, this gives you growth potential while adding some stability.

Younger investors might go 70% stocks (split between U.S. and international) and 30% bonds. Those closer to retirement might prefer 50% stocks and 50% bonds. The key is picking something you can stick with through market ups and downs.

Where to Buy Them

Most major brokerages offer commission-free trading on ETFs and many index funds. Fidelity, Schwab, and Vanguard are solid choices with low-cost options and user-friendly platforms.

You can also invest through employer 401(k) plans, though your fund choices might be more limited. Look for the lowest-cost index fund options available in your plan.

Target-Date Funds: The Ultimate Simple Solution

If this still feels overwhelming, target-date funds solve everything in one purchase. These funds automatically adjust your stock-to-bond ratio as you get closer to retirement. Pick the fund with a date closest to when you plan to retire.

For example, if you’re planning to retire around 2040, you’d choose a 2040 target-date fund. Vanguard Target Retirement Funds and Fidelity Freedom Funds are popular options with expense ratios typically under 0.15%.

Dollar-Cost Averaging Makes It Easier

Here’s your action plan for actually investing: set up automatic monthly investments rather than trying to time the market. Investing $500 every month performs better over time than waiting for the “right” moment to invest $6,000 all at once.

This approach, called dollar-cost averaging, means you’ll buy more shares when prices are low and fewer when prices are high. Over years and decades, this smooths out market volatility and takes the emotion out of investing decisions.

Keep Costs Low and Stay Consistent

The biggest factors in your investment success are keeping fees low and staying invested for the long haul. An expense ratio above 0.20% starts eating into your returns significantly over time. That’s why index funds and ETFs work so well—they typically charge 0.03% to 0.10%, compared to 0.50% to 1.50% for actively managed funds.

The math is simple: lower fees mean more money stays in your pocket and compounds over time. On a $100,000 investment over 20 years, the difference between a 0.05% expense ratio and a 1% expense ratio could cost you more than $30,000 in lost returns.

Here’s your action plan: begin with one broad market index fund or ETF, set up automatic monthly contributions, and resist the urge to constantly check your balance or make changes. Simple, steady investing often produces the best results over time.